UNITED STATES
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
For fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to __________.
Commission File Number 000-22385
ITHACA INDUSTRIES, INC.
-----------------------
(Exact name of issuer as specified in its charter)
Delaware 56-1385842
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 268 West, P.O. Box 620, Wilkesboro, North Carolina 28697
---------------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (336) 667-5231
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class Name of each exchange on which registered:)
-------------------- -------------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title and class
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant can not be determined in the manner called for by Form 10-K. See Item
5.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 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 number of shares of the Registrant's common stock outstanding as of May 5,
1999 was 10,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10,11, and 12) of this Form
10-K is incorporated by reference to the Registrants definitive proxy statement
relating to its annual meeting of stockholders to be held on June 14, 1999,
which was filed the same day this Form 10-K was filed with the Commission.
The Exhibit Index is located on page 39
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PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this report including information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," constitute "Forward-Looking Statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Ithaca
Industries, Inc., a Delaware corporation (the "Company" or "Ithaca"), desires to
take advantage of certain "safe harbor" provisions of the Reform Act and is
including this special note to enable the Company to do so. Forward-looking
statements included in this report, involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ materially from
the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. The Company believes a
change in the following important factors could cause such a material difference
to occur: (1) the level of sales to the Company's major customers, in particular
J.C. Penney, Gap, and Sears which accounted for approximately 50%, 11% and 10%
respectively of the Company's total net sales for the 52-week period ended
January 31, 1999; (2) the Company's ability to source or manufacture its
products at a competitively favorable cost; (3) the general strength of
retailing, in particular in the apparel categories in which the Company operates
and at the retail outlets which are major customers of the Company; (4) the
continued services of certain of the Company's senior executives; (5) the
comparative strength of the Company's principal competitors, particularly the
impact of foreign sourcing in the Company's product categories; (6) the absence
of political or economic disruptions, quotas, labor disruptions, embargoes or
currency fluctuations that might adversely affect the Company, particularly in
Honduras and Mexico and other foreign nations where the Company currently or in
the future sources its products; (7) the successful completion of the Company's
Y2K compliance project; (8) the impact of price fluctuations of the Company's
raw materials, particularly cotton and spandex, and the Company's ability to
pass on to retailers and consumers any possible price increases; (9) the
continued improvement of the Company's information systems; or (10) the ability
of the Company to have access to adequate capital to meet its working capital
needs and to fund necessary capital expenditures.
Many of the foregoing factors have been discussed in the Company's
prior filings with the Securities and Exchange Commission (the "Commission") and
other publicly available documents. Had the Reform Act been effective at an
earlier time, this special note would have been included in earlier Commission
filings. The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company prior to the effective date of the Reform Act.
Fiscal Year End
For purposes of presenting financial information in this report (other
than the Financial Statements included in Item 8), the Company's fiscal years
are indicated as ending on January 31, although such periods actually ended on
the Saturday nearest such date.
ITEM 1. Business
General
Ithaca is a leading designer, marketer and manufacturer of private
brand men's and boys' underwear and outerwear T-shirt products, and women's and
girls' underwear. The Company believes it is the largest manufacturer of private
brand men's underwear and the second largest private brand manufacturer of
women's underwear in the United States, operating distribution and manufacturing
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facilities in the southeastern United States and off-shore manufacturing
facilities in Central America. The key elements of the Company's strategy are to
supply a wide variety of product offerings at a number of price points, to
maintain a strong presence in multiple channels of distribution, to maintain
close customer relationships by developing products and programs that suit
individual customer needs, and to maintain a low cost and flexible manufacturing
capability.
The Company has adopted a plan to discontinue its hosiery business and
has entered into and consummated, an agreement to sell substantially all of the
Company's hosiery division assets (the "Agreement"). As a result, the Company
will no longer be in the business of manufacturing hosiery and, accordingly,
this line of business has been reported as a discontinued operation in the
financial statements. Accordingly, the information in this report is provided
after giving effect to the disposition of the Company's hosiery division. This
transaction was consummated on April 30, 1999.
The Agreement requires the purchaser to pay the Company 100% of the
estimated tangible net worth of the hosiery business plus $1.5 million. 95% was
paid at closing and the balance is subject to adjustments based on a final audit
to be performed by the purchaser. The purchaser delivered to the Company at the
closing a certificate representing 400,000 shares of the Company's common stock,
par value $.01 per share. The purchaser also assumed: (i) the Company's
liabilities under a Subordinated Promissory Note, dated March 24, 1998, from the
Company to Glendale Hosiery Company in the principal amount of $736,000 and (ii)
certain additional obligations in an amount up to $100,000.
The Company is organized under the laws of the State of Delaware and
its principal executive offices are located at Highway 268 West, P.O. Box 620,
Wilkesboro, North Carolina 28697, Telephone Number (336) 667-5231.
Plan of Reorganization and Capital Structure
On December 16, 1996, the Company emerged from bankruptcy pursuant to
the Plan of Reorganization, dated as of August 29, 1996 (the "Plan of
Reorganization"). As a result of the reorganization, the Company significantly
reduced its debt and simplified its capital structure. Pursuant to the Plan of
Reorganization, prior equity interests in the Company were canceled, 10,000,000
shares of the Company's common stock, par value $0.01 (the "Common Stock") were
distributed to the holders of the Company's outstanding 11.125% Senior
Subordinated Notes due 2002 (the "Notes"), the Notes were retired, the Company
ceased to be a subsidiary of Ithaca Holdings, Inc., the Company's bank credit
agreement, which was subsequently replaced on March 24, 1998, was amended and
restated and general unsecured claims, administrative claims, tax claims,
priority claims and general secured claims allowed by the Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court") were paid in full.
In the third and fourth quarters of fiscal 1996 the Company undertook
an extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. These efforts resulted in the promulgation of a
three-year business plan. The Company consolidated its distribution centers and
production capacity to increase efficiencies, consolidated the operations of
certain plants to off-shore facilities and accelerated the process of moving
sewing operations off-shore.
On January 31, 1999, the capital structure of the Company consisted of
approximately $77.7 million of long-term debt exclusive of current maturities,
and approximately $14.3 million of net equity.
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Fresh Start Reporting
The Company adopted Fresh Start Reporting on November 22, 1996, the day
the Plan of Reorganization was confirmed by the Bankruptcy Court. Accordingly,
the Company's Consolidated Balance Sheets as of January 31, 1999, and January
31, 1998 and its Consolidated Statements of Operations, Consolidated Statements
of Stockholders' Equity (Deficit) and Consolidated Statements of Cash Flows for
the years ended January 31, 1999 and 1998 and the 10-week period ended January
31, 1997 will not be comparable to the prior periods included elsewhere herein.
Products and Sales
The Company's two principal product lines are men's and boys' underwear
and outerwear T-shirts, and women's and girls' underwear. The Company offers a
large selection of products in a wide range of styles, sizes and colors. Ithaca
has worked closely with its customers over the years to develop a wide variety
of products in each of its product lines to meet the needs of retailers in
varied distribution channels. The Company's offerings within each product line
range from lower priced goods sold by discount stores to higher quality, higher
priced styles sold by department and specialty stores. Management believes that
this product breadth gives it a competitive advantage over other U.S. private
brand manufacturers who do not offer such a wide selection and over foreign
manufacturers who generally are not as capable of providing prompt delivery on a
broad range of products. Ithaca's products are sold through a wide range of
retail distribution channels and are offered to the public through more than
10,000 customer outlets, including discount stores, department stores, and
specialty stores.
Ithaca designs and manufactures over 160 styles of crew-neck T-shirts,
V-neck T-shirts, briefs, athletic shirts and fashion underwear for its line of
men's and boys' underwear and over 100 styles of briefs, hip huggers and bikini
panties for its line of women's and girls' underwear. Ithaca also designs and
manufactures over 30 styles of tank top shirts, mock turtleneck shirts, white
and colored pocket T-shirts and white and colored T-shirt blanks for screen
printing for its T-shirt product line. Products are made of 100% cotton, cotton
and polyester blends and for fashion underwear, nylon.
Men's and boys' underwear and outerwear T-shirts accounted for
approximately 82% of the Company's net sales in the year ending January 31, 1999
and approximately 79% in the year ending January 31, 1998. Women's and girls'
underwear sales accounted for approximately 15% of the Company's net sales in
the year ending January 31, 1999 and 17% in the year ending January 31, 1998.
Raw Materials
The principal materials used in the Company's production of goods are
cotton, polyester, nylon and spandex yarns as well as tricot and powernet
fabrics. The Company does not produce its own yarns and believes that purchasing
yarns from the wide range of available sources located principally within the
United States is cost-effective. Ithaca also purchases dyestuffs and packaging
materials. The Company is not always able to promptly pass on to its customers
price increases in raw materials principally due to the timing of raw material
purchases and customer orders as well as competitive conditions.
Management believes its sources of raw materials are adequate and does
not currently anticipate difficulty in obtaining raw materials to meet its
needs. The Company has not experienced any significant shortages of raw
materials during the past 30 years.
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Manufacturing and Sourcing
Ithaca manufactures its products at 10 plants in the southeastern
United States and Central America, and sources a portion of its products from
contractors located in other countries throughout the world. Goods typically are
produced in anticipation of customer demand and the Company maintains a general
inventory which turned over approximately 3.3 times in the year ending January
31, 1999. In its fabric production facility, Ithaca has the flexibility to shift
its manufacturing processes easily among many styles, colors and sizes in
response to changes in demand. In the year ending January 31, 1999,
approximately 64% of the Company's production was either assembled off-shore
from components that were cut in the United States or sourced from the Far East
versus 59% in the prior fiscal year.
Trademarks, Licenses and Patents
Ithaca's products are predominantly sold under the private brand names
or trade names of its customers. The Company usually seeks to obtain trademark
registration protection for those private brand names developed by the Company,
although such protection generally is not as critical as with branded products.
The Company has registered 14 trademarks in the United States, and has 2
trademark applications pending as of April 15, 1999.
The Company does not believe that the loss of any trademark or license
with respect to any product or products or the expiration or invalidation of any
patent would have a material adverse effect on the overall business of the
Company.
Delivery Requirements
All purchase orders are taken for current delivery and the Company has
no long-term sales contracts with any customer, or any contract entitling Ithaca
to be the exclusive supplier of merchandise to any retailer. The Company's
standard payment terms are net 30 days and products are shipped F.O.B.
shipping point.
Seasonality
The Company does not regard its overall business as highly seasonal.
Importance of Major Customers
For the year ended January 31, 1999, J.C. Penney accounted for 50%, Gap
accounted for 11%, and Sears accounted for 10% of the total net sales of the
Company, compared to 47%, 11%, and 10% respectively in fiscal 1998. No other
customers accounted for 10% or more of net sales in these periods. The loss of a
material amount of sales to J.C. Penney, or a decline in J.C. Penney's business,
or the loss of one of the Company's other major customers would have a material
adverse effect on Ithaca's Results of Operations.
Backlog
The dollar amount of backlog of orders believed to be firm is not
material for an understanding of the business of the Company.
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Competition
The underwear market in the United States is highly competitive. The
Company's products compete with products manufactured by other private brand
suppliers as well as with products manufactured under recognized name brands.
Ithaca believes it is the largest manufacturer of private brand
merchandise in its men's underwear and the second largest manufacturer of
private brand merchandise in its women's underwear line, offering a broad
selection of styles, sizes and colors. The private brand underwear products
business is generally comprised of small scale, privately owned companies with
limited product lines. However, management is aware of several large private
brand manufacturers with substantial resources. Ithaca's principal private brand
competitors include: Beltex, Springford, Tultex and Delta Woodside in men's and
boys' underwear or outerwear T-shirts and Fitzgerald and Wundies Industries Inc.
in women's and girls' underwear.
The supply of branded underwear is dominated by a few large
manufacturers, most of which have substantially greater financial resources and
market recognition than Ithaca. Many of these manufacturers also produce some
private brand underwear products. The Company's largest competitors among
branded product manufacturers are: Jockey International Inc. ("Jockey" and
"Jockey for Her" brands), Sara Lee Corp. ("Hanes" and "Hanes Her Way" brands)
and Fruit of the Loom, Inc. ("Fruit of the Loom" and "BVD" brands) in underwear.
Competition in the underwear products market is generally based on
price, quality and service. The Company believes that it offers a higher level
of merchandising and marketing services to retailers implementing private brand
programs.
Imports and Export Sales
Ithaca's products compete with goods produced worldwide. Over the past
decade, US imports of underwear have increased substantially. US manufacturers
have responded to the influx of lower cost products by shifting production
offshore. Ithaca's management believes that a significant portion of US imports
represent goods for which cut components have been shipped overseas for
assembly. Given the variety of sources for industry data and differences in
categorization, it is difficult to compare retail spending categories to
imports, but according to the American Apparel Manufacturers Association
("AAMA"), imports represented approximately 57% of underwear sales in calendar
1998, up from approximately 49% in the prior year. The Company believes that it
is important to have the capability of sourcing a significant portion of its
products from outside the United States. The Company has consolidated certain
plants to off-shore facilities and has continued the process of moving more
sewing operations off-shore. The Company has four Honduran subsidiaries which
operate three sewing plants in that country, and uses sewing contractors in
Mexico to produce primarily for men's and boys' underwear and outerwear
T-shirts. Ithaca sources certain women's and girls' underwear products from the
Far East. The Company's ability to utilize foreign sourcing is dependent on the
absence of political or economic disruptions, quotas, labor disruptions,
embargoes or currency fluctuations in the countries in which the Company sources
its products.
Less than 1% of the Company's sales for the 52-week period ended
January 31, 1999 were made to firms outside the United States. The Company
believes that changes in the level of sales outside of the United States would
not have a material adverse effect on Ithaca's Results of Operations.
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Environmental Matters
The Company believes that its facilities and operations are
substantially in compliance with current federal, state and local regulations
regarding safety, health and environmental pollution. Ithaca has experienced no
material difficulty in complying with these regulations and such compliance has
not had a material adverse effect on the Company's capital expenditures,
earnings or competitive position.
Employees
The Company employed approximately 4,611 people as of March 31, 1999,
of which approximately 4,404 were engaged in manufacturing and approximately 207
were engaged in managerial, administrative or sales and marketing functions.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with employees to be satisfactory
and has never experienced any interruption of operations due to labor disputes.
ITEM 2. Properties
The Company leases its corporate headquarters in Wilkesboro, North
Carolina. The Company also leases sales offices in New York City and Dallas,
Texas. The Company distributes its women's and girls' underwear at its owned
facilities in Cairo, Georgia. Cutting and distribution for men's and boys'
underwear and T-shirt products takes place at an owned centralized distribution
and cutting facility in Vidalia, Georgia. Men's and boys' underwear and
outerwear T-shirts are sewn in two owned plants in the southeastern United
States and at three facilities leased by the Company in Honduras. Fabric for use
in the Company's underwear and T-shirt products is knit and finished at the
Company's owned facility in Gastonia, North Carolina and narrow fabrics, such as
waistbands, are manufactured at an owned facility in Graham, North Carolina. The
Company also utilizes leased storage facilities at several plant locations. All
of the Company's facilities are kept in good repair and have well-maintained
equipment.
ITEM 3. Legal Proceedings
From time to time the Company is involved in legal proceedings relating
to claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.
ITEM 4. Submission of Matters to a Vote of Holders of the Common Stock
No matters have been submitted to a vote of the holders of Common Stock
during the fourth quarter of the Registrant's 1999 fiscal year.
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
Through the date hereof, there has been no established public trading
market for the Common Stock. Application was made to list the Common Stock on
NASDAQ National Market. This application was withdrawn because the Company was
advised by NASDAQ that it would not qualify. The Company intends to reapply as
soon as it believes it meets the criteria. There can be no assurance that this
will occur or that any active trading market will develop or will be sustained
for the Common Stock or as to the price at which the Common Stock may trade or
that the market for the Common Stock will not be subject to disruptions.
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On December 16, 1996, 10,000,000 shares of Common Stock were issued in
reliance upon the exemption provided by 11 USC 1145. These shares were
registered under the Securities Act of 1934, as amended, by means of a
Registration Statement on Form S-1 declared effective on April 4, 1997. An
additional 400,000 shares were issued on March 24, 1998 as part of the Purchase
Agreement for Glendale Hosiery Company. These 400,000 shares were repurchased by
the Company on April 30, 1999 in conjunction with the sale of its hosiery
division.
As of April 16, 1999, there were approximately 16 holders of record of
Common Stock and there were no outstanding options or warrants to purchase, or
securities convertible into, Common Stock or Preferred Stock other than options
to purchase 741,130 shares of Common Stock, including the options granted to
Alvarez & Marsal, Inc., issuable under the Company's 1996 Long Term Stock
Incentive Plan (the "LTIP"), of which options to purchase 542,426 shares are
currently exercisable.
The Company has not paid any cash dividends on the Common Stock and
does not anticipate that it will do so in the foreseeable future. The Company's
Bank Credit Agreements (the "Credit Agreements") restrict the Company's ability
to pay dividends on the Common Stock. Any determination to pay cash dividends in
the foreseeable future will be at the discretion of the Company's Board of
Directors (the "Board" or the "Board of Directors") and will be dependent upon
the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board. The Company
presently intends to retain earnings for working capital, to pay down long-term
debt and to fund capital expenditures. Accordingly, there is no present
intention to pay cash dividends on any shares of the Common Stock.
ITEM 6. Selected Financial Data
The following table sets forth selected financial information with
respect to the Company for the years ended January 31, 1999 and January 31,
1998, the 10-week period ended January 31, 1997, and the 42-week period ended
November 22, 1996 and is derived from and should be read in conjunction with the
Company's audited Consolidated Financial Statements and related notes included
in Item 8 of this report. Net income per share for the periods prior to November
23, 1996 are not meaningful because during such period the Company was a wholly
owned subsidiary of Ithaca Holdings, Inc.
The selected financial information set forth below is qualified by and
should be read in conjunction with Item 8 the "Financial Statements" and the
notes thereto and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this report. Results of
Operations of the Company for the years ended January 31, 1999, January 31, 1998
and the 10-week period ended January 31, 1997 will generally not be comparable
to the other periods due to the effects of the Plan of Reorganization and fresh
start reporting rules and procedures.
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<TABLE>
<CAPTION>
Post Confirmation Pre-Confirmation
-------------------------------------------------------------------------------------------------
42-Week
10-Week Period Ended
Year Ended Year Ended Period Ended November 22, Year Ended Year Ended
January 31, 1999 January 31, 1998 January 31, 1997 1996 January 31, 1996 January 31, 1995
---------------- ---------------- ---------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands), except per
share data
Statement of Operations Data: (1)
Net sales $187,660 $186,366 $30,503 $224,690 $289,850 $229,670
Gross profit 25,311 26,304 2,710 28,742 31,545 51,971
Operating income (loss) 2,944 3,980 (3,801) 8,194 6,080 29,261
Income (loss) From Continuing
Operations $ (1,650) $ (520) $(3,176) $ (5,665) $ (9,376) $ 6,882
======== ======== ======== ======== ======== ========
Basic and Diluted income
(loss) per common share
from continuing operations $ (0.16) $ (0.05) $ (0.32) n/a n/a n/a
======== ======== ======== ======== ======== ========
Balance Sheet Data
Total assets (2) $101,608 $ 95,523 $133,687 $155,993 $208,642 $224,471
Long-term debt exclusive of
current Maturities 77,713 53,519 66,069 77,255 n/a 221,819
Total stockholders' equity 14,290 20,895 19,359 22,116 (93,558) (43,814)
Equity (book value) Per
Outstanding Share 1.37 2.09 1.94 n/a n/a n/a
</TABLE>
Footnotes to the Selected Financial Data
(1) The Company has adopted a plan to divest its hosiery division, and
accordingly the operating results of this segment of the business have been
segregated from the Company's continuing operations, and are separately
reported as a discontinued operation in the financial statements.
(2) 1999 and 1998 exclude investment in discontinued operations.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes included in Item 8 of
this report.
The following table sets forth the percentage relationship to total net
sales of certain items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
10-Week Period 42-Week Period
Fiscal Year Ended Fiscal Year Ended Ended Ended
January 31, 1999 January 31, 1998 January 31, 1997 November 22, 1996
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales:
Men's & boys' underwear and T-shirts 81.8% 78.5% 71.7% 74.8%
Women's and girls' Underwear 14.9 17.2 24.0 22.7
Other 3.3 4.3 4.3 2.5
------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.5% 85.9% 91.1% 87.2%
------ ------ ------ ------
Gross profit 13.5% 14.1% 8.9% 12.8%
Income (Loss) From Continuing Operations (0.9)% (0.3)% (10.4)% (2.5)%
</TABLE>
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Results of Operations
Comparison of fiscal 1999 to fiscal 1998.
Net sales increased modestly versus the prior year. Net sales rose $1.3
million to $187.7 million for fiscal 1999. Men's and boys' underwear and T-shirt
sales were up 4.8%, while women's and girls' underwear sales were down 12.8%.
Total unit volume was down 8.7%. The average selling price per dozen for fiscal
1999 was $26.84 for men's and boys' and $16.36 for women's and girls' compared
to $25.46 and $13.45 respectively for fiscal 1998, primarily reflecting a change
in the mix among product lines.
Gross profit declined $1.0 million or 3.8% as compared to fiscal 1998.
Gross profit margins also declined for fiscal 1999 to 13.5% of net sales from
14.1% in the prior period. This decline is primarily attributable to increased
markdown allowances to dispose of excess inventory.
Selling, general and administrative expenses decreased by $.8 million
or 3.5% in fiscal 1999 versus the prior year. As a percentage of net sales,
selling, general and administrative expense decreased to 11.5% in fiscal 1999
compared to 12.0% fiscal 1998.
Net interest expense increased to $5.8 million for fiscal 1999 compared
to $5.3 for fiscal 1998. This increase is attributed primarily to increased
average bank borrowing.
The income tax benefit for fiscal 1999 was 37% of income before income
taxes compared to an expense of 34% for fiscal 1998.
Comparison of fiscal 1998 to the combined 10-week period ended January 31, 1997
and the 42-week period ended November 22, 1996.
Net sales declined 27% to $186.4 million. This decline reflected, in
part, the Company's previously announced decision to exit unprofitable lines of
business. Sales of ongoing product categories also decreased reflecting lower
sales to the Company's major customers. The 1998 fiscal year's revenue included
$5.3 million in sales of eliminated product categories compared to $45.5 million
in the comparable period last year. Men's and boys' underwear and T-shirt sales
were down 22.8%, and women's and girls' underwear sales were down 45.3%. Unit
volume was down 35.3% with men's and boys' underwear and T-shirts down 23.7%,
and women's and girls' underwear down 48.6%. The average selling price per dozen
for fiscal 1998 was $21.89 versus $20.32 in the comparable period last year,
primarily reflecting a change in the mix among product lines. There were no
significant pricing changes to the Company's customers during fiscal 1998.
Gross profit declined $5.1 million or 16.4% as compared to the
comparable period last year as a direct result of the lower sales volume. Gross
profit margins for fiscal 1998 improved to 14.1% of net sales from 12.3% in the
prior period. The improved margins resulted from the elimination of revenues
with low gross margins, the continuing emphasis of moving production to
lower-cost, offshore locations, and decreased depreciation expense as a result
of fresh start reporting.
Selling, general and administrative expenses decreased by $7.7 million
or 25.6% in fiscal 1998 versus the comparable period last year. This decrease
was a result of reduced employee related costs and reduced overhead support cost
for the discontinued sales revenues. As a percentage of net sales, selling,
general and administrative expense increased to 12.0% in fiscal 1998 compared to
11.8% in the comparable period last year.
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Net interest expense decreased to $5.3 million for fiscal 1998, a
decrease of $9.2 million or 64% for the comparable period last year. This
decrease is attributed to forgiveness of debt to restructuring reorganization.
The income tax benefit for fiscal 1998 remained constant at 34% of loss
before income taxes when compared to in the prior year's post confirmation
period.
Discontinued Operations.
The Company has adopted a plan to dispose of its hosiery business. The
Company has entered into an agreement pursuant to which the Company sold
substantially all of the assets of its hosiery division. The transaction was
completed on April 30, 1999. See "Item 1. Business - General" for more
information.
The Company had a loss from discontinued operations of $6.2 million for
the year ended January 31, 1999. This amount consisted of a net loss of $3.8
million on the operations of the segment during fiscal 1999 and an additional
net loss of $2.4 million for disposal and phaseout costs. In the prior fiscal
year, the discontinued operation generated a net profit of $2.1 million.
Liquidity and Capital Resources
As of April 16, 1999, the Company had $36.4 million of term loans
outstanding, $40.5 million of borrowings under the revolving loan facility, and
$5.0 million of outstanding letters of credit. The Company at April 16, 1999 had
$9.6 million of availability under its revolving loan facility.
Both the revolving credit and term loan facilities outlined above,
contain certain restrictive covenants, including, among others, a minimum
tangible net worth requirement, a fixed-charge ratio requirement and a maximum
funded indebtedness to cash flow ratio requirement. As of year end 1999, the
Company was in violation of certain of the above covenants. Waivers have been
obtained by the Company for the violations and new covenants were established
for future periods.
At January 31, 1999 the Company's net working capital was $45.6 million
and the current ratio was 2.7:1. At January 31, 1998 the Company's net working
capital was $39.8 million and the current ratio was 2.6:1. The Company reported
a working capital deficit at the end of fiscal 1996 because of the presentation
of substantially all outstanding debt as currently payable. The calculation of a
current ratio under such circumstance would not be meaningful.
The Company used cash in its operating activities of $9.6 million in
the year ended January 30, 1999 compared to cash provided by operating
activities of $16.7 million in the prior year. The variance in operating cash
flow was principally caused by the operating results of the discontinued hosiery
operations as well as increases in inventory and receivables of the continuing
operations to decreases in the prior year.
Capital additions were $5.0 million for the fiscal year ended January
31, 1999 and were related primarily to the funding of the Enterprise Resource
Project ("ERP") and purchases of machinery and equipment. Capital additions of
the comparable prior year period were $4.2 million and were primarily related to
purchases of machinery and equipment.
In connection with the sale of the hosiery business discussed above,
the Company expects to apply net cash proceeds from such sale of approximately
$24 million to reduce the outstanding balance on the Company's term loan and
revolving credit facility. Management believes that the borrowing availability
Page 11
<PAGE>
under the credit agreement, as amended, and the expected cash flows from
operations will provide sufficient capital for the cash needs of the business.
Inflation has had only a minimal impact on the Company in the past. The
Company has minimized the impact of inflation on costs and expenses through cost
controls and increased manufacturing efficiency. The Company has at times
experienced some increase in the cost of labor, supplies, raw materials and
administrative expenses. The Company is not always able to promptly pass on cost
increases to its customers, principally due to the timing of raw materials
purchases and customer orders as well as competitive pressures.
Year 2000 ("Y2K") Compliance
Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage similar normal business activities.
To improve the Company's overall financial and operational information,
a system was selected and is in the process of being installed. This new ERP
system, which is Y2K compliant, will replace the Company's legacy systems. The
ERP project is supervised and supported by senior management. The implementation
of the ERP system is a joint effort of the Company's internal staff and outside
consultants.
The Company's Y2K compliance project was begun in July, 1996 and has
five phases. Phase one, which involved the assessment of all systems and
equipment affected by the Y2K issue, has been completed. Phase two, which
involved the defining of strategies to correct those systems and equipment which
were found to pose Y2K problems, has also been completed. Phase three involved
the remediation or replacement of the systems and equipment which were found to
be defective and were not going to be resolved by the installation of the new
ERP system mentioned above. The Company has a definitive plan in place to make
the necessary corrections and, as of April 15, 1999, has completed the required
changes for 90% of the identified problems. Phase four involved assessing the
potential impact on the Company of the Y2K compliance efforts of its customers
and suppliers. Formal communications with all major customers and suppliers by
the Company were begun in March 1998 and a follow up communication occurred in
September 1998. The Company is in the process of collecting and analyzing the
responses received and, based on those responses, will determine what corrective
actions need to be taken to minimize the impact of its customers' and suppliers'
failure to address their Y2K problems on the Company. There is no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted and will not have an adverse effect on the Company's systems.
Phase five involves the formal testing to insure Y2K compliance. This testing
began in July 1997 and is planned to continue up through December 31, 1999.
Since the actions being taken by the Company to correct the Y2K problem
are extensive and on-going, the Company's worst case scenario is unknown at this
time. The Company believes it is prudent to have contingency plans in place to
minimize the impact of internal or third party failures to correct Y2K problems.
During the first half of 1999 the Company will identify the areas where
contingency plans are required based on the best information that it has
available at that time.
The incremental cost of becoming Y2K compliant is not material. The
date on which the Company believes it will complete the Y2K modifications is
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no guarantee that these
estimates will be
Page 12
<PAGE>
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and costs of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
The Company believes that the successful, timely completion of its Y2K
compliance project will result in the Company not suffering any material adverse
effect on its results of operations, financial position or cash flows. However,
if all Y2K issues are not properly identified, assessed, remediated, replaced or
tested, there can be no assurance that the Y2K issue will not have a material
adverse effect on its results of operations, financial position, or cash flows
or adversely affect the Company's relationship with suppliers, customers or
other third parties. Additionally, there can be no assurance that the Y2K issues
of other entities will not adversely effect the Company. (See "Special Note
Regarding Forward-Looking Statements")
Financial Condition
On October 8, 1996 the company filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court. The filing of the
voluntary petition resulted from a sequence of events stemming from the
Company's default under the Credit Agreement.
The Company emerged from bankruptcy on December 16, 1996 and a final
order was issued by the Bankruptcy Court on April 7, 1997. Pursuant to the Plan
of Reorganization, the Company repaid all of the secured and unsecured claims
allowed by the Bankruptcy Court as follows: general unsecured claims were
satisfied in the ordinary course of business. Noteholder claimants received the
right to a pro rata share of 10,000,000 shares of Ithaca Common Stock
(representing, in the aggregate, all of their outstanding shares of Ithaca
Common Stock). Prior equity interests in the Company were canceled, annulled and
extinguished. Administrative claims were paid in full, in cash, in the ordinary
course of business. Tax claims were paid in full. Priority claims were paid in
full. The Company's prior Credit Agreement was amended and restated. General
secured claims were paid in full. Each holder of an allowed general secured
claim was either paid in full on December 16, 1996 (or the date upon which there
is a final order allowing such claim as an allowed secured claim), or was
otherwise to be rendered unimpaired.
Page 13
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Ithaca Industries, Inc.
and Subsidiaries
Consolidated Financial Statements
January 30, 1999 and January 31, 1998
Page 14
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Ithaca Industries, Inc.
In our opinion, the accompanying consolidated balance sheet as of January 30,
1999 and the related consolidated statements of operations, of stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Ithaca Industries, Inc. and its subsidiaries (the "Company") at
January 30, 1999, and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
As explained in Note 14, the Company has adopted a plan to sell substantially
all the assets of the Hosiery Division. A loss on disposal of $2.4 million has
been provided in the financial statements for the year ended January 30, 1999,
and the results of operations of the Hosiery Division have been classified as
discontinued operations.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 25, 1999, except for Note 14 which is as of April 30, 1999
Page 15
<PAGE>
Independent Auditors' Report
The Board of Directors
Ithaca Industries, Inc.:
We have audited the consolidated balance sheet of Ithaca Industries, Inc. and
subsidiaries as of January 31, 1998 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
January 31, 1998; the 10-week period ended February 1, 1997; and the 42-week
period ended November 22, 1996. In connection with our audits, we have also
audited the related financial statement schedule of valuation and qualifying
accounts for the year ended January 31, 1998; the 10-week period ended February
1, 1997, and the 42-week period ended November 22, 1996. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ithaca Industries,
Inc. and subsidiaries as of January 31, 1998 and the results of their operations
and their cash flows for the year ended January 31, 1998; the 10-week period
ended February 1, 1997; and the 42-week period ended November 22, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
On December 16, 1996, the Company emerged from bankruptcy. As described in note
1 to the consolidated financial statements, the Company accounted for the
reorganization as of November 22, 1996 and adopted fresh-start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. As a result, the consolidated financial statements as of
January 31, 1998 and for the year then ended and for the ten-week period ended
February 1, 1997 present the financial position, results of operations, and cash
flows of the reorganized entity and are, therefore, not comparable to the
consolidated financial statements for periods prior to the Company's emergence
from bankruptcy.
KPMG LLP
Atlanta, Georgia
March 27, 1998, except for
Note 14 which is as of
April 30, 1999
Page 16
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
January 30, 1999 and January 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1999 1998
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 66 $ 680
Trade accounts receivable, net of allowance for doubtful accounts of $765 at
January 30, 1999 and January 31, 1998 (Note 8) 19,836 16,759
Inventories (Note 3) 49,707 47,214
Prepaid expenses and other current assets 270 434
Assets held for disposition, net (Note 12) 1,972 213
-------------- --------------
Total current assets 71,851 65,300
Investment in discontinued operations (Note 14) 27,553 17,513
Property, plant, and equipment, net (Note 4) 26,016 28,709
Other assets:
Intangible assets, net of accumulated amortization of $36 and $12 at
January 30, 1999 and January 31, 1998, respectively 83 107
Other 3,658 1,407
-------------- --------------
$ 129,161 $ 113,036
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current installment of long-term debt (Notes 5 and 13) $ 14 $ 13
Accounts payable 10,723 8,233
Accrued payroll and related expenses 6,168 6,995
Income taxes payable (Note 6) 5,450 3,667
Deferred income taxes (Note 6) 1,498 4,424
Other accrued expenses 2,434 2,162
-------------- --------------
Total current liabilities 26,287 25,494
Long-term debt, excluding current installments, due to related parties (Notes 5 and 13) 43 20,036
Long-term debt, excluding current installments (Notes 5 and 13) 77,670 33,483
Deferred income taxes (Note 6) 10,788 13,128
Other non-current liabilities 83 -
-------------- --------------
Total liabilities 114,871 92,141
============== ==============
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,500,000 shares; none issued - -
Common stock of $.01 par value; authorized 27,500,000 shares; issued and outstanding
10,400,000 shares at January 30, 1999 and 10,000,000 shares at January 31, 1998 104 100
Additional paid-in capital 23,276 22,016
Accumulated deficit (9,090) (1,221)
-------------- --------------
14,290 20,895
-------------- --------------
Total stockholders' equity $ 129,161 $ 113,036
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 17
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended January 30, 1999 and January 31, 1998, 10-Week Period Ended
February 1, 1997 and 42-Week Period Ended November 22, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
---------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
(in thousands, except share and per share data) January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Net sales $ 187,660 $ 186,366 $ 30,503 $ 224,690
Cost of sales
162,349 160,062 27,793 195,948
---------------- ---------------- ---------------- -----------------
Gross profit 25,311 26,304 2,710 28,742
Selling, general, and administrative expenses 21,535 22,324 6,511 23,512
(Recovery of) provision for restructuring costs (Note 12) 832 - - (2,964)
---------------- ---------------- ---------------- -----------------
Operating income (loss) 2,944 3,980 (3,801) 8,194
---------------- ---------------- ---------------- -----------------
Other Income (expense):
Interest expense - related parties (contractual interest
of $3,252 at November 22, 1996) (246) (1,361) (150) (1,984)
Interest expense, net of interest income of $64, $95, $81,
and $164 (contractual interest of $17,512 at November
22, 1996) (5,512) (3,892) (908) (11,378)
Other, net 195 482 68 508
---------------- ---------------- ---------------- -----------------
(5,563) (4,771) (990) (12,854)
---------------- ---------------- ---------------- -----------------
Loss before reorganization items, income taxes, discontinued
operations and extraordinary item (2,619) (791) (4,791) (4,660)
Reorganization items:
Adjustments to fair value - - - 3,765
Professional fees and other - - - (2,589)
---------------- ---------------- ---------------- -----------------
Loss before income taxes, discontinued operations and
extraordinary item (2,619) (791) (4,791) (3,484)
Income tax (benefit) expense (969) (271) (1,615) 2,181
---------------- ---------------- ---------------- -----------------
Income (loss) from continuing operations (1,650) (520) (3,176) (5,665)
---------------- ---------------- ---------------- -----------------
Discontinued operations:
Income (loss) from operations of discontinued Hosiery
Division, net of income tax (benefit) expense of
($2,295), $1,074, $215 and $2,037 (3,859) 2,056 419 3,113
Loss on disposal of Hosiery Division, including provision
of $670 for operating losses during phaseout period
(net of income tax benefit of $1,445) (2,360) - - -
---------------- ---------------- ---------------- -----------------
Income (loss) from discontinued operations (6,219) 2,056 419 3,113
---------------- ---------------- ---------------- -----------------
Income (loss) before extraordinary item (7,869) 1,536 (2,757) (2,552)
Extraordinary item - gain on debt discharge of $90,980 less
income tax expense of $23,056 - - - 67,924
---------------- ---------------- ---------------- -----------------
Net income (loss) $ (7,869)$ 1,536 $ (2,757)$ 65,372
================ ================ ================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
Page 18
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended January 30, 1999 and January 31, 1998, 10-Week Period Ended
February 1, 1997 and 42-Week Period Ended November 22, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
---------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
(in thousands, except share and per share data) January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Basic and diluted loss from continuing operations
per common share $ (0.16)$ (0.05)$ (0.32)$ -
Basic and diluted income (loss) from discontinued operations
per common share (0.60) 0.20 0.04 -
---------------- ---------------- ---------------- -----------------
Basic and diluted net income (loss)
per common share $ (0.76) 0.15 $ (0.28)$ -
---------------- ---------------- ---------------- -----------------
Weighted-average common shares outstanding 10,344,120 10,000,000 10,000,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
Page 19
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Year Ended January 30, 1999, Year Ended January 31, 1998, 10-Week Period
Ended February 1, 1997 and 42-Week Period Ended November 22, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Common Additional Accumulated Stockholders'
(in thousands, except share data) Shares Stock Paid-In Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance at February 2, 1996 1,000 $ - $ 9,000 $ (102,558) $ (93,558)
Net income for 42-week period ended November 22,
1996 (pre-confirmation) - - - 65,372 65,372
Effect of reorganization:
Elimination of accumulated deficit - - - 37,186 37,186
Cancellation of pre-confirmation shares (1,000) - (9,000) - (9,000)
Issuance of post-confirmation shares 10,000,000 100 22,016 - 22,116
---------- ---------- ---------- ---------- ----------
Balance at November 22, 1996 10,000,000 100 22,016 - 22,116
Net loss for 10-week period ended February 1, 1997 - - - (2,757) 2,757
---------- ---------- ---------- ---------- ----------
Balance at February 1, 1997 10,000,000 100 22,016 (2,757) 19,359
Net income for year ended January 31, 1998 - - - 1,536 1,536
---------- ---------- ---------- ---------- ----------
Balance at January 31, 1998 10,000,000 100 22,016 (1,221) 20,895
Issuance of common stock 400,000 4 1,260 - 1,264
Net income for year ended January 30, 1999 - - - (7,869) (7,869)
---------- ---------- ---------- ---------- ----------
Balance at January 30, 1999 10,400,000 $ 104 $ 23,276 $ (9,090) $ 14,290
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 20
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended January 30, 1999, Year Ended January 31, 1998, 10-Week Period
Ended February 1, 1997 and 42-Week Period Ended November 22, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
---------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
(in thousands) January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Cash provided by operating activities:
Net income (loss) $ (7,869)$ 1,536 $ (2,757)$ 65,372
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Recovery of restructuring costs - - - (2,964)
Gain on debt discharge - - - (90,980)
Net adjustments in accounts for fair value - - - (3,765)
Provision for reorganization items - - - 2,589
Depreciation and amortization 4,512 5,412 944 8,504
Deferred taxes (5,266) 378 (1,396) 31,578
(Gain) loss on sale of property, plant, and equipment 2,298 (153) - (292)
Changes in operating assets and liabilities before the
effects of restructuring reclassifications:
Trade accounts receivable (3,077) 4,925 18,856 (12,718)
Inventories (2,493) 8,644 3,026 (646)
Prepaid expenses and other assets 284 (590) (264) 14,204
Assets held for disposition (1,759) 3,542 (781) 18,523
Accounts payable 2,490 (640) (1,744) (3,928)
Accrued payroll and related expenses (827) (3,536) (3,347) 4,408
Other accrued expenses 2,138 (2,828) (1,811) 1,469
---------------- ---------------- ---------------- -----------------
Net cash provided by (used in) operating
activities (9,569) 16,690 10,726 31,354
---------------- ---------------- ---------------- -----------------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment 1,138 740 59 949
Additions to property, plant, and equipment (5,028) (4,209) (797) (3,248)
Acquisition of company, net of cash acquired (236) - - -
Increase in investment in discontinued operations (8,540) - - -
---------------- ---------------- ---------------- -----------------
Net cash used in investing activities (12,666) (3,469) (738) (2,299)
---------------- ---------------- ---------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt (15,805) (12,607) (11,251) (38,095)
Proceeds from long-term debt 40,000 - - -
Payment of debt acquisition costs (2,574) - - -
---------------- ---------------- ---------------- -----------------
Net cash (used in) provided by financing activities 21,621 (12,607) (11,251) (38,095)
---------------- ---------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents (614) 614 (1,263) (9,040)
Cash and cash equivalents at beginning of period 680 66 1,329 10,369
---------------- ---------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 66 $ 680 $ 66 $ 1,329
================ ================ ================ =================
Supplemental disclosures - net cash paid (received)
during the period for:
Income taxes $ 59 $ (165)$ (360)$ (16,835)
Interest 4,736 6,232 1,991 8,011
</TABLE>
See accompanying notes to consolidated financial statements.
Page 21
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
1. Description of Business and Basis of Presentation
Ithaca Industries, Inc., (the "Company") is comprised of two segments;
the Underwear Division and the Hosiery Division. The Underwear Division
has two principal product lines: men's and boys' underwear and
outerwear T-shirts, women's and girls' underwear. As discussed in Note
14, the Company has adopted a plan to discontinue operations of the
Hosiery Division. The Company operates distribution and manufacturing
facilities in the Southeastern United States and offshore manufacturing
facilities in Central America. Additionally, the Company sources
certain of its production from various contractors worldwide. The
Company markets its products through a wide range of national and
regional retail distribution channels, including discount stores,
department stores and specialty stores. The majority of the Company's
raw materials are readily available and are not dependent upon a single
supplier. As of January 30, 1999, the Company's net long-lived assets
outside of the U.S. (principally in Mexico and Central America)
approximate $3,339 in comparison to domestic assets of approximately
$22,677.
The hosiery segment has been reflected as discontinued operations in
the financial statements for the periods presented.
Reorganization and Emergence from Chapter 11 Bankruptcy
On December 16, 1996 (the "Effective Date"), the Company emerged from
proceedings under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") pursuant to a Prepackaged Chapter 11 Plan of
Reorganization (the "Plan"), which was confirmed by United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court")
on November 22, 1996 (the "Confirmation Date"). The Plan implemented a
financial restructuring whereby approximately $125,000 ($124,625, net
of original issue discount) of previously outstanding Senior
Subordinated Notes (the "Notes") and related accrued interest, which
were subject to settlement under the Plan were exchanged for 10,000,000
shares of new common stock (the "Common Stock") issued by the Company
in connection with the reorganization. Additionally, the Company's
Credit Agreement was amended and restructured. The Company also has
authorized 2,500,000 shares of preferred stock with $.01 par value. The
Board of Directors is authorized, upon two-thirds affirmative vote, to
issue preferred stock subject to restrictions contained in the
Company's credit agreements, in one or more series, for any purpose
permitted by law, and is authorized to fix the designations, power,
rights, and preferences of the preferred stock.
On October 8, 1996 (the "Petition Date"), the Company filed a voluntary
petition for relief under Chapter 11 in the Bankruptcy Court. The
Company filed the Plan to consummate a financial restructuring that had
been negotiated among the Company, its Noteholders and parties to the
Credit Agreement, and the sole stockholder of the Company's outstanding
stock. The Company was operated as a debtor-in-possession subject to
the supervision of the Bankruptcy Court until December 16, 1996.
Fresh-Start Reporting
For financial reporting purposes, the effective date of the Company's
emergence from Chapter 11 was assumed to be November 22, 1996. In
accordance with AICPA Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"),
the
Page 22
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Company adopted "Fresh-Start Reporting" and reflected the effects of
such adoption in the consolidated financial statements as of November
22, 1996. The Post-Confirmation consolidated financial statements have
been separated from the Preconfirmation amounts in the accompanying
financial statements to signify that the Post-Confirmation consolidated
financial statements are those of a new reporting entity and have been
prepared on a basis not comparable to prior periods.
The Company adopted Fresh-Start Reporting because holders of existing
voting shares before filing and confirmation of the Plan received less
than 50% of the voting shares of the emerging entity and its
reorganization value was less than its post-petition liabilities and
allowed claims. The adjustments to reflect the consummation of the
Plan, include the pretax gain on debt discharge of $90,980 (principally
accrued interest and principal of the Notes) and the adjustment of
$3,765 to record assets and liabilities at their estimated fair values,
have been reflected in the accompanying consolidated statements of
operations for the 42-week period ended November 22, 1996. Deferred
taxes of approximately $23,056 were provided as a result of the debt
discharge and the resulting reductions to the tax bases of assets in
accordance with Section 108 of the Internal Revenue Code.
The reorganization value of the Company was determined by management
utilizing several factors and various valuation methods, including
discounted cash flows, cash flow multiple ratios, and other applicable
ratios. Reorganization value generally approximates fair value of the
entity before considering liabilities and approximates the amount a
willing buyer would pay for the assets of the entity after the
restructuring. The primary valuation methodology employed to determine
the reorganization value of the Company was a net present value
approach. The estimated unleveraged reorganization value of the Company
was computed using a discounted cash flow analysis. This analysis
included the present values of (i) the discounted projected free cash
flows of the Company through fiscal year 1999, (ii) the discounted
terminal value of the Company at the end of that 1999 fiscal year, and
(iii) projected excess cash on hand at the Confirmation Date. For
purposes of discounting values, a discount rate of 9.5% was utilized
throughout the analysis. The terminal value was based upon a 3.5%
growth factor in perpetuity with a 6% terminal discount rate.
Based on information from parties-in-interest and from the Company's
financial advisors, the total reorganization value of the Company was
estimated to be $155,993 at November 22, 1996. The estimated
reorganization value of the Company was allocated to specific asset
categories as follows:
Current assets $ 118,858
Property and equipment 35,647
Other noncurrent assets 1,488
---------
$ 155,993
=========
All payments and distributions required by the Plan to be made by the
Company with respect to pre-petition claims against the Company have
been made or provided for at November 22, 1996, and no further material
recourse to the Company is available to any person with respect to any
pre-petition claims.
Page 23
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies and Practices
Principles of Consolidation
These consolidated financial statements include the financial
statements of Ithaca Industries, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an initial maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market with cost
determined using the last-in, first-out (LIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment acquired after November 22, 1996 are
stated at cost (see Note 1). Depreciation and amortization of property,
plant, and equipment is calculated using the straight-line method over
the estimated useful lives of the assets as follow:
Buildings and improvements 5-30 years
Machinery and equipment 3-8 years
Vehicles 3 years
Additions and major replacements or betterments are added to the assets
at cost. Maintenance and repair costs and minor replacements are
charged to expense when incurred. When assets are replaced or otherwise
disposed of, the cost and accumulated depreciation or amortization are
removed from the accounts, and the gains or losses, if any, are
reflected in income.
Intangibles and Other Assets
Intangible and other assets consist of patents, organizational costs
and deferred debt costs and are amortized over their respective useful
lives ranging from 5 to 18 years. Deferred debt expenses are amortized
over the term of the loans to which the costs relate.
The Company continually monitors conditions that may affect the
carrying value of its long lived assets. When conditions indicate
potential impairment of an asset, the Company will undertake necessary
market studies and reevaluate projected future cash flows associated
with the asset. When projected future cash flows, not discounted for
the time value of money, are less than the carrying value of the asset,
the impaired asset is written down to its net realizable value.
Revenue Recognition
Sales are recognized at the time the related goods are shipped.
Page 24
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Income Taxes
The Company provides deferred income taxes for the tax effects of
temporary differences between the financial reporting and income tax
bases of the Company's assets and liabilities.
Stock Option Plan
The Company has adopted Statement of Financial Accounting Standards No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation, which
permits the Company to apply the accounting provisions of APB Opinion
No. 25 and pro forma income per share disclosures for stock option
grants made in future years as if the fair-value based method defined
in SFAS No. 123 had been applied. The Company has elected to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures
required by SFAS No. 123.
Earnings Per Share
Basic earnings per share are calculated based upon the weighted-average
number of common shares outstanding during the year. Diluted earnings
per share are based upon the weighted-average number of common shares
and dilutive common equivalent shares outstanding during the year. The
denominators used in the calculation of basic and diluted per share
amounts are the same for all periods, as options to purchase shares of
common stock under the Company's Stock Plan were not included in the
computation of diluted per share amounts due to the fact that the
options' price was greater than the average market price of the common
shares. The numerators used in such calculations are also the same.
Insurance Programs
In general, the Company is self-insured for costs of workers'
compensation, casualty and health and welfare claims. The Company uses
commercial insurance for casualty and workers' compensation claims as a
risk reduction strategy to minimize catastrophic losses. Workers'
compensation and casualty losses are provided for using actuarial
assumptions and procedures followed in the insurance industry, adjusted
for company-specific history and expectations.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to the end of
January. The results of operations for the fiscal years ended January
30, 1999 and January 31, 1998 include 52-week periods. Results of
operations for the year ended February 1, 1997 include the 10-week
period ended February 1, 1997 (post-confirmation) and the 42-week
period ended November 22, 1996 (pre-confirmation).
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which is effective for years
beginning after December 15, 1997. Given the exiting of the Company's
Hosiery Segment, as discussed in Note 14, the Company operates in one
business segment. The Company has implemented this statement in fiscal
year ended January 30, 1999 and has included the required information
in Note 1.
Page 25
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
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, the disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
3. Inventories
Inventories consist of the following as of January 30, 1999 and January
31, 1998:
1999 1998
Raw materials and supplies $ 12,615 $ 12,075
Work-in process 13,262 13,175
Finished goods 24,274 22,153
------------- -------------
50,151 47,403
Less excess of FIFO of LIFO cost 444 189
------------- -------------
$ 49,707 $ 47,214
============= =============
During the year ended January 31, 1998 and the 42-week period ended
November 22, 1996, LIFO inventory layers were liquidated. This
liquidation resulted in charging lower inventory costs prevailing in
prior years to cost of sales, thus reducing cost of sales by $71 and
$1,367, respectively.
4. Property, Plant, and Equipment
Property, plant, and equipment consist of the following as of January
30, 1999 and January 31, 1998:
1999 1998
Land $ 1,072 $ 967
Buildings and improvements 11,240 15,139
Machinery and equipment 18,477 15,837
Vehicles 74 76
Construction in progress 4,120 1,372
------------- -------------
34,983 33,391
Less accumulated depreciation and
amortization 8,967 4,682
------------- -------------
$ 26,016 $ 28,709
============= =============
Page 26
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
5. Long-Term Debt
Long-term debt as of January 30, 1999 and January 31, 1998 is comprised
of the following:
1999 1998
Borrowings under credit agreements $ 40,258 $ 17,500
Revolving loans 37,412 35,963
Term loans 57 69
------------- -------------
9.0% to 10.5% notes, maturing 2001
through 2003 77,727 53,532
Less current installments of
long-term debt (14) (13)
------------- -------------
$ 77,713 $ 53,519
============= =============
During March 1998, in conjunction with the acquisition of Glendale Hosiery
(see Note 13), the Company replaced its existing revolving credit agreement
with a new Receivable and Inventory Financing Agreement with a bank group
for a revolving credit facility ("Revolving Credit Facility"). The borrowing
base for the credit facility may not exceed a borrowing base determined by
specified percentages of eligible accounts receivable and inventory as
defined by the Agreement or $70,000. A commitment fee of .375% per annum is
due on the unused portion of the Revolving Credit Facility. Interest is
based on a performance-pricing matrix for both prime rate and Libor options
(7.87% as of January 30, 1999) and is paid approximately quarterly. Attached
to the Revolving Credit Facility is a letter of credit facility with a
maximum borrowing base of $15,000. A letter of credit fee of .75% per annum
applies to the daily stated amount of all commercial letters of credit.
Stand-by letters of credit fees include a facing fee of .125% and the
current Libor interest spread in effect. The Revolving Credit Facility
expires on March 24, 2003.
In addition to the Revolving Credit Facility, the Company has entered into a
term loan facility with the same bank group totaling $25,000. The due date
of this loan is March 24, 2003 and the current interest rate is prime +1% or
Libor +2.75% (8.01% as of January 30, 1999). Interest is paid monthly.
During fiscal year ended January 30, 1999, the Company executed a separate
term loan facility with a financial institution totaling $15,000. The due
date for this loan is September 30, 2003. The interest rate for this
facility is 15% per annum.
At January 31, 1998, there was $17,500 outstanding under the Company's
former revolving loan agreements. At January 31, 1998, the Company also had
$35,963 outstanding under former term loan agreements. These former
agreements were terminated and the balances repaid with proceeds of the new
facilities discussed above.
At January 30, 1999, $3,667 of the outstanding term loan balance had been
excluded from current installments of long-term debt as this amount could be
repaid using the Revolving Credit Facility.
Page 27
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The principal maturities of long-term debt outstanding as of January 30,
1999 are as follows:
Fiscal years ending in:
2000 $ 3,681
2001 4,833
2002 5,833
2003 7,653
2004 55,727
---------
$ 77,727
=========
The Revolving Credit Facility and both term loan facilities contain
certain restrictive covenants, including, among others, a minimum
tangible net worth requirement, a fixed-charge ratio requirement and a
maximum funded indebtedness to cash flow ratio requirement. As of
January 30, 1999, the Company was in violation of certain of the above
covenants (see Note 14).
6. Income Taxes
Components of income tax (benefit) expense consist of:
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
--------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Current:
Federal $ 3,948 $ (596)$ (202)$ (5,827)
State 349 (53) (18) (514)
Deferred
Federal (4,839) 348 (1,283) 7,840
State (427) 30 (112) 682
---------------- ---------------- --------------- ------------------
$ (969)$ (271)$ (1,615)$ 2,181
================ ================ =============== ==================
</TABLE>
Page 28
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Reported income tax (benefit) expense is reconciled to the amounts
computed on the basis of earnings (loss) before income taxes at the
statutory rate as follows:
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
---------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Computed "expected" Federal income tax
expense (benefit) $ (890) $ (269) $ (1,629) $ (1,185)
State and local taxes, net of Federal income
tax effect (79) (24) (144) (105)
Amortization of intangible assets - 127 - -
Nondeductible expenses relating to
reorganization - - 216 744
Provision for resolution of tax audits and
adjustments to refund receivable - - - 2,727
Other, net - (105) (58) -
----------- ----------- ----------- ------------
$ (969) $ (271) $ (1,615) $ 2,181
----------- ----------- ----------- ------------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 30, 1999 and January 31, 1998 are presented below:
1999 1998
Deferred tax assets:
Nondeductible accruals $ 3,489 $ 2,631
Inventory reserves 1,202 -
Accounts receivable reserves and allowances 768 45
Other 1,084 2
--------- ---------
Deferred tax assets 6,543 2,678
--------- ---------
Deferred tax liabilities:
Tax attribute reductions of inventory, and
property, plant, and equipment (18,569) (17,090)
Other (260) (3,140)
--------- ---------
Deferred tax liabilities (18,829) (20,230)
--------- ---------
Net deferred tax liability $ (12,286) $ (17,522)
========= =========
7. Related Party Transactions
During the 42-week period ended November 22, 1996, the Company engaged
in transactions with related parties, recognizing income from the
former Parent company of approximately $299.
As of January 31, 1998, long-term debt due to related parties consists
of borrowings arising from the Reorganization (Note 1) held by a
stockholder of the Company. This borrowing was fully repaid in fiscal
1999.
Page 29
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
8. Credit Concentrations
Most of the Company's sales are concentrated with national retailers.
For the years ended January 30, 1999 and January 31, 1998, one customer
individually accounted for 50% and 47%, respectively, of net sales.
9. Fair Value of Financial Instruments
At January 30, 1999 and January 31, 1998, management believes the fair
value of the Company's debt approximates its carrying amount as it is
based upon variable and/or market rates of interest. The carrying
values of all other financial instruments in the consolidated balance
sheets approximate fair values.
10. Commitments and Other Matters
The Company leases certain equipment and warehousing facilities under
operating leases expiring at various dates through 2010. Total rent
expense under these leases amounted to approximately $3,546, $3,343,
$680 and $3,338, for the years ended January 30, 1999 and January 31,
1998; the 10-week period ended February 1, 1997; and the 42-week period
ended November 22, 1996, respectively. In addition, the Company is
responsible for payment of applicable real estate taxes, insurance, and
maintenance expenses.
At January 30, 1999, future minimum annual rentals under these leases
are as follow:
Fiscal years ending in:
2000 $ 3,192
2001 2,416
2002 1,954
2003 1,738
2004 663
Thereafter 739
----------
$ 10,702
==========
11. Employee Benefit Plans
The Company adopted an incentive compensation plan under which certain
employees may receive discretionary bonus awards from a bonus pool
calculated based on achievement of specified targets established by the
Board of Directors. Bonus amounts recognized for the years ended
January 30, 1999 and January 31, 1998; the 10-week period ended
February 1, 1997; and the 42-week period ended November 22, 1996 were
$0, $489, $560, and $1,740, respectively.
The Company maintains a long-term incentive plan (the "Stock Plan")
which permits the Company's Board of Directors to grant stock options
to officers and key employees. The Stock Plan initially reserved
928,962 shares of authorized but unissued common stock. Total shares
available for grant may be increased by the Board of Directors at their
discretion. Stock options
Page 30
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
may be granted at an exercise price equal to or less than fair market
value as stipulated in the applicable option agreement. Excluding a
grant of 109,290 options to certain outside consultants, certain
options vest one-third on the date of grant and one-third on the
subsequent first and second anniversaries from the date of grant. The
remaining options are performance based and vest in equal amounts based
upon the achievement of certain performance targets for each of the
three years subsequent to grant date. The exercise price for all
options granted to date was $6.00 per share.
The following table summarizes stock option activity:
Year Ended January 30, 1999 Number of shares
Outstanding at beginning of year 881,846
Granted 124,000
Exercised -
Expired (254,537)
Cancelled -
-------
Outstanding at end of year 751,309
=======
Exercisable at end of year 542,309
=======
Year Ended January 31, 1998 Number of Shares
Outstanding at beginning of year 901,014
Granted 17,500
Exercised -
Expired -
Cancelled (36,668)
-------
Outstanding at end of year 881,846
=======
Exercisable at end of year 492,718
=======
10-Week Period Ended February 1, 1997 Number of shares
Outstanding at beginning of period -
Granted 901,014
Exercised -
Expired -
Cancelled -
-------
Outstanding at end of period 901,014
=======
Exercisable at end of period 240,994
=======
Page 31
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which establishes a fair value-based method
of accounting for stock-based compensation. Had compensation cost been
determined based on the fair value at the grant date of awards during
the years ended January 30, 1999 and January 31, 1998 and the 10-week
period ended February 1, 1997 consistent with provisions of SFAS 123,
the Company's net income (loss) and net income (loss) per common share
would have been adjusted to the pro forma amounts indicated in the
table below:
<TABLE>
<CAPTION>
10-Week
Year Ended Year Ended Period Ended
January 30, 1999 January 31, 1998 February 1, 1997
<S> <C> <C> <C>
Net income (loss) - as reported $ (7,869) $ 1,536 $ (2,757)
Net income (loss) - pro forma (7,942) 1,336 (2,757)
Net income (loss) per common share - as reported (0.76) 0.15 (0.28)
Net income (loss) per common share - pro forma (0.77) 0.13 (0.28)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants during the years ended January 30, 1999 and
January 31, 1998 and the 10-week period ended February 1, 1997:
<TABLE>
<CAPTION>
10-Week
Year Ended Year Ended Period Ended
January 30, 1999 January 31, 1998 February 1, 1997
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 30% 33% 33%
Weighted average risk-free interest rate 5.4% 5.5% 6.2%
Expected life 3 years 3 years 3 years
</TABLE>
The Company maintains a medical benefits plan and trust which covers
substantially all employees of the Company. The plan is funded
currently by contributions from the Company and employees based on
anticipated claims costs and administrative expenses. Company
contributions to the plan were $4,472, $4,645, $1,250, and $5,604, for
the years ended January 30, 1999 and January 31, 1998; the 10-week
period ended February 1, 1997; and the 42-week period ended November
22, 1996, respectively.
The Company sponsors a defined contribution retirement plan for its
employees. Company contributions are based upon a percentage of the
employees' contributions. Contributions and administrative expenses
incurred by the Company related to this plan totaled approximately
$293, $226, $53 and $319, for the years ended January 30, 1999 and
January 31, 1998; the 10-week period ended February 1, 1997; and the
42-week period ended November 22, 1996, respectively.
Page 32
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
12. Restructuring
During fourth quarter of fiscal 1999, the Company adopted a plan to
exit two domestic facilities during fiscal 2000. In conjunction with
this plan, the Company recorded charges totaling approximately $832
($524 after related income tax expense). Such charges related primarily
to the closing of the manufacturing facilities and the write-down of
certain assets to net realizable value.
As of January 30, 1999 and January 31, 1998, assets held for
disposition consist of the following:
1999 1998
Property, plant, and equipment, net of reserve of
$4,144 at January 30, 1999 and $4,642 at
January 31, 1998 $1,972 $213
====== ====
The reserves reflect management's best estimate of the recoverability
of the related assets.
13. Acquisition
On March 24, 1998, the Company completed the acquisition of Glendale
Hosiery Company (Glendale), a manufacturer and distributor of women's
hosiery. Consideration paid included a cash payment of $1,500, issuance
of 400,000 shares of Ithaca common stock valued at approximately $1,300
and subordinated notes totaling $1,200. Ithaca was also required to
refinance $8,200 of Glendale's bank indebtedness. The transaction was
financed with the proceeds from the refinancing of the Company's
existing Credit Agreement with $110,000 in new credit facilities. This
acquisition was accounted for under the purchase method and the assets
and liabilities were recorded based on their estimated fair values
resulting in goodwill of approximately $2,800.
Unaudited pro forma information of consolidated results of operations
of the Company and Glendale as if the acquisition had occurred February
1, 1998 has not been presented as the Company has adopted a plan to
discontinue operations of the Hosiery Division in which Glendale is
included (see Note 14).
14. Subsequent Event
On April 30, 1999, the Company sold substantially all the assets of the
Hosiery Division. The results of operations of the Hosiery Division are
reflected as discontinued operations for all periods presented in the
consolidated financial statements. The Company has recorded a loss on
disposal including operating losses during the phaseout period of
$2,360, net of taxes. The investment in discontinued operations
included in the balance sheet at January 30, 1999 and January 31, 1998
is primarily comprised of accounts receivable, inventory, fixed assets,
goodwill, accounts payable and various other liabilities pertaining to
the Hosiery Division.
Page 33
<PAGE>
Ithaca Industries, Inc. and Subsidiaries
Notes to Financial Statements
Year Ended January 30, 1999 and January 31, 1998
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Company has allocated interest expense to the discontinued
operations based on the ratio of net assets of the discontinued
operations to the total net assets of the consolidated Company.
Interest expense allocated in the years ended January 30, 1999 and
January 31, 1998, the 10-week period ended February 1, 1997 and the
42-week period ended November 22, 1996 was $2,398, $1,622, $325 and
$4,110, respectively.
In connection with the sale of the Hosiery Division, the Company has
obtained waivers for violations of financial covenants referred to in
Note 5.
Operating results for discontinued operations, including an allocation
of interest expense are as follows:
<TABLE>
<CAPTION>
Post-confirmation Pre-confirmation
--------------------------------------------------------------------
10-Week Period 42-Week
Year Ended Year Ended Ended Period Ended
January 30, 1999 January 31, 1998 February 1, 1997 November 22, 1996
<S> <C> <C> <C> <C>
Net sales $ 79,655 $ 50,655 $ 12,205 $ 72,913
Income (loss)
before income tax (9,959) 3,130 634 5,150
Income (loss)
from discontinued
operations (6,219) 2,056 419 3,113
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Page 34
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated by reference
herein from the material under the headings "Business Experience of Directors
and Executive Officers," "Election of Directors Meetings of the Board of
Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance"
contained in the Company's definitive proxy statement filed with the Commission
relating to the annual meeting of stockholders to be held on June 14, 1999.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated by reference
herein from the material under the headings "Remuneration of Directors and
Executive Officers," and "Compensation Committee Interlocks and Insider
Participation" contained in the Company's definitive proxy statement filed with
the Commission relating to the annual meeting of stockholders to be held on June
14, 1999.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated by reference
herein from the material under the heading "Security Ownership of Certain
Beneficial Owners" contained in the Company's definitive proxy statement filed
with the Commission relating to the annual meeting of stockholders to be held on
June 14, 1999.
ITEM 13. Certain Relationships and Related Transactions
During the Company's last fiscal year there were no reportable
transactions or relationships.
Page 35
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports On Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements
A. Independent Auditor's Report
1. PricewaterhouseCoopers LLP
2. KPMG LLP
B. Consolidated Balance Sheets as of January 31, 1999, and
January 31, 1998.
C. Consolidated Statements of Operations for the years
ended January 31, 1999, January 31, 1998, the 10-week
period ended January 31, 1997 and the 42-Week period
ended November 22, 1996.
D. Consolidated Statements of Stockholders' Equity
(Deficit) for the year ended January 31, 1999,
January 31, 1998, the 10-Week Period ended January
31, 1997, and the 42-Week Period ended November 22,
1996.
E. Consolidated Statements of Cash Flows for the years
ended January 31, 1999, January 31, 1998, the 10-Week
Period ended January 31, 1997, and the 42-Week Period
ended November 22, 1996.
F. Notes to the Consolidated Financial Statements.
2. Financial Statement Schedule Page - 41
A. Report of Independent Accountants on Financial
Statement Schedule
B. Schedule II -- Valuation and Qualifying Accounts -
for the years ended January 31, 1999, January 31,
1998, the 10-Week Period ended January 31, 1997, and
the 42-Week Period ended November 22, 1996.
3. Exhibits
All Exhibits listed below are filed with this Annual Report on
Form 10-K unless specifically stated to be incorporated by
reference to other documents previously filed with the
Securities and Exchange Commission.
Exhibit No. Description of Exhibits
- ----------- -----------------------
2 Asset Purchase Agreement between Ithaca Industries, Inc and
Glendale Group, Ltd. dated April 29, 1999.
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, dated March 17,
1997).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit F of Exhibit 2.1 to the Company's Form
8-K, dated September 3, 1996).
Page 36
<PAGE>
4 Registration Rights Agreement, between the Company and various
stockholders (incorporated by reference to Exhibit H of
Exhibit 2.1 to the Company's Form 8-K, dated September 3,
1996).
10.1 Loan and Security Agreement among the Company, various banks,
NationsBank, N.A. as agent, NationsBanc Montgomery Securities
LLC as syndication agent and arranger and BankAmerica Business
Credit, Inc. as documentation agent, dated as of March 24,
1998 (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-k dated May 1, 1998.)
10.2 Loan and Security Agreement among the Company, various banks
and NationsBank, N.A. as collateral agent, dated as of March
24, 1998 (incorporated by reference to Exhibit 10.2 of the
Company's Form 10-K dated May 1, 1998)
10.3 Ithaca Industries 1996 Long Term Stock Incentive Plan
(incorporated by reference to Exhibit I of Exhibit 2.1 to the
Company's Form 8-K, dated September 3, 1996).
10.4 Employment Agreement of Jim D. Waller (incorporated by
reference to Exhibit 10.4 of the Company's Registration
Statement on Form S-1, dated March 17, 1997).
10.5 Employment Agreement of Richard P. Thrush.
10.6 Amendment and Waiver dated April 30, 1999 of the Loan and
Security Agreement referred to in item 10.1.
10.7 Amendment and Waiver dated April 30, 1999 of the Loan and
Security Agreement Referred to in item 10.2.
21 List of Subsidiaries of the Company (incorporated by reference
to Exhibit 21 of the Company's Registration Statement on Form
S-1, dated March 17, 1997).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
24 Power of Attorney (included in the signature page of this
report).
27 Financial Data Schedule for the year ended January 31, 1999.
99 Press Release of Ithaca Industries, Inc., dated April 29,
1999.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the
last quarter of the fiscal year ended January 31, 1999.
As of the date of the filing of this Annual Report on Form 10-K no
proxy materials have been furnished directly to security holders. Proxy
materials will be mailed on or about May 17, 1999 to security holders.
Page 37
<PAGE>
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
its behalf by the undersigned, thereunto duly authorized, in Wilkesboro, North
Carolina, on this 14th day of May, 1999.
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush
-------------------------
RICHARD P. THRUSH
(Secretary, Chief Financial and Accounting Officer)
We, the undersigned officers and directors of Ithaca Industries, Inc.,
hereby severally constitute Jim D. Waller, and Richard P. Thrush, and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
any and all reports, with all exhibits thereto and any and all documents in
connection therewith, and generally do all such things in our name and on our
behalf in such capacities to enable Ithaca Industries, Inc. to comply with the
applicable provisions of the Securities Exchange Act of 1934, as amended, and
all requirements of the Securities Exchange Commission, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys, or either of
them, to any and all such amendments.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date(s)
--------- ----- -------
/s/ Jim D. Waller Chairman, Chief Executive Officer, May 14, 1999
----------------- President and Director
Jim D. Waller
/s/ Walter J. Branson Director May 14, 1999
- ---------------------
Walter J. Branson
/s/ Marvin B. Crow Director May 14, 1999
------------------
Marvin B. Crow
/s/ Francis Goldwyn Director May 14, 1999
-------------------
Francis Goldwyn
/s/ Morton E. Handel Director May 14, 1999
--------------------
Morton E. Handel
/s/ David N. Weinstein Director May 14, 1999
- ----------------------
David N. Weinstein
/s/ James A. Williams Director May 14, 1999
- ---------------------
James A. Williams
Page 38
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibits
- ----------- -----------------------
2 Asset Purchase Agreement between Ithaca Industries, Inc and
Glendale Group, Ltd. dated April 29, 1999.
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, dated March 17,
1997).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit F of Exhibit 2.1 to the Company's Form
8-K, dated September 3, 1996).
4 Registration Rights Agreement, between the Company and various
stockholders (incorporated by reference to Exhibit H of
Exhibit 2.1 to the Company's Form 8-K, dated September 3,
1996).
10.1 Loan and Security Agreement among the Company, various banks,
NationsBank, N.A. as agent, NationsBanc Montgomery Securities
LLC as syndication agent and arranger and BankAmerica Business
Credit, Inc. as documentation agent, dated as of March 24,
1998 (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-k dated May 1, 1998.)
10.2 Loan and Security Agreement among the Company, various banks
and NationsBank, N.A. as collateral agent, dated as of March
24, 1998 (incorporated by reference to Exhibit 10.2 of the
Company's Form 10-K dated May 1, 1998)
10.3 Ithaca Industries 1996 Long Term Stock Incentive Plan
(incorporated by reference to Exhibit I of Exhibit 2.1 to the
Company's Form 8-K, dated September 3, 1996).
10.4 Employment Agreement of Jim D. Waller (incorporated by
reference to Exhibit 10.4 of the Company's Registration
Statement on Form S-1, dated March 17, 1997).
10.5 Employment Agreement of Richard P. Thrush.
10.6 Amendment and Waiver dated April 30, 1999 of the Loan and
Security Agreement referred to in item 10.1.
10.7 Amendment and Waiver dated April 30, 1999 of the Loan and
Security Agreement Referred to in item 10.2.
21 List of Subsidiaries of the Company (incorporated by reference
to Exhibit 21 of the Company's Registration Statement on Form
S-1, dated March 17, 1997).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of KPMG LLP.
24 Power of Attorney (included in the signature page of this
report).
Page 39
<PAGE>
27 Financial Data Schedule for the year ended January 31, 1999.
99 Press Release of Ithaca Industries, Inc., dated April 29,
1999.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant during the
last quarter of the fiscal year ended January 31, 1999.
As of the date of the filing of this Annual Report on Form 10-K no
proxy materials have been furnished directly to security holders. Proxy
materials will be mailed on or about May 17, 1999 to security holders.
Page 40
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of
Ithaca Industries, Inc.:
Our audit of the consolidated financial statements referred to in our report
dated March 25, 1999, except as to Note 14 which is as of April 30, 1999,
appearing on page 15 of this Annual Report on Form 10-K also included an audit
of the Financial Statement Schedule for the year ended January 30, 1999 listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule for the year ended January 30, 1999 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 25, 1999
Page 41
<PAGE>
Schedule II
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Year ended January 30, 1999, Year ended January 31, 1998,
10-Week Period ended January 31, 1997, Post-Confirmation and
42-Week Period ended November 22, 1996; Preconfirmation
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Cost and Balance at End
Description Year/Period Expenses Deductions of Year/Period
- --------------------------------------------------- -------------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Year ended January 30, 1999 (post-confirmation):
Allowance for doubtful accounts $ 765 -- -- 765
Provision for claims and allowances 699 2,456 2,000 1,155
Reserve for plant closures 995 207 995 207
-------------------- --------------- ------------- --------------
Total $ 2,459 2,663 2,995 2,127
==================== =============== ============= ==============
Year ended January 31, 1998 (post-confirmation):
Allowance for doubtful accounts $ 1,256 476 967 765
Provision for claims and allowances 1,029 2,970 3,300 699
Reserve for plant closures 2,106 -- 1,111 995
-------------------- --------------- ------------- --------------
Total $ 4,391 3,445 5,377 2,459
==================== =============== ============= ==============
10-week period ended February 1, 1997 (post-confirmation):
Allowance for doubtful accounts $ 1,508 2 254 1,256
Provision for discounts 5 544 549 --
Provision for claims and allowances 1,245 894 1,109 1,029
Reserve for plant closures 12,204 -- 10,098 2,106
-------------------- --------------- ------------- --------------
Total $ 14,962 1,441 12,011 4,391
==================== =============== ============= ==============
42-week period ended November 22, 1996 (pre-confirmation):
Allowance for doubtful accounts $ 1,215 333 40 1,508
Provision for discounts 99 1,926 2,020 5
Provision for claims and allowances 1,256 4,580 4,591 1,245
Reserve for plant closures 37,093 -- 24,889 12,204
-------------------- --------------- ------------- --------------
Total $39,663 6,839 31,540 14,962
==================== =============== ============= ==============
</TABLE>
Page 42
ASSET PURCHASE AGREEMENT
DATED AS OF APRIL 29, 1999
BETWEEN ITHACA INDUSTRIES, INC.,
AS SELLER
AND
GLENDALE GROUP, LTD.,
AS BUYER
<PAGE>
TABLE OF CONTENTS
Page
1. Transfer of Assets and Liabilities......................................1
1.1 Assets to be Sold................................................1
1.2 Siler City Assets................................................2
1.3 Wilkesboro Assets................................................2
1.4 General Assets...................................................2
1.5 Excluded Assets..................................................3
1.6 Liabilities to be Assumed........................................3
1.7 Liabilities Not Assumed..........................................4
2. The Closing.............................................................5
2.1 Closing; Closing Date............................................5
3. Consideration and Payment...............................................5
3.1 Payment on the Closing Date......................................5
3.2 Closing Tangible Net Worth.......................................6
3.3 Allocation.......................................................7
4. General Representations and Warranties of the Seller....................7
4.1 Due Incorporation and Qualification..............................7
4.2 Authority to Execute and Perform Agreements......................8
4.3 Non-contravention................................................8
4.4 Financial Statements.............................................8
4.5 Litigation.......................................................9
4.6 Employees........................................................9
4.7 Employee Benefit Plans..........................................10
4.8 Insurance.......................................................11
4.9 Operation of the Business.......................................12
4.10 Real Property...................................................13
4.10.1 Condemnation....................................................13
4.10.2 Casualty........................................................13
4.10.3 Real Property Taxes.............................................13
4.10.4 Survey..........................................................14
4.10.5 Mechanics and Other Liens.......................................14
4.10.6 Loan Documents..................................................14
4.11 Accounts Receivable.............................................14
4.12 Inventory.......................................................15
4.13 Accounts Payable................................................15
4.14 Tangible Property...............................................15
4.15 Intangible Property.............................................15
4.16 Agreements......................................................17
4.17 Suppliers and Customers.........................................18
4.18 No Material Adverse Change......................................18
i
<PAGE>
4.19 Full Disclosure.................................................18
4.20 No Broker.......................................................19
5. Representations and Warranties of the Seller Concerning the Siler City
Business...............................................................19
5.1 Tax Matters.....................................................19
5.2 Compliance with Laws............................................19
5.3 Real Estate.....................................................20
5.3.1 Ownership of Premises...........................................20
5.3.2 Leased Properties...............................................20
5.3.3 Entire Premises.................................................21
5.3.4 Space Leases....................................................21
5.3.5 No Options......................................................21
5.3.6 Condition and Operation of Improvements.........................21
5.3.7 Real Property Laws..............................................22
5.4 Ownership and Adequacy of Assets................................22
5.5 Environmental Matters...........................................22
6. Representations and Warranties of the Seller Concerning the Wilkesboro
Business...............................................................24
6.1 Tax Matters.....................................................24
6.2 Compliance with Laws............................................24
6.3 Real Estate.....................................................25
6.3.1 Ownership of Premises...........................................25
6.3.2 Leased Properties...............................................25
6.3.3 Entire Premises.................................................25
6.3.4 Space Leases....................................................26
6.3.5 No Options......................................................26
6.3.6 Condition and Operation of Improvements.........................26
6.3.7 Real Property Laws..............................................27
6.4 Ownership and Adequacy of Assets................................27
6.5 Environmental Matters...........................................27
7. Representations and Warranties of the Buyer............................29
7.1 Due Incorporation and Qualification.............................29
7.2 Authority to Execute and Perform Agreements.....................29
7.3 Non-contravention...............................................29
7.4 No Broker.......................................................29
7.5 Financing.......................................................29
8. Covenants and Agreements...............................................30
8.1 Conduct of Business.............................................30
8.2 Insurance.......................................................30
8.3 Preservation of Business........................................30
8.4 Litigation......................................................30
8.5 Continued Effectiveness of Representations and Warranties of the
Seller..........................................................30
8.6 Corporate Examinations and Investigation........................30
8.7 Other Transactions..............................................31
8.8 Third Party Consents............................................32
ii
<PAGE>
8.9 Environmental Transfer, Laws....................................32
8.10 Title Report and Survey.........................................32
8.11 Employment Status...............................................32
8.12 Replacement of Letters of Credit................................33
8.13 Y2K Compliance..................................................33
9. Conditions Precedent to the Obligations of the Buyer...................33
9.1 Representations and Covenants of the Seller.....................33
9.2 Governmental Permits and Approvals..............................33
9.3 Consents........................................................34
9.4 No Material Adverse Change......................................34
9.5 Litigation......................................................34
9.6 Opinion of Counsel to the Seller................................34
9.7 Additional Closing Documents of the Seller......................34
9.8 Title Insurance.................................................35
9.9 Survey..........................................................35
9.10 Estoppel Certificates...........................................35
9.11 Environmental Audit.............................................36
9.12 Existing Liens..................................................37
9.13 Completion of Financing.........................................37
10. Conditions Precedent to the Obligation of the Seller...................37
10.1 Representations and Covenants of the Buyer......................37
10.2 Governmental Permits and Approvals..............................37
10.3 Litigation......................................................37
10.4 Opinion of Counsel to the Buyer.................................37
10.5 Consent of the Lenders Under the Bank Credit Agreement..........37
10.6 Additional Closing Documents of the Buyer.......................37
10.7 Receipt of Replacement Letters of Credit........................38
11. Post-Closing Covenants and Agreements..................................38
11.1 Audit of Business...............................................38
11.2 Expenses of Sale................................................38
11.3 Indemnification of Brokerage....................................38
11.4 Bulk Sales Laws.................................................38
11.5 Collection of Receivables.......................................39
11.6 Mail ...........................................................39
11.7 True-Up of Bonus Plan Obligation................................39
11.8 Further Assurances..............................................39
11.9 Transitional Agreements.........................................39
11.10 Non-Competition Covenant of the Seller..........................40
11.11 Corporate Records Retained by the Seller........................41
11.12 Business Records Acquired by the Buyer..........................41
11.13 Transition of Life Insurance Benefits...........................41
11.14 Confidentiality.................................................41
iii
<PAGE>
12. Survival of Representations and Warranties of the Seller...............42
13. Indemnification........................................................43
13.1 Obligation of the Seller to Indemnify...........................43
13.2 Obligation of the Buyer to Indemnify............................43
13.3 Notice to Indemnifying Party....................................44
14. Indemnification by the Seller for Environmental Actions and Environmental
Compliance Costs.......................................................44
14.1 Obligation of the Seller to Indemnify...........................44
14.2 Procedure for Indemnification for Environmental Liabilities.....45
15. Limitation on Indemnification..........................................46
16. Termination of Agreement...............................................47
17. Miscellaneous
17.1 Certain Definitions.............................................48
17.2 Publicity.......................................................50
17.3 Notices.........................................................50
17.4 Entire Agreement................................................51
17.5 Waivers and Amendments..........................................51
17.6 Governing Law...................................................52
17.7 Binding Effect; No Assignment...................................52
17.8 Variations in Pronouns..........................................52
17.9 Counterparts....................................................52
17.10 Exhibits and Schedules..........................................52
17.11 Headings........................................................52
17.12 No Third Party Rights...........................................53
17.13 Specific Performance............................................53
Schedules
- ---------
Schedule 1.3 (Siler City Capitalized Equipment)
Schedule 1.2 (Wilkesboro Capitalized Equipment)
Schedule 1.5 (Excluded Assets)
Schedule 4.1 (Jurisdiction)
Schedule 4.3 (Non-Contravention)
Schedule 4.5 (Litigation)
Schedule 4.6 (Employees)
Schedule 4.7.1 (Employee Benefit Plans)
Schedule 4.7.3 (Administration of Employee Benefit Plan)
Schedule 4.7.5 (Welfare Plan)
Schedule 4.8 (Insurance)
Schedule 4.9 (Operation of the Business)
Schedule 4.10.3 (Real Property Taxes)
Schedule 4.10.6 (Loan Documents)
iv
<PAGE>
Schedule 4.15 (Intangible Property)
Schedule 4.16 (Assumed Agreements)
Schedule 4.17 (Suppliers and Customers)
Schedule 5.2 (Siler City-Compliance with Laws)
Schedule 5.3.1(a) (Siler City-Ownership of Premises)
Schedule 5.3.1(b) (Siler City-Title Defects)
Schedule 5.3.2(a) (Siler City-Leased Properties)
Schedule 5.3.2(b) (Siler City-Title Defects)
Schedule 5.3.4 (Siler City-Space Leases)
Schedule 5.3.5 (Siler City-Options)
Schedule 5.4 (Siler City-Permitted Liens)
Schedule 5.5 (Siler City-Environmental Matters)
Schedule 5.5(b) (Siler City-Environmental Permits)
Schedule 5.5(i) (Siler City-Hazardous Substance Location)
Schedule 6.2 (Wilkesboro-Compliance with Laws)
Schedule 6.3.1(a) (Wilkesboro-Ownership of Premises)
Schedule 6.3.1(b) (Wilkesboro-Title Defects)
Schedule 6.3.2(a) (Wilkesboro-Leased Properties)
Schedule 6.3.2(b) (Wilkesboro-Title Defects)
Schedule 6.3.4 (Wilkesboro-Space Leases)
Schedule 6.3.5 (Wilkesboro-Options)
Schedule 6.4 (Wilkesboro-Permitted Liens)
Schedule 6.5 (Wilkesboro-Environmental Matters)
Schedule 6.5(b) (Wilkesboro-Environmental Permits)
Schedule 6.5(i) (Wilkesboro-Hazardous Substance Location)
Schedule 8.12 (Letters of Credit)
Exhibits
- --------
Exhibit A (Projected Balance Sheet)
Exhibit B (Wilkesboro Lease)
Exhibit C (Opinion of PW)
Exhibit D (Bill of Sale and Assignment)
Exhibit E (Trademark Assignment)
Exhibit F (Patent Assignment)
Exhibit G (Real Property Lease Assignment & Assumption Agreement)
Exhibit H (Opinion of KC)
Exhibit I (Assumption of Liabilities)
Exhibit J-1 (Assumption of Slagle Employment Agreement)
Exhibit J-2 (Assumption of Floyd Employment Agreement
Exhibit J-3 (Assumption of Wiley L. Brown Employment Agreement)
v
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, dated as of April 29, 1999 (this
"AGREEMENT"), by and among Glendale Group, Ltd., a North Carolina corporation
(the "BUYER"), and Ithaca Industries, Inc., a Delaware corporation (the
"SELLER").
W I T N E S S E T H:
WHEREAS, the Seller owns and leases certain assets at its Siler City
and Liberty operations which are used for the purpose of engaging in the
business of manufacturing, marketing and distributing women's hosiery (the
"SILER CITY BUSINESS");
WHEREAS, the Seller owns and leases certain assets at its Wilkesboro
operations which are used for the purpose of engaging in the business of
manufacturing, marketing and distributing women's hosiery (the "WILKESBORO
BUSINESS");
WHEREAS, the Siler City Business and the Wilkesboro Business, and all
contracts, rights, intangible assets, liabilities and obligations related
thereto are hereinafter referred to as the "BUSINESS";
WHEREAS, the Buyer wishes to purchase and acquire from the Seller and
the Seller wishes to sell, assign and transfer to the Buyer, all of the Assets
(as defined in Section 1.1) and the Business for the Purchase Price (as defined
in Section 3) and the assumption by the Buyer of the Assumed Liabilities (as
defined in Section 1.6) and upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, the Seller has determined that it is in the best interest of
the Seller and its shareholders that the Seller sell the Assets and the Business
to the Buyer, in consideration of the payment of the Purchase Price and the
assumption of the Assumed Liabilities, all upon the terms and conditions and
subject to the provisions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein, and other mutual benefits to be
derived hereby, the parties hereto agree as follows:
1. TRANSFER OF ASSETS AND LIABILITIES.
1.1 ASSETS TO BE SOLD. Subject to the terms and conditions of
this Agreement and in consideration of the payment of the Purchase Price and
assumption of the Assumed Liabilities, at the Closing (as defined in Section
2.1, the Seller shall sell, assign, transfer and convey to the Buyer, free and
clear of all Liens (as defined in Section 17.1 (k)) except Liens securing
Assumed Liabilities, all the assets, properties and rights of the Seller of
every type and description relating to the Business, whether currently idle or
in use, real, personal or mixed, tangible or intangible, choate or inchoate,
known or unknown, fixed or
<PAGE>
unfixed, accrued, absolute, contingent or otherwise, wherever located and
whether or not reflected on the books and records of the Seller or specifically
referred to in this Agreement, except Excluded Assets (as defined in Section
1.5) (all of such assets, properties and rights, collectively, the "ASSETS"),
including, without limitation, all of the Seller's right, title and interest in
and to the Siler City Assets (as defined in Section 1.2), the Wilkesboro Assets
(as defined in Section 1.3) and the General Assets (as defined in Section 1.4).
1.2 SILER CITY ASSETS. The Siler City Assets shall include all
the assets used in connection with the Siler City Business, including, without
limitation, all Siler City Owned Real Property (as defined in Section 5.3.1) and
Siler City Leased Real Property (as defined in Section 5.3.2) and all machinery,
equipment (excluding equipment on loan from vendors), fixtures, furniture and
other personalty located therein or thereon or attached thereto, including
without limitation all equipment as capitalized on the Seller's books and
records set forth on Schedule 1.2 (the "SILER CITY OPERATING ASSETS").
1.3 WILKESBORO ASSETS. The Wilkesboro Assets shall include all
the assets used in connection with the Wilkesboro Business, including, without
limitation, all Wilkesboro Owned Real Property (as defined in Section 6.3.1) and
Wilkesboro Leased Real Property (as defined in Section 6.3.2) and all machinery,
equipment (excluding equipment on loan from vendors), fixtures, furniture and
other personalty located therein or thereon or attached thereto, including
without limitation all equipment as capitalized on the Seller's books and
records set forth on Schedule 1.3 (the "WILKESBORO OPERATING ASSETS").
1.4 GENERAL ASSETS. The General Assets shall include all the
assets (other than the Siler City Assets and the Wilkesboro Assets) used in
connection with the Business, including, without limitation, the following:
(a) all intangible assets, interests and rights
related to the Siler City Operating Assets, the Wilkesboro Operating Assets or
the Business, including, without limitation, all names, trade names, trademarks,
service marks, patents, copyrights (including applications for, rights to
acquire and other rights with respect to any of the foregoing), Trade Secrets
(as defined in Section 4.15.2), and other intellectual property held or used by
the Seller in connection with the Business, including, without limitation, the
intellectual property and computer software set forth on Schedule 4.15, all
advertising, sales and promotional materials, catalogues, price lists, mailing
lists, lists of customers, lists of suppliers, distribution lists, production
data, licenses, technology, know-how, franchises, Siler City Permits (as defined
in Section 5.2), Wilkesboro Permits (as defined in Section 6.2), authorizations,
procedures and documentation;
(b) those contracts and agreements of the Seller set
forth on Schedule 4.16, all Real Property Leases (as defined in Section 6.3.2)
and all Space Leases (as defined in Section 6.3.4);
(c) all of the books, records and files of the Seller
or pertaining to the Business, including, without limitation, all computerized
records and other computerized
2
<PAGE>
storage media and all software and user manuals and documentation relating
thereto;
(d) all accounts receivable, motor vehicles,
inventories of raw materials, work in process, finished products, irregular
goods, goods and parts, office and other supplies, rights under open orders for
the purchase or sale of assets, customer orders, prepayments of every kind,
security deposits and other deposits of every kind, in each case used in or
related to the Business, and all insurance proceeds relating to any of the
Assets;
(e) the goodwill of the Seller relating to the
Business;
(f) all of the other assets, tangible and intangible,
of the Business listed or reflected on the Projected Balance Sheet (as defined
in Section 3.1); and
(g) all assets used in or relating to the Business.
1.5 EXCLUDED ASSETS. The Seller will retain and not transfer,
and the Buyer will not purchase or acquire, (i) the closed Clinton hosiery
facility or any equipment located at the Clinton hosiery facility, (ii) office
furniture, furnishings and equipment relating to the portion of the Wilkesboro
facility to be leased by the Seller from the Buyer pursuant to Section 3.1(d)
below, (iii) the other assets listed on Schedule 1.5, and (iv) all corporate
records, including but not limited to the Seller's corporate minute books, and
tax records of the Seller, except for records, including but not limited to
personnel records, pertaining to the Business (the "BUSINESS RECORDS"), which
the Buyer will purchase and acquire (collectively, the "EXCLUDED ASSETS").
1.6 LIABILITIES TO BE ASSUMED. Effective as of the Closing,
the Buyer shall, without any further responsibility or liability of or recourse
to the Seller or its shareholders, directors, officers, employees, agents,
consultants, representatives, successors, transferees or assignees, absolutely
and irrevocably assume and be solely liable and responsible for the following
liabilities and obligations of the Seller, but in all events excluding the
Excluded Liabilities (as defined in Section 1.7), to the extent existing on the
Closing Date (the "ASSUMED LIABILITIES"):
(a) all liabilities and obligations of the Seller
arising from and after the Closing Date under that certain Subordinated
Promissory Note dated March 24, 1998, from the Seller, as maker, to Glendale
Hosiery Company ("GLENDALE"), as payee, and in principal amount of $736,000 (the
"PROMISSORY NOTE"). The Buyer shall deliver to the Seller a consent from
Glendale to the assumption by the Buyer of the Promissory Note which consent
shall also discharge the Seller from any further liabilities under the
Promissory Note;
(b) all liabilities and obligations up to $100,000 of
the Seller to Glendale arising from and after the Closing Date pursuant to
Section 3.1(d) of the Asset Purchase Agreement dated as of March 13, 1998 by and
between the Seller and Glendale (the "SECTION 3.1(D) OBLIGATION"). The Buyer
shall deliver to the Seller a consent from Glendale to the assumption by the
Buyer of the 3.1(d) Obligation which consent shall also discharge
3
<PAGE>
the Seller from any further liabilities under the Section 3.1(d) Obligation;
(c) all liabilities and obligations of the Seller
arising from and after the Closing Date under the Ithaca Industries, Inc.
Hosiery Division Incentive Bonus Plan (the "BONUS PLAN");
(d) all trade payables and accrued expenses of the
Seller related to the Business, as reflected on the Projected Balance Sheet;
(e) all obligations and liabilities of the Seller
arising from and after the Closing Date under the contracts and agreements of
the Seller set forth on Schedule 4.16, all Real Property Leases and Space Leases
and all liabilities and unperformed and unfulfilled obligations relating to all
purchase orders and sale orders that are assigned to the Buyer pursuant to
Section 1.4(d) hereof; and
(f) all health and hospitalization claims, and all
workers compensation claims with respect to Transferred Employees for costs
(doctor visits, hospitalization) actually incurred by the Employee after the
Closing Date, and all payroll and associated costs after the Closing Date.
1.7 LIABILITIES NOT ASSUMED. Anything in this Agreement to the
contrary notwithstanding, the Buyer shall not assume or in any way be liable or
responsible for, and the Seller shall be responsible for the payment,
performance and discharge of, any liabilities or obligations of the Seller
except as specifically provided in Section 1.6. Without limiting the generality
of the foregoing, and notwithstanding anything to the contrary in Section 1.6,
the Buyer shall not assume, the Assumed Liabilities shall not include, and the
Seller shall retain and indemnify the Buyer against, pursuant to Section 12, the
following (collectively, the "EXCLUDED LIABILITIES"):
(a) all liabilities, obligations and expenses
relating to the Excluded Assets;
(b) all liabilities, obligations and expenses of any
kind in excess of that amount properly accrued on the Closing Balance Sheet;
(c) any Taxes (as defined in Section 5.1) payable by
Seller in accordance with Section 11.2;
(d) defaults by the Seller under any contracts or
other agreements (including, without limitation, Real Property Leases) (i)
occurring on or before the Closing Date or (ii) caused by or arising out of the
execution or performance of this Agreement or the consummation of the
transactions contemplated hereby;
(e) all liabilities, obligations and expenses of any
kind or nature relating to Environmental Actions (as defined in Section 17.1(f))
attributable to the ownership
4
<PAGE>
or operation of the Business or the Assets by the Seller on or prior to the
Closing Date or to events that have occurred, or conditions that existed, on or
prior to the Closing Date;
(f) all claims, liabilities and obligations, known or
unknown, whether absolute, contingent or otherwise, the existence of which is a
breach of any representation, warranty, covenant or agreement of the Seller set
forth in this Agreement;
(g) all accrued interest on the Promissory Note as of
the Closing Date;
(h) all obligations of the Seller pursuant to the
Section 3.1(d) Obligation in excess of $100,000;
(i) all health and hospitalization claims, and
workers compensation claims for costs (doctor visits, hospitalization) actually
incurred by the Employee prior to and including the Closing Date and all payroll
and associated costs through the Closing Date; and
(j) all other liabilities, obligations and expenses
of any nature whatsoever, known or unknown, whether absolute, contingent or
otherwise, not expressly assumed by the Buyer pursuant to Section 1.6.
2. THE CLOSING.
2.1 CLOSING; CLOSING DATE. The closing of the sale and
purchase of the Assets contemplated hereby (the "CLOSING") shall take place at
the offices of Kennedy Covington Lobdell & Hickman, 100 North Tryon Street,
Charlotte, North Carolina at 10:00 a.m. local time on the business day next
following the day upon which all of the conditions to the Closing set forth in
Sections 9 and 10 have been satisfied or waived by the party entitled to waive
the same, but in no event later than April 30, 1999 or at such other place or
such other time or date as the parties may mutually agree in writing. The time
and date upon which the Closing occurs is referred to herein as the "CLOSING
DATE."
3. CONSIDERATION AND PAYMENT.
Subject to the terms and conditions of this Agreement, in
reliance upon the representations, warranties and agreements of the Seller
contained herein, and in consideration of the sale, assignment, transfer and
delivery of the Assets referred to in Section 1, the Buyer agrees to make the
payments provided for in Section 3.1 (the "PURCHASE PRICE"):
3.1 PAYMENT ON THE CLOSING DATE.
(a) At the Closing the Buyer will pay or cause to be
paid, in cash, by wire transfer of immediately available funds, an amount equal
to (i) 95% of the "Estimated Tangible Net Worth" of the Business, as reflected
on the projected balance sheet
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as of April 30, 1999 attached hereto as Exhibit A or as updated by the Seller
prior to the Closing (the "PROJECTED BALANCE SHEET"), plus (ii) $500,000, and
less (iii) the agreed value ($500,000) of the Seller's common stock referred to
in Section 3.1(b) below.
(b) At the Closing, the Buyer shall deliver a
certificate representing 400,000 shares of the Seller's common stock, par value
$.01 per share, duly endorsed for transfer to the Seller.
(c) At the Closing the Buyer shall deliver to the
Seller evidence reasonably satisfactory to the Seller that all persons entitled
to participate in the Bonus Plan have consented and agreed to the Buyer's
assumption of all payment obligations under that Plan and have released the
Seller from any and all liability thereunder.
(d) At the Closing the Buyer and the Seller will
enter into a lease, in substantially the form of Exhibit B attached hereto, for
the approximately 35,000 square feet of office space at the Seller's Wilkesboro
facility and for an appropriate number of parking spaces, which provides that
the initial four years of occupancy will be rent free to the Seller.
3.2 CLOSING TANGIBLE NET WORTH.
(a) Within 60 days after the Closing, the Buyer's
independent auditors shall conduct a full audit (the "FINAL AUDIT") of the
balance sheet of the Business as of the Closing Date and shall determine the
Tangible Net Worth of the Business as of the Closing Date but excluding all
Excluded Assets and Excluded Liabilities on a basis consistent with the
Projected Balance Sheet (but in accordance with GAAP) and in accordance with the
procedures set forth in this Section 3.2 (the "CLOSING TANGIBLE NET WORTH").
(b) Within 5 business days after the preparation of
the Final Audit, the Buyer shall cause a copy of the Final Audit containing the
statement of Closing Tangible Net Worth (the "CLOSING BALANCE SHEET") to be
delivered to the Seller. Following delivery of the Closing Balance Sheet to the
Seller, the Seller and its professional advisors shall be permitted to review
the Buyer's independent auditors' work papers relating to the Closing Balance
Sheet, provided that the Seller executes a release letter in standard form
required by the Buyer's independent auditors. The Closing Balance Sheet shall
become final and binding upon the parties on the thirtieth day following
delivery thereof to the Seller unless the Seller gives written notice of its
disagreement (a "NOTICE OF DISAGREEMENT") to the Buyer prior to such date. Any
Notice of Disagreement shall specify in reasonable detail the nature and amount
of any disagreement so asserted. If a timely Notice of Disagreement is received
by the Buyer, then the Closing Balance Sheet (as revised in accordance with
clause (x) or (y) below) shall become final and binding upon the parties on the
earlier of (x) the date the parties hereto resolve in writing any differences
they have with respect to any matter specified in the Notice of Disagreement or
(y) the date any matters properly in dispute are finally resolved in writing by
the Accounting Firm (as defined below). During the 30 days immediately following
the delivery of a Notice of Disagreement, the Seller and the Buyer
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shall seek in good faith to resolve in writing any difference which they may
have with respect to each matter specified in the Notice of Disagreement. During
such period, the Buyer shall have full access to the working papers of the
Seller prepared in connection with the Seller's preparation of the Notice of
Disagreement. At the end of such 30-day period, the Seller and the Buyer shall
submit to a nationally recognized accounting firm (the "ACCOUNTING FIRM") for
review and resolution of any and all matters which remain in dispute and which
were properly included in the Notice of Disagreement, and the Accounting Firm
shall make a final determination of the Closing Tangible Net Worth, which
determination shall be final and binding on the parties (it being understood,
however, that the Accounting Firm shall act as an arbitrator to determine, based
solely on presentations by the Buyer and the Seller (and not by independent
review), only those matters which remain in dispute and which were properly
included in the Notice of Disagreement). The Accounting Firm shall be selected
by the Seller and the Buyer or, if the parties are unable to agree, by the
Seller's and the Buyer's independent accountants and, if they are unable to
agree, by the American Arbitration Association. The Closing Balance Sheet shall
become final and binding on the Buyer and the Seller on the date the Accounting
Firm delivers its final resolution to the parties (which final resolution shall
be delivered as soon as practicable following the selection of the Accounting
Firm). The fees and expenses of the Accounting Firm pursuant to this Section
shall be borne 50% by the Buyer and 50% by the Seller.
(c) Within 5 business days following the final
determination of Closing Tangible Net Worth under Section 3.2(a) and 3.2(b) (the
"FINAL ADJUSTMENT DATE"), the Buyer shall pay to the Seller the amount by which
Closing Tangible Net Worth exceeds 95% of the Estimated Tangible Net Worth or
the Seller shall pay to the Buyer the amount by which the 95% of the Estimated
Tangible Net Worth exceeds Closing Tangible Net Worth, in each case, in cash, by
wire transfer of immediately available funds.
3.3 ALLOCATION. Within 60 days of the Closing Date, the Buyer
will deliver to the Seller Schedule 3.3 which will set forth the allocation of
the Purchase Price among the Assets. The allocation delivered by the Buyer shall
be based on the Buyer's reasonable, good faith determination of the fair market
value of the Assets and shall be subject to the Seller's consent, which shall
not be unreasonably withheld or delayed. The parties agree to file all tax
reports, returns and claims and other statements consistent with such allocation
set forth on Schedule 3.3 (and in particular to report the information required
by section 1060(b) of the Code) in a manner consistent with such allocation and
shall not make any inconsistent written statement or take any inconsistent
position on any returns, in any refund claim, during the course of any Internal
Revenue Service or other tax audit, for any financial or regulatory purpose, in
any litigation or investigation or otherwise, so long as there exists a
reasonable basis in law to maintain such position. Each party shall notify the
other party if it receives notice that the Internal Revenue Service proposes any
allocation different from Schedule 3.3.
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4. GENERAL REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to the Buyer as follows:
4.1 DUE INCORPORATION AND QUALIFICATION. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and lawful authority to
own, lease and operate its assets, properties and business and to carry on the
Business as now conducted. The Seller is qualified to transact business and is
in good standing as a foreign corporation in each jurisdiction set forth on
Schedule 4.1, which are the only jurisdictions in which the operations of the
Business require the Seller to be so qualified, except for such jurisdictions in
which the failure to be so qualified is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the Business or
the Assets.
4.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. The Seller
has the requisite corporate power and authority to enter into, execute and
deliver this Agreement and each and every agreement and instrument contemplated
hereby to which the Seller is or will be a party, and to perform fully the
Seller's obligations hereunder and thereunder, and this Agreement and each such
other agreement and instrument, upon execution and delivery by the Seller, will
be duly executed and delivered by the Seller and (assuming due execution and
delivery hereof and thereof by the other parties hereto and thereto) will be
valid and binding obligations of the Seller enforceable against the Seller in
accordance with their respective terms.
4.3 NON-CONTRAVENTION. Neither the execution and delivery of
this Agreement or any other agreement or instrument contemplated hereby, the
consummation of the transactions contemplated hereby or thereby nor the
performance of this Agreement or any other agreement or instrument contemplated
hereby in accordance with their respective terms and conditions by the Seller
(a) requires the approval or consent of any governmental body or (except as
otherwise specified on Schedule 4.3 hereto) of any other person, (b) except as
specified on Schedule 4.3, conflicts with or results in any breach or violation
of, results in a material modification of the effect of, otherwise causes the
termination of or gives any other contracting party the right to terminate, or
constitutes (or with notice or lapse of time or both would constitute) a default
under, any agreement, indenture, note, bond, loan, instrument, lease,
conditional sale contract, mortgage, license, franchise, commitment or other
binding arrangement, certificate of incorporation, by-law, judgment, decree,
order, statute, rule, Permit or governmental regulation applicable to the
Seller, the Business or any of the Assets or (c) results in the creation of any
Lien on any of the Assets.
4.4 FINANCIAL STATEMENTS.
4.4.1 The unaudited balance sheet of the Business as
of January 31, 1999, and the related statements of income and retained earnings
and cash flows for the year then ended, including the footnotes thereto, which
have been delivered to the Buyer, fairly present the financial position, results
of operations and cash flows of the Business at such date and for the year then
ended in accordance with GAAP. The balance sheet included in
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the financial statements as at January 31, 1999 and for the year then ended is
sometimes referred to herein as the "UNAUDITED BALANCE SHEET."
4.4.2 The unaudited balance sheet of the Business as
at February 28, 1999, and the related statements of income and retained earnings
and cash flows for the month then ended, including the footnotes thereto, which
have been delivered to the Buyer, fairly present the financial position, results
of operations and cash flows of the Business at such date and for the month then
ended in accordance with GAAP except that such financial statements do not
reflect any Excluded Assets or Excluded Liabilities. The foregoing financial
statements of the Seller as at February 28, 1999 and for the month then ended,
are sometimes referred to herein as the "INTERIM FINANCIALS," the balance sheet
included in the Interim Financials is sometimes referred to herein as the
"INTERIM BALANCE SHEET" and February 28, 1999, is sometimes referred to herein
as the "INTERIM BALANCE SHEET DATE."
4.5 LITIGATION. The Seller is not subject to any outstanding
orders, judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving the Business or any
of the Assets. Except as set forth on Schedule 4.5, the Seller is not a party to
or, to the knowledge of the Seller, threatened with, any litigation or judicial,
administrative or arbitration proceeding involving the Business or the Assets.
Except as set forth on Schedule 4.5, the Seller does not know of any dispute
with any person under contract with the Seller that materially adversely
affects, or may materially adversely affect the Business or any of the Assets.
Except as set forth on Schedule 4.5, to the knowledge of the Seller, there is no
fact, event or circumstance that is reasonably likely to give rise to any
action, suit, claim or proceeding relating to the Business or any of the Assets
that would be required to be set forth on Schedule 4.5 if currently pending or
threatened.
4.6 EMPLOYEES.
4.6.1 Schedule 4.6 sets forth (a) the name and total
compensation of each key Employee and of each employee, consultant or agent of
the Seller employed in connection with the Business (each an "EMPLOYEE") whose
current annual rate of compensation (including bonuses and commissions) exceeds
$50,000 and (b) all wage or salary increases or bonuses received by such persons
since January 31, 1999 and any accrual for or commitment or agreement by the
Seller to pay such increases or bonuses. None of such persons has indicated in
writing to the Seller or to any of the officers or directors of the Seller an
intention to cancel or otherwise terminate such person's relationship with the
Seller.
4.6.2 The Seller has previously delivered to the
Buyer a true and complete list as set forth on Schedule 4.6 of (i) all effective
employment or consulting agreements including memoranda or letters of
understanding and accepted offers of employment with current or former
Employees, including current or former directors and consultants, of the
Business, if still in effect and (ii) all union or collective bargaining
agreements covering Employees. Schedule 4.6 contains a list of all current
Employees, together with the title or job classification of each such Employee,
the Employee's current
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annual rate of base salary or wage, and the Employee's title or job
classification. Copies of each and employment agreement listed on Schedule 4.6
have been delivered to the Buyer.
4.6.3 Except as set forth in Schedule 4.6, (i) there
is no unfair labor practice complaint against the Seller relating to any
Employee pending before the National Labor Relations Board; (ii) there is no
labor strike, slowdown or stoppage actually pending or threatened against the
Seller relating to the Business; (iii) no representation petition respecting the
Employees has been filed with the National Labor Relations Board; (iv) the
Seller has not experienced any primary work stoppage or any attempt to unionize
involving the Employees; (v) no labor union represents or purports to represent
any Employee and there has not been any attempt by any union to organize or
represent the Employees within the last five years; (vi) there are no material
controversies pending between the Seller and any of the Employees, nor to the
Seller's knowledge are any such material controversies threatened; (vii) the
Seller is in compliance with all laws and governmental rules and regulations
relating to the employment of the Employees, including any provisions thereof
relating to wages, hours, collective bargaining and the payment of social
security, withholding and similar taxes; (viii) the Seller has not received
notice that any management Employee intends to terminate his or her employment;
(ix) there are no complaints by or on behalf of any current or former Employee
pending or threatened to be brought before any court, agency of the United
States or any state or local government, alleging discrimination or wrongful
termination of employment on account of sex, race, age, color, national origin,
handicap, marital status, height, weight, payment of wages and benefits (or the
failure to pay same); and (x) all of the Seller's employment, consulting or
similar contracts or arrangements with the Employees may be terminated without
notice and without cost or penalty.
4.7 EMPLOYEE BENEFIT PLANS.
4.7.1 Except as set forth on Schedule 4.7.1, there
are no material employee benefit plans or arrangements of any type (including,
without limitation, plans described in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations thereunder
("ERISA")), under which the Seller has any direct or indirect, actual or
contingent liability with respect to any current or former Employee of the
Business or any entity (each a "Commonly Controlled Entity") that would be
treated as an employer along with the Seller under section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986 of any Employee, as amended, and the
regulations thereunder (the "Code") (collectively, "BENEFIT PLANS").
4.7.2 With respect to each Benefit Plan (where
applicable), the Seller has delivered to the Buyer upon the Buyer's written
request complete and accurate copies of (a) all plan texts and agreements, (b)
all plan summaries and employee communications, (c) all funding vehicles, (d)
the most recent annual report, (e) the most recent annual and periodic
accounting of plan assets, (f) the most recent determination letter received
from the Internal Revenue Service and (g) the most recent actuarial valuation.
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4.7.3 With respect to each Benefit Plan, except as
set forth on Schedule 4.7.3, (a) if intended to qualify under Code section
401(a), such Benefit Plan so qualifies and its related trust is exempt from
taxation under Code section 501(a), (b) each such Benefit Plan has been
administered in accordance with its terms and applicable law, (c) the Seller has
no direct or indirect, actual or contingent liability with respect to any
Benefit Plan other than to make contributions to Benefit Plans covering current
and former Employees in accordance with the terms of such plans, (d) there are
no actions, suits or claims pending (other than routine claims for benefits) or,
to the knowledge of the Seller, threatened, with respect to any Benefit Plan or
against the assets of any Benefit Plan, (e) no nonexempt "prohibited
transaction" (as defined in ERISA section 406 or in Code section 4975) has
occurred, (f) all contributions and premiums due to any Benefit Plan have been
made on a timely basis and (g) all contributions made or required to be made
under any Benefit Plan meet the requirements for deductibility under the Code
and all required contributions to any Benefit Plan that have not been made have
been properly recorded on the books of the Seller in accordance with GAAP.
4.7.4 No Benefit Plan is or has ever been subject to
Title IV of ERISA, Code section 412 or ERISA section 302.
4.7.5 With respect to each Benefit Plan that is a
"welfare plan" (as defined in ERISA section 3(l)), except as set forth on
Schedule 4.7.5, (a) no such plan provides medical or death benefits (whether or
not insured) with respect to current or former Employees beyond their
termination of employment (other than coverage mandated by the Consolidated
Omnibus Budget Reconciliation Act of 1986, as amended, the cost of which is
fully paid by the employee or former employee), (b) there are no reserves,
assets, surplus or prepaid premiums under any such plan and (c) the Seller and
any Commonly Controlled Entity have complied with the requirements of Code
section 4980B.
4.7.6 The consummation of the transactions
contemplated by this Agreement will not (a) entitle any individual to severance
pay, unemployment compensation or similar pay, (b) accelerate the time of
payment or vesting or increase the amount of compensation due to any individual
(c) result in the payment of an amount that would not be deductible due to the
application of Code section 28OG or (d) constitute or involve a non-exempt
prohibited transaction (within the meaning of Code section 4975 or ERISA section
406 or a breach of fiduciary responsibility within the meaning of ERISA section
502(l)).
4.7.7 No Benefit Plan is a "multiemployer plan" (as
defined in ERISA section 3(37)), or a multiple employer plan within the meaning
of the Code or ERISA.
4.8 INSURANCE. Schedule 4.8 sets forth a list and brief
description of all policies or binders of fire, liability, product liability,
workers' compensation, vehicular or other insurance held by or on behalf of the
Seller covering any portion of the Business or the Assets, describing each
pending claim thereunder of more than $5,000 and setting forth the aggregate
amounts paid out under each such policy from December 31, 1993 through the date
hereof and the aggregate limit, if any, of the insurer's liability thereunder.
Such
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policies and binders are valid and enforceable in accordance with their terms,
are in full force and effect and insure against risks and liabilities to the
extent and in the manner deemed appropriate and sufficient by the Seller. The
Seller is not in default with respect to any provision contained in any such
policy or binder nor has the Seller failed to give any notice or present any
claim under any such policy or binder in due and timely fashion. Except for
claims set forth on Schedule 4.8, there are no outstanding unpaid claims under
any such policy or binder. All policies of liability and casualty insurance
(collectively, "INSURANCE POLICIES") heretofore contracted for by or behalf of
the Seller with respect to each parcel of Real Property, or customarily
maintained with respect to similar properties in the applicable region, or
required in connection with the ownership, leasing, use, occupancy or operation
of each parcel of Real Property as currently used, occupied and operated, have
been issued to the Seller by reputable insurance companies and are currently in
full force and effect. The Seller has not received or been informed by a third
party of the receipt by it of any notice from any governmental authority having
jurisdiction over the Real Property or from any insurance carrier or
organization (a) threatening a suspension, revocation, modification or
cancellation of any Insurance Policy or a material increase in any premium in
connection therewith or (b) informing the Seller that any coverage listed on
Schedule 4.8 will or may not be available in the future on substantially the
same terms as now in effect, and, to the best of the Seller's knowledge, there
is no basis for the issuance of any such notice or the taking of any such
action. There is no material inaccuracy in any application for such policies or
binders, no failure to pay premiums when due and no similar state of facts that
might form the basis for termination of any such insurance.
4.9 OPERATION OF THE BUSINESS. Except as set forth on Schedule
4.9, since January 31, 1999 the Seller has not:
(a) changed, or agreed to change, in any manner the
character of the Business;
(b) (i) hired, or agreed to hire for use in the
Business, any Employee or consultant for annual compensation (including bonuses
and commissions) exceeding $50,000, (ii) entered into or amended, or agreed to
enter into or amend, any employment agreement with any Employee, (iii) entered
into, or agreed to enter into, any agreement with any labor union or association
representing any Employee, (iv) entered into or amended, or agreed to enter into
or amend, any Benefit Plan, (v) made any change in the actuarial methods or
assumptions used in funding any pension plan relating to the Employees or (vi)
made any change in the assumptions or factors used in determining benefit
equivalencies thereunder;
(c) waived, or agreed to waive, any right of material
value to the Business or any of the Assets;
(d) made, or agreed to make, any change in its
accounting methods or practices or any change in depreciation or amortization
policies or rates adopted by it that relate to the Business or the Assets;
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(e) materially changed, or agreed to materially
change, any of its business policies or practices that relate to the Business,
including, without limitation, advertising, marketing, pricing, purchasing,
personnel, sales, returns or budget policies or practices;
(f) increased the wages, salary, bonus, benefits
provided under a Benefit Plan or other direct or indirect compensation, for or
to any Employee, or made any commitment to increase the same;
(g) paid, or agreed to pay, any severance or
termination pay to any Employee;
(h) except in the ordinary course of business, (i)
entered into, or agreed to enter into, any lease (as lessor or lessee) on behalf
of the Business or (ii) sold, abandoned or made, or agreed to sell, abandon or
make, any other disposition of any of the assets or properties of the Business;
(i) granted or suffered, or agreed to grant or
suffer, any Lien on any of the assets or properties of the Business;
(j) entered into or amended, or agreed to enter into
or amend, any contract or other agreement by or to which the Assets or the
Business are bound or subject, pursuant to which it agrees to indemnify any
party on behalf of the Business or pursuant to which it agrees to refrain from
competing with any party with respect to the Business;
(k) except in the ordinary course of business,
incurred or assumed, or agreed to incur or assume any liability (whether or not
currently due and payable) in connection with the Business;
(l) terminated, or agreed to terminate, or failed to
renew any contract or other agreement that is or was material to any of the
Assets or the assets, properties, business, prospects, operations or condition
(financial or otherwise) of the Business or received a written indication (that
was not subsequently withdrawn) that a party to such contract or agreement
intends to terminate or fail to renew such contract or agreement;
(m) except in the ordinary course of business,
entered into or amended, or agreed to enter into or amend, any material contract
or other agreement or other material transaction relating to the Business or
waived any material right under any such material contract or other agreement;
(n) except for inventory or equipment in the ordinary
course of business, sold, abandoned or made any other disposition of any of the
Assets; or
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(o) undertaken a capital project or authorized or
committed to
undertake a capital project in connection with the Business involving the
expenditure of $25,000 or more.
4.10 REAL PROPERTY.
4.10.1 CONDEMNATION. The Seller has not received
notice, and has no knowledge of, any pending, threatened or contemplated
condemnation proceeding affecting the Real Property (as defined in Section
6.3.3) or any part thereof or of any sale or other disposition of the Real
Property or any part thereof in lieu of condemnation.
4.10.2 CASUALTY. No portion of the Real Property has
suffered any material damage by fire or other casualty that has not heretofore
been completely repaired and restored to its original condition. No portion of
the Real Property is located in a special flood hazard area as designated by
Federal governmental authorities.
4.10.3 REAL PROPERTY TAXES. Each of the parcels
included in the Real Property is assessed for real estate tax purposes as a
wholly independent tax lot, separate from any adjoining land or improvements not
constituting a part of such parcel. Schedule 4.10.3 sets forth for each such
parcel its assessed valuation for real property tax purposes and the amount of
all real property taxes (including all city, town, school, fire district,
garbage district and other special taxes and also including any special
assessments or conditional levies) levied for each of the current tax year and
the preceding tax year, and sets forth with respect to each such parcel in each
such year whether certiorari proceedings were instituted and, if so, whether the
same are pending or have been adjudicated or settled (and if adjudicated or
settled, the terms of such judgment or settlement). Except as otherwise set
forth herein, the assessment for each Improvement (as defined in Section 6.3.6)
set forth on Schedule 4.10.3 reflects the current state of completion and
condition of such Improvement. The Seller has no knowledge of any pending or
contemplated reassessment of any parcel included in the Owned Real Property (as
defined in Section 6.3.1), or of any pending or contemplated reassessment of any
parcel included in the Leased Real Property (as defined in Section 6.3.2) that
would result in a change in the rent, additional rent or other sums and charges
payable by the Seller under the Real Property Lease covering such Leased Real
Property.
4.10.4 SURVEY. There are no encroachments or other
facts or conditions affecting any parcel of Real Property that would be revealed
by an accurate survey or careful physical inspection thereof that would,
individually or in the aggregate, (a) interfere in any material respect with, or
materially increase the cost of, the use, occupancy or operation thereof as
currently used, occupied and operated or as intended to be used, occupied and
operated or (b) materially reduce the fair market value thereof below the fair
market value such parcel would have had but for such encroachment or other fact
or condition. To the Seller's knowledge, no portion of any Improvement
encroaches upon any property not included within the Real Property or upon the
area of any easement affecting the Real Property.
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4.10.5 MECHANICS AND OTHER LIENS. The Seller does not
owe any money to any architect, contractor, subcontractor or materialman for
labor or materials performed, rendered or supplied to or in connection with any
Real Property within the past four months. There is no work being done at or
materials being supplied to any parcel of Real Property at the date hereof other
than routine maintenance projects having an aggregate cost through completion of
not more than $5,000.
4.10.6 LOAN DOCUMENTS. Schedule 4.10.6 contains a
true, correct and complete Schedule of all notes, bonds, mortgages, deeds of
trust, collateral security documents, guarantees and other related documents
binding upon the Seller or the Seller and one or more others, in connection with
any and all secured financings encumbering or otherwise affecting the Seller's
interest in the Real Property, including all amendments, modifications,
extensions and supplements thereto (collectively, the "LOAN DOCUMENTS"). The
Seller covenants and agrees to cause all of the Liens on the Real Property to be
released and discharged of record at or prior to the Closing and to deliver all
such releases and/or other documents that the Buyer or the Buyer's title
insurance company shall reasonably request to effect and evidence the full
release and discharge of record of all Liens on the Real Property.
4.11 ACCOUNTS RECEIVABLE. All accounts receivable relating to
the Business reflected on the Closing Balance Sheet (a) will have arisen in the
ordinary course of business of the Seller and (b) subject only to a reserve for
bad debts computed in accordance with GAAP and reasonably estimated to reflect
the probable results of collection, will have been fully collected or will be
fully collectible in the ordinary course of business of the Seller in the
aggregate recorded amounts thereof in accordance with their terms. All items
that are required by GAAP to be reflected as accounts receivable on the Closing
Balance Sheet and on the books of the Seller will be so reflected and any
reserve accounts relating thereto will have been established in accordance with
GAAP.
4.12 INVENTORY. The inventory of the Seller that relates to
the Business as set forth on the Closing Balance Sheet (other than irregular
merchandise) will be, and the inventory of the Seller that relates to the
Business currently is, in good and merchantable condition, and is or will be
suitable, usable and salable in the ordinary course of business for the purposes
for which intended. The materials, supplies and work-in-process, and additions
thereto, included in such inventory (a) are substantially equivalent in quality
to the materials, supplies and work-in-process, and additions thereto, generally
included in such inventory in the past, (b) are suitable for the manufacture and
distribution of the Seller's products in a manner substantially equivalent in
quality to that achieved generally by the Business in the past, (c) are not in
excess of the normal purchasing patterns of the Seller as they relate to the
Business, and (d) are valued consistent with GAAP at lower of cost or market on
a first-in first-out basis ("FIFO").
4.13 ACCOUNTS PAYABLE. The Seller has not delayed or postponed
the payment of accounts payable and other liabilities of the Business outside
the ordinary course of business. All accounts payable of the Business reflected
on the Closing Balance Sheet will
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have been incurred in the ordinary course of business, and recorded consistent
with GAAP and past practice.
4.14 TANGIBLE PROPERTY. The facilities, machinery, equipment,
rental equipment, furniture, buildings and other improvements, fixtures,
vehicles, structures, software, any related capitalized items and other tangible
property included in any of the Assets (the "TANGIBLE PROPERTY") are in good
operating condition and repair, subject to continued repair and replacement in
accordance with past practice, and are suitable for their intended use. During
the past year there has not been any significant interruption of the operations
of the Business due to inadequate maintenance of any Tangible Property. All
material leases, conditional sale contracts, franchises or licenses pursuant to
which the Seller may hold or use any interest owned or claimed by the Seller
(including, without limitation, options) in or to Tangible Property have been
delivered or made available to the Buyer and are valid, subsisting agreements,
in full force and effect and binding upon the parties thereto in accordance with
their terms and, with respect to performance by the Seller, there is no default
or event of default or event that with notice or lapse of time or both would
constitute a default.
4.15 INTANGIBLE PROPERTY.
4.15.1 Schedule 4.15 sets forth a complete and accurate list
of:
(a) all United States and foreign trademarks, service
marks, trade names, brand names, trade dress, designs and logos, corporate
names, product or service identifiers, whether registered or not registered, and
pending applications for registration therefor of the Seller that are owned by
it, filed by or on behalf of it and used in the conduct of the Business (except
for those trademark, trade names and corporate names listed on Schedule 1.5) and
all registrations therefore ("TRADEMARKS");
(b) all United States and foreign patents and all
pending United States and foreign patent applications, including any divisions,
continuations, continuations- in-part substitutions or reissues thereof, whether
or not patents are issued on such applications and whether or not such
applications are modified, withdrawn or resubmitted, issued to, used by or filed
by or on behalf of the Seller in connection with the Business ("PATENTS");
(c) all United States and foreign copyrights
including copyrights for printed matter, databases, software and source codes,
whether registered or not registered, and all United States and foreign
copyright registrations and pending applications for copyright registration
therefore issued to, used by, filed by or on behalf of the Seller in connection
with the Business ("COPYRIGHTS");
(d) all existing license agreements or arrangements
to which the Seller is party, whether as licensor or licensee or otherwise, with
respect to any Trademark, Patent or Copyright except for software license
agreements generally available to the public
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under which the Seller is a licensee; and
4.15.2 Except as set forth on Schedule 4.15, all designs,
plans, trade secrets, inventions, know-how, processes, procedures, formulas and
similar rights used by the Seller in connection with the Business, to the extent
not in the public domain (collectively, "TRADE SECRETS"), are owned by the
Seller, free and clear of any and all liabilities, obligations, licenses, Liens
(other than Liens securing indebtedness under the Bank Credit Agreements),
assignments or claims, whether written, oral or implied in fact or law.
4.15.3 Except as set forth on Schedule 4.15:
(a) no Trademarks or Trade Secrets are necessary or
contemplated in the conduct of the Business;
(b) no Patents, inventions, Copyrights, databases,
software, source codes, Trade Secrets or other intangible property rights, or
licenses, franchises, drawings or other proprietary information relating to any
of the foregoing are necessary for the conduct of the Business;
(c) each of the items listed on Schedule 4.15
pursuant to clauses (a), (b) and (c) of Section 4.15.1 (i) is owned by the
Seller, free and clear of any and all liabilities, obligations, licenses, (other
than Liens securing indebtedness under the Bank Credit Agreements) assignments
or claims, whether written, oral or implied in fact or law, (ii) are
transferable to the Buyer hereunder without the approval or consent of any
person and (iii) will continue to be valid and in full force and effect after
the Closing;
(d) none of the items listed on Schedule 4.15 and
used in the Business is the subject of any claim or pending or threatened claim
made by or against the Seller for infringement of any Patent, Trademark, Trade
Secret, Copyright, industrial property right or other proprietary right or to
any claim of unfair competition and, to the knowledge of the Seller, no such
claim is threatened and no basis for any such claim exists; and
(e) to the Seller's knowledge, no person, other than
employees of the Seller, is permitted to possess any copies of or use any of the
databases, software or source codes listed on Schedule 4.15 that contain Trade
Secrets of the Seller.
4.15.4 To its knowledge, the Seller is not, in the operation
or conduct of the Business, making use of any confidential information, Trade
Secret, Patent, Trademark or Copyright of any person except with written
permission or as a result of the acquisition by the Seller of the business of
such person.
4.15.5 Except as set forth on Schedule 4.15, all licenses,
agreements or arrangements listed on Schedule 4.15 (a) are in full force and
effect, (b) are transferable to the Buyer hereunder without the approval or
consent of any person and (c) will continue to
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be valid, binding and in full force and effect after the Closing. Except as set
forth on Schedule 4.15, neither the Seller nor, to the knowledge of the Seller,
any other party to any of such licenses, agreements or arrangements is in
default or alleged default thereunder, in any respect, nor is there any event
which with notice or lapse of time or both would constitute a default
thereunder.
4.15.6 True and correct copies of all letters Patent,
Trademark and Copyright registrations or applications therefor, and licenses,
agreements and arrangements included in any of the Assets have been delivered to
the Buyer, and the originals of all such items will be delivered to the Buyer on
the Closing Date.
4.16 AGREEMENTS. Schedule 4.16 sets forth all of the material
contracts and other agreements relating to the Business to which the Seller is a
party, or by which it is bound, or by or to which any portion of the Business or
any of the Assets are bound or subject, including any of the following contracts
and other agreements, in each case, relating to the Business: (a) contracts and
other agreements with any affiliate of the Seller or any current or former
officer, director, employee, consultant, agent or stockholder of the Seller or
any such affiliate, (b) contracts and other agreements with any labor union or
association representing any Employees, (c) contracts and other agreements not
made in the ordinary course of business, (d) contracts for the purchase of
materials, supplies, goods, services, equipment or other assets providing for
annual payments by the Seller of, or pursuant to which in the last year the
Seller paid in the aggregate, $25,000 or more, (e) sales, distribution or other
similar agreements providing for the sale by the Seller of materials, supplies,
goods, services, equipment or other assets that provides for annual payments to
the Seller of, or pursuant to which in the last year the Seller was paid in the
aggregate, $25,000 or more, (f) distributorship, sales representative,
marketing, agency, dealer or other similar agreements, (g) contracts and other
agreements for the sale of any portion of the Business or any of the Assets
other than in the ordinary course of business or for the grant to any person of
any preferential rights to purchase any portion of the Business or any of the
Assets, (h) joint venture agreements, (i) financing agreements, (j) contracts
and other agreements containing covenants of the Seller (or any affiliate
thereof relating to the Seller) not to compete in any line of business or with
any person in any geographical area or (k) any other material contract or other
agreement, whether or not made in the ordinary course of business. All of the
contracts and other agreements set forth on Schedule 4.16 or any other Schedule
hereto have been delivered or made available to the Buyer upon the Buyer's
written request and are valid, subsisting agreements, in full force and effect
and binding upon the parties thereto in accordance with their respective terms
and the Seller is not in default under any of them, and, to the Seller's
knowledge, no other party to any such contract or other agreement is in default
thereunder. Except as separately identified on Schedule 4.16, the Seller is not
a party to or bound by or subject to any contract or other agreement relating to
the Business that either individually or in the aggregate materially and
adversely affects, or, without breach by one of the parties thereto, may
materially and adversely affect, the Business or any of the Assets or that was
entered into other than in the ordinary course of business. Except as separately
identified on Schedule 4.16, no approval or consent of any person is needed in
order that (i) the contracts and other agreements set forth on
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Schedule 4.16, the Real Property Leases (as defined in Section 6.3.2) and the
Space Leases (as defined in Section 6.3.4) continue in full force and effect
following the consummation of the transactions contemplated by this Agreement
and (ii) the contracts listed on Schedule 4.16, the Real Property Leases and the
Space Leases can be assigned to and assumed by the Buyer and remain in full
force and effect after such assignment and assumption. The Seller's failure to
identify on Schedule 4.16 any contract or agreement required to be disclosed
thereon will not constitute a breach of this Section 4.16 provided that (A) such
failure to identify any such contract or agreement does not have a material
adverse effect on the Buyer and (B) upon the later identification of any such
contract or agreement the Seller promptly assigns its rights thereunder to the
Buyer.
4.17 SUPPLIERS AND CUSTOMERS. Schedule 4.17 sets forth by
dollar volume for the two years ended January 31, 1999 and January 31, 1998, the
ten largest suppliers and the ten largest customers of the Business. Except as
specifically identified on Schedule 4.17, no single supplier or customer is of
material importance to the Business. To the knowledge of the Seller, the
relationships of the Seller with each of the suppliers and customers of the
Business are good commercial working relationships and no supplier or customer
of the Business has canceled or otherwise terminated, or threatened in writing
to cancel or otherwise terminate, its relationship with the Seller, or has
during the last 12 months decreased materially, or threatened to decrease or
limit materially, any such supplier's provision of services, supplies or
materials to the Business or any such customer's usage or purchase of services
or products of the Business. To the Seller's knowledge, the consummation of the
transactions contemplated hereby will not adversely affect the relationship of
the Business with any such supplier or customer. True and correct copies of all
customer and supplier lists of the Business have been delivered to the Buyer.
4.18 NO MATERIAL ADVERSE CHANGE. Since January 31, 1999, there
has been no material adverse change in the assets, properties, business,
prospects, operations or condition (financial or otherwise) of the Business or
any of the Assets, and the Seller does not know of any such change that is
threatened, nor has there been any damage, destruction or loss materially
adversely affecting the Business or any of the Assets, whether or not covered by
insurance.
4.19 FULL DISCLOSURE. All documents and other papers delivered
by or on behalf of the Seller to the Buyer in connection with this Agreement and
the transactions contemplated hereby are true, complete and authentic. This
Agreement, all documents and other papers delivered by or on behalf of the
Seller to the Buyer in connection with this Agreement and the transactions
contemplated hereby and the information furnished by or on behalf of the Seller
to the Buyer in connection with this Agreement and the transactions contemplated
hereby do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements made not false or misleading.
There is no fact known to the Seller that materially adversely affects, or so
far as the Seller is aware, will materially adversely affect, the Business or
any of the Assets or the ability of the Seller to perform this Agreement or the
agreements referred to herein and the transactions contemplated hereby or
thereby.
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4.20 NO BROKER. No broker, finder, agent or similar
intermediary has acted for or on behalf of the Seller or any of its respective
affiliates, in connection with this Agreement or the transactions contemplated
hereby, and no broker, finder, agent or similar intermediary is entitled to any
broker's, finder's or similar fee or other commission in connection therewith
based on any agreement, arrangement or understanding with the Seller or any
affiliate thereof or any action taken by any of the Seller or any affiliate
thereof.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE SILER
CITY BUSINESS. The Seller represents and warrants to the Buyer as follows:
5.1 TAX MATTERS. No state of facts exists or has existed that
arose or is based upon facts or circumstances that occurred after March 24, 1998
and that would constitute grounds for the assessment against the Buyer, whether
by reason of transferee liability or otherwise, of any liability for any
federal, state, county, local, foreign or other tax (including, without
limitation, income, profits, premium, estimated, excise, sales, withholding,
value-added, capital stock, transfer, use, occupancy, gross receipts, franchise,
employment, payroll related, property or any other tax of any sort), whether or
not measured in whole or in part by net income, and including deficiencies,
interest, penalties and additions to tax thereon and obligations under any tax
sharing, tax allocation or similar agreement to which the Seller is a party and
including expenses associated with contesting any proposed adjustment related to
any of the foregoing (collectively, "TAXES") attributable to any period ending
on or before the Closing Date relating to the income, assets and operations of
the Siler City Business or the Siler City Assets, or arising out of the
transactions contemplated by this Agreement, other than any Taxes accrued on the
Closing Balance Sheet. There is no pending or threatened Tax audit of any Tax
return filed by or on behalf of the Seller or with respect to any of the income,
assets and operations of the Siler City Business or the Siler City Assets.
5.2 COMPLIANCE WITH LAWS. Since March 24, 1998, the Seller has
complied in all material respects with all federal, state, county, local and
foreign laws, ordinances, regulations, orders, judgments, injunctions, awards or
decrees applicable to the Siler City Business and the Siler City Assets. To the
Seller's knowledge, the Seller would not be in violation of any law, ordinance,
regulation or other requirement applicable to the Siler City Business or any of
the Siler City Assets that has been enacted or adopted but is not yet effective,
if such law, ordinance, regulation or other requirement were effective at the
date hereof. To the Seller's knowledge, since March 24, 1998, the Seller has not
made any illegal payment on behalf of the Siler City Business to officers or
employees of any governmental or regulatory body or to customers for the sharing
of fees or to customers or suppliers for rebating of charges, engaged in any
other illegal reciprocal practices or illegally given any consideration to
purchasing agents or other representatives of customers in respect of sales made
or to be made by the Seller that relate to the Siler City Business. Except as
set forth on Schedule 5.2, no license, permit, certificate of occupancy,
exemption, consent, waiver, authorization, franchise, right, order or approval
of any federal, state, county, local or foreign governmental or regulatory body
or any insurance company or fire rating or similar board or organization
(collectively, "PERMITS") is material to or necessary for the
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conduct of the Siler City Business or the ownership or use of the Siler City
Assets (any such Permits, "SILER CITY PERMITS"). All Permits included on
Schedule 5.2 are in full force and effect and no proceeding is pending or, to
the knowledge of the Seller, threatened, to revoke or limit any such Permit.
Except as set forth on Schedule 5.2, no action by the Seller or the Buyer is
required in order that all such Permits will remain in full force and effect
following the consummation of the transactions provided for herein.
5.3 REAL ESTATE.
5.3.1 OWNERSHIP OF PREMISES. Since March 24, 1998,
the Seller has done nothing to impair its ownership of good, marketable and
insurable fee title to the land described on Schedule 5.3.1(a) and to all of the
buildings, structures and other improvements located thereon (collectively, the
"SILER CITY OWNED REAL PROPERTY") free and clear of all Title Defects (as
defined in this Section) except as listed on Schedule 5.3.1(b) For purposes of
this Agreement, "TITLE DEFECTS" shall mean and include any mortgage, deed of
trust, Lien (other than Liens securing indebtedness under the Bank Credit
Agreements), pledge, security interest, claim, lease, charge, option, right of
first refusal, easement, restrictive covenant, encroachment or other survey
defect, encumbrance or other restriction or limitation whatsoever.
5.3.2 LEASED PROPERTIES. Schedule 5.3.2(a) is a true,
correct and complete Schedule of all leases, subleases, licenses and other
agreements (collectively, the "SILER CITY REAL PROPERTY LEASES") under which the
Siler City Business uses or occupies or has the right to use or occupy, now or
in the future, any real property (the land, buildings, structures and other
improvements covered by the Siler City Real Property Leases being referred to
herein as the "SILER CITY LEASED REAL PROPERTY"), which Schedule 5.3.2(a) sets
forth the date of and parties to each Siler City Real Property Lease, the date
of and parties to each amendment, modification and supplement thereto, the term
and renewal terms (whether or not exercised) thereof and a brief description of
the Siler City Leased Real Property covered thereby. The Seller has heretofore
delivered to the Buyer true, correct and complete copies of all Siler City Real
Property Leases (including all modifications, amendments and supplements). Since
March 24, 1998, the Seller has done nothing to adversely affect the validity or
effectiveness of any Siler City Real Property Lease. From and after March 24,
1998, (i) All rent and other sums and charges payable by the Seller as tenant
under all Siler City Real Property Leases are current, no notice of default or
termination under any Siler City Real Property Lease is outstanding, (ii) no
termination event or condition or uncured default on the part of the Seller or,
to the best of the Seller's knowledge, the landlord, exists under any Siler City
Real Property Lease, and (iii) no event has occurred and no condition exists
which, with the giving of notice or the lapse of time or both, would constitute
such a default or termination event or condition. Except for any interest which
arose on or prior to March 24, 1998, to the Seller's knowledge there is no
underlying mortgage, deed of trust, lease grant of term or other estate in or
interest affecting the fee simple reversionary interest of the landlord under
the Siler City Real Property Leases in and to the Siler City Leased Real
Property that is superior to the interest of the Seller as tenant under the
applicable Siler City Real Property Leases. The Seller holds the leasehold
estate under and interest in each
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Siler City Real Property Lease free and clear of all Title Defects (exclusive of
mortgages which will be assumed by the Buyer or satisfied by the Seller at the
Closing) except those Title Defects listed on Schedule 5.3.2(b). None of the
Seller, or any affiliate or stockholder thereof has any ownership, financial or
other interest in the landlord under any Siler City Real Property Lease.
5.3.3 ENTIRE PREMISES. All of the land, buildings,
structures, plants, facilities and other improvements used by the Seller in the
conduct of the Siler City Business are included in the Siler City Owned Real
Property and the Siler City Leased Real Property. The Siler City Leased Real
Property and the Siler City Owned Real Property are collectively referred to
herein as the "SILER CITY REAL PROPERTY."
5.3.4 SPACE LEASES. Schedule 5.3.4 is a true, correct
and complete Schedule of all leases, subleases, licenses and other agreements
(collectively, the "SILER CITY SPACE LEASES") granting to any person or entity
other than the Seller any right to the possession, use, occupancy or enjoyment
of the Siler City Real Property or any portion thereof, which Schedule sets
forth the date of and parties to each Siler City Space Lease, the date of and
parties to each amendment, modification and supplement thereto, the term and
renewal terms (whether or not exercised) thereof and a brief description of the
portion of the Siler City Real Property covered thereby. The Seller has
heretofore delivered to the Buyer true, correct and complete copies of all Siler
City Space Leases (including all modifications, amendments and supplements).
Each Siler City Space Lease is valid, binding and in full force and effect, all
rent and other sums and charges payable by the tenant or occupant thereunder
(each a "SILER CITY SPACE TENANT") are current, no notice of default or
termination under any Siler City Space Lease is outstanding, no termination
event or condition or uncured default on the part of the Seller or, to the best
of the Seller's knowledge, the Siler City Space Tenant, exists under any Siler
City Space Lease, and no event has occurred and no condition exists that, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. The Seller holds the landlord's
interest in each Siler City Space Lease free and clear of all Title Defects
(exclusive of mortgages which will be satisfied by the Seller at the Closing).
None of the Seller, or any affiliate thereof has any ownership, financial or
other interest in the Space Tenant under any Siler City Space Lease.
5.3.5 NO OPTIONS. Except as set forth on Schedule
5.3.5, none of the Seller, or any affiliate thereof owns or holds, or is
obligated under or a party to, any option, right of first refusal or other
contractual right to purchase, acquire, sell or dispose of the Siler City Real
Property or any portion thereof or interest therein.
5.3.6 CONDITION AND OPERATION OF IMPROVEMENTS. To the
Seller's knowledge, all components of all buildings, structures and other
improvements included within the Siler City Real Property (the "SILER CITY
IMPROVEMENTS"), including but not limited to the roofs and structural elements
thereof and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facilities included therein, are in good operating condition
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and repair, subject to continued repair and replacement in accordance with past
practice. To the Seller's knowledge, all water, gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems serving each Siler City Real Property parcel are
installed and operating and are sufficient to enable each such parcel to
continue to be used and operated in the manner currently being used and
operated, and any so-called hookup fees or other associated charges have been
fully paid. To the Seller's knowledge, each such utility or other service is
provided by a public or private utility or service company and enters the
applicable Siler City Real Property parcel from an adjacent public street or
valid private easement owned by the supplier of such utility or other service.
To the Seller's knowledge, each Siler City Improvement has direct access to a
public street adjoining the Siler City Real Property on which such Siler City
Improvement is situated over the driveways and accessways currently being used
in connection with the use and operation of such Siler City Improvement, and no
existing accessway, crosses or encroaches upon any property or property interest
not owned or leased by the Seller. To the Seller's knowledge, no Siler City
Improvement or portion thereof is dependent for its access, operation or utility
on any land, building or other improvement not included in the Siler City Real
Property.
5.3.7 REAL PROPERTY LAWS. Since March 24, 1998 the
Seller has done nothing to cause the Siler City Real Property and its continued
use, occupancy and operation as currently used, occupied and operated to
constitute a material nonconforming use under any applicable building, zoning,
subdivision or other land use or similar law, ordinance, regulation, order or
decree (collectively, "REAL PROPERTY LAWS"). To Seller's knowledge, the
continued existence, use, occupancy and operation of each Siler City Improvement
in the manner presently used, occupied or operated is not dependent on the
granting of any special permit, exception, approval or variance. The Seller has
no knowledge of any pending or anticipated change in any Real Property Law that
would have a material adverse effect upon the ownership, use, occupancy or
operation of the Siler City Real Property or any portion thereof, or upon the
making of reasonable additions or alterations to the Siler City Improvements
thereat or upon reconstruction of any Siler City Improvement in the event of a
casualty. No dispute currently exists between the Seller and any governmental
authority having jurisdiction over the Siler City Real Property with respect to
any Real Property Law or the application thereof to the Siler City Real
Property.
5.4 OWNERSHIP AND ADEQUACY OF ASSETS. Except for any defects
in title that existed on or before March 24, 1998, the Seller owns outright and
has good title to all of the Siler City Assets being transferred to the Buyer
hereunder (other than the Siler City Leased Real Property and leased equipment),
in each case free and clear of any Liens (other than Liens securing indebtedness
under the Bank Credit Agreements) other than equipment Liens as described in
Schedule 5.4). To the Seller's knowledge, the Siler City Assets include all
rights, properties and other assets necessary to the conduct of the Siler City
Business in the same manner as it has been conducted prior to the date hereof.
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5.5 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
5.5:
(a) Since March 24, 1998 neither the Seller's conduct
of the Siler City Business nor its ownership or operation of the Siler City
Assets is or has been in material violation of any applicable Environmental Law.
(b) To the Seller's knowledge, the Seller has all
Siler City Permits required pursuant to Environmental Laws in connection with
the ownership or operation of the Siler City Business or the Siler City Assets,
all such Siler City Permits are in full force and effect, no action or
proceeding to revoke, limit or modify any such Siler City Permits is pending and
the ownership and operation of the Siler City Business and the Siler City Assets
is in material compliance in all respects with all terms and conditions thereof.
All such Siler City Permits are listed on Schedule 5.5(b).
(c) The Seller has not received, and will not receive
due to the consummation of this transaction, any Environmental Action relating
to its ownership or operation of the Siler City Business or the Siler City
Assets.
(d) To the Seller's knowledge, the Seller has filed
all notices since March 24, 1998 required under Environmental Laws indicating
the past or present Release (as defined in Section 17.1(n)), generation,
treatment, storage or disposal of Hazardous Substances (as defined in Section
17.1(j)) in connection with its ownership or operation of the Siler City
Business or the Siler City Assets.
(e) Since March 24, 1998, the Seller has not entered
into any written agreement with any governmental authority or any other person
by which the Seller has assumed responsibility, either directly or as a
guarantor or surety for the remediation of any condition arising from or
relating to a Release or threatened Release of Hazardous Substances into the
Environment (as defined in Section 17.1(e)).
(f) To the Seller's knowledge, there is not now and
has not been since March 24, 1998 a Release or threatened Release of Hazardous
Substances into the Environment at, on, in or under any of the Siler City
Assets, or arising in any way out of its ownership or operation of the Siler
City Business or the Siler City Assets.
(g) There is not now and since March 24, 1998 has not
been at any time, on or in any of the Siler City Assets and, to the knowledge of
the Seller, was not at, on or in any real property previously owned, leased or
operated by the Seller or any predecessor or affiliate in connection with the
Siler City Business (i) any generation, use, handling, Release, treatment,
recycling, storage or disposal of any "hazardous wastes" (as defined in the
Resource Conservation and Recovery Act), (ii) any underground storage tank,
surface impoundment, lagoon or other containment facility (past or present) for
the temporary or permanent storage, treatment or disposal of Hazardous
Substances, (iii) any landfill or solid waste disposal area, (iv) any
asbestos-containing material, (v) any polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other
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equipment, (vi) any Release or threatened Release, or any visible signs of
Releases or threatened Releases, of a Hazardous Substance to the Environment in
form or quantity requiring Remedial Action (as defined in Section 17.1(o)) under
Environmental Laws or (vii) any Hazardous Substances present at such property,
excepting such quantities as are or were handled in accordance with all
applicable manufacturer's instructions and Environmental Laws and in proper
storage containers, and as are necessary for the operations of the Business and
the Assets.
(h) To the knowledge of the Seller, based on
reasonable investigation, there is no basis or reasonably anticipated basis for
any Environmental Action or Environmental Compliance Costs (as defined in
Section 17.1(g)) in connection with the Siler City Business or the Siler City
Assets.
(i) Since March 24, 1998 the Seller has not
transported, stored, treated or disposed, nor has it allowed or arranged for any
third persons to transport, store, treat or dispose, any Hazardous Substance
generated in connection with its ownership or operation of the Siler City
Business or the Siler City Assets to or at (i) any location other than a site
lawfully permitted to receive such substances for such purposes or (ii) any
location designated for Remedial Action pursuant to Environmental Laws; nor has
it performed, arranged for or allowed by any method or procedure such
transportation or disposal in contravention of any Environmental Laws or in any
other manner that may result in Environmental Compliance Costs or in an
Environmental Action. All locations at which any Hazardous Substances generated
in connection with the Seller's ownership or operation of the Siler City
Business or the Siler City Assets have been disposed of are listed on Schedule
5.5(i).
6. REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE
WILKESBORO BUSINESS. The Seller represents and warrants to the Buyer as follows:
6.1 TAX MATTERS. No state of facts exists or has existed that
would constitute grounds for the assessment against the Buyer, whether by reason
of transferee liability or otherwise, of any liability for any Taxes
attributable to any period ending on or before the Closing Date relating to the
income, assets and operations of the Wilkesboro Business or the Wilkesboro
Assets other than any Taxes accrued on the Closing Balance Sheet, or arising out
of the transactions contemplated by this Agreement. There is no pending or
threatened Tax audit of any Tax return filed by or on behalf of the Seller with
respect to any of the income, assets and operations of the Wilkesboro Business
or the Wilkesboro Assets.
6.2 COMPLIANCE WITH LAWS. The Seller has complied in all
material respects with all federal, state, county, local and foreign laws,
ordinances, regulations, orders, judgments, injunctions, awards or decrees
applicable to the Wilkesboro Business and the Wilkesboro Assets. To the
knowledge of the Seller, the Seller would not be in violation of any law,
ordinance, regulation or other requirement applicable to the Wilkesboro Business
or any of the Wilkesboro Assets that has been enacted or adopted but is not yet
effective, if
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such law, ordinance, regulation or other requirement were effective at the date
hereof. The Seller has not made any illegal payment on behalf of the Wilkesboro
Business to officers or employees of any governmental or regulatory body or to
customers for the sharing of fees or to customers or suppliers for rebating of
charges, engaged in any other illegal reciprocal practices or illegally given
any consideration to purchasing agents or other representatives of customers in
respect of sales made or to be made by the Seller that relate to the Wilkesboro
Business. Except as set forth on Schedule 6.2, no Permit is material to or
necessary for the conduct of the Wilkesboro Business or the ownership or use of
the Wilkesboro Assets (any such Permits, "WILKESBORO PERMITS"). All Permits
included on Schedule 6.2 are in full force and effect and no proceeding is
pending or, to the knowledge of the Seller, threatened, to revoke or limit any
such Permit. Except as set forth on Schedule 6.2, no action by the Seller or the
Buyer is required in order that all such Permits will remain in full force and
effect following the consummation of the transactions provided for herein.
6.3 REAL ESTATE.
6.3.1 OWNERSHIP OF PREMISES. The Seller is the owner
of good, marketable and insurable fee title to the land described on Schedule
6.3.1(a) and to all of the buildings, structures and other improvements located
thereon (collectively, the "WILKESBORO OWNED REAL PROPERTY" and together with
the Siler City Real Property, the "OWNED REAL PROPERTY") free and clear of all
Title Defects (as defined in Section 5.3.1) except as listed on Schedule
6.3.1(b).
6.3.2 LEASED PROPERTIES. Schedule 6.3.2(a) is a true,
correct and complete Schedule of all leases, subleases, licenses and other
agreements (collectively, the "WILKESBORO REAL PROPERTY LEASES" and together
with the Siler City Real Property Leases, the "REAL PROPERTY LEASES") under
which the Wilkesboro Business uses or occupies or has the right to use or
occupy, now or in the future, any real property (the land, buildings, structures
and other improvements covered by the Wilkesboro Real Property Leases being
referred to herein as the "WILKESBORO LEASED REAL PROPERTY" and together with
the Siler City Leased Real Property, the "LEASED REAL PROPERTY"), which Schedule
6.3.2(a) sets forth the date of and parties to each Wilkesboro Real Property
Lease, the date of and parties to each amendment, modification and supplement
thereto, the term and renewal terms (whether or not exercised) thereof and a
brief description of the Wilkesboro Leased Real Property covered thereby. The
Seller has heretofore delivered to the Buyer true, correct and complete copies
of all Wilkesboro Real Property Leases (including all modifications, amendments
and supplements). Each Wilkesboro Real Property Lease is valid, binding and in
full force and effect, all rent and other sums and charges payable by the Seller
as tenant thereunder are current, no notice of default or termination under any
Wilkesboro Real Property Lease is outstanding, no termination event or condition
or uncured default on the part of the Seller or, to the best of the Seller's
knowledge, the landlord, exists under any Wilkesboro Real Property Lease, and no
event has occurred and no condition exists which, with the giving of notice or
the lapse of time or both, would constitute such a default or termination event
or condition. To the Seller's knowledge there is no underlying mortgage, deed of
trust, lease grant of term or other estate in or interest affecting the fee
simple reversionary interest of the
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landlord under the Wilkesboro Real Property Leases in and to the Wilkesboro
Leased Real Property that is superior to the interest of the Seller as tenant
under the applicable Wilkesboro Real Property Leases. The Seller holds the
leasehold estate under and interest in each Wilkesboro Real Property Lease free
and clear of all Title Defects (exclusive of mortgages which will be assumed by
the Buyer or satisfied by the Seller at the Closing) except those Title Defects
listed on Schedule 6.3.2(b). None of the Seller, or any affiliate or stockholder
thereof has any ownership, financial or other interest in the landlord under any
Wilkesboro Real Property Lease.
6.3.3 ENTIRE PREMISES. All of the land, buildings,
structures, plants, facilities and other improvements used by the Seller in the
conduct of the Wilkesboro Business are included in the Wilkesboro Owned Real
Property and the Wilkesboro Leased Real Property. The Wilkesboro Leased Real
Property and the Wilkesboro Owned Real Property are collectively referred to
herein as the "WILKESBORO REAL PROPERTY." The Wilkesboro Real Property and the
Siler City Real Property are collectively referred to herein as the "REAL
PROPERTY."
6.3.4 SPACE LEASES. Schedule 6.3.4 is a true, correct
and complete Schedule of all leases, subleases, licenses and other agreements
(collectively, the "WILKESBORO SPACE LEASES" and together with the Siler City
Space Leases, the "SPACE LEASES") granting to any person or entity other than
the Seller any right to the possession, use, occupancy or enjoyment of the
Wilkesboro Real Property or any portion thereof, which Schedule sets forth the
date of and parties to each Wilkesboro Space Lease, the date of and parties to
each amendment, modification and supplement thereto, the term and renewal terms
(whether or not exercised) thereof and a brief description of the portion of the
Wilkesboro Real Property covered thereby. The Seller has heretofore delivered to
the Buyer true, correct and complete copies of all Wilkesboro Space Leases
(including all modifications, amendments and supplements). Each Wilkesboro Space
Lease is valid, binding and in full force and effect, all rent and other sums
and charges payable by the tenant or occupant thereunder (each a "WILKESBORO
SPACE TENANT" and together with the Siler City Space Tenants, the "SPACE
TENANTS") are current, no notice of default or termination under any Wilkesboro
Space Lease is outstanding, no termination event or condition or uncured default
on the part of the Seller or, to the best of the Seller's knowledge, the
Wilkesboro Space Tenant, exists under any Wilkesboro Space Lease, and no event
has occurred and no condition exists that, with the giving of notice or the
lapse of time or both, would constitute such a default or termination event or
condition. The Seller holds the landlord's interest in each Wilkesboro Space
Lease free and clear of all Title Defects (exclusive of mortgages which will be
satisfied by the Seller at the Closing). None of the Seller, or any affiliate
thereof has any ownership, financial or other interest in the Space Tenant under
any Wilkesboro Space Lease.
6.3.5 NO OPTIONS. Except as set forth on Schedule
6.3.5, none of the Seller, or any affiliate thereof owns or holds, or is
obligated under or a party to, any option, right of first refusal or other
contractual right to purchase, acquire, sell or dispose of the Wilkesboro Real
Property or any portion thereof or interest therein.
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6.3.6 CONDITION AND OPERATION OF IMPROVEMENTS. All
components of all buildings, structures and other improvements included within
the Wilkesboro Real Property (the "WILKESBORO IMPROVEMENTS" and together with
the Siler City Improvements, the "IMPROVEMENTS"), including but not limited to
the roofs and structural elements thereof and the heating, ventilation, air
conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water,
paving and parking equipment, systems and facilities included therein, are in
good operating condition and repair, subject to continued repair and replacement
in accordance with past practice. To the Seller's knowledge, all water, gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving each Wilkesboro Real
Property parcel are installed and operating and are sufficient to enable each
such parcel to continue to be used and operated in the manner currently being
used and operated, and any so-called hookup fees or other associated charges
have been fully paid. To the Seller's knowledge, each such utility or other
service is provided by a public or private utility or service company and enters
the applicable Wilkesboro Real Property parcel from an adjacent public street or
valid private easement owned by the supplier of such utility or other service.
To the Seller's knowledge, each Wilkesboro Improvement has direct access to a
public street adjoining the Wilkesboro Real Property on which such Wilkesboro
Improvement is situated over the driveways and accessways currently being used
in connection with the use and operation of such Wilkesboro Improvement, and no
existing accessway, crosses or encroaches upon any property or property interest
not owned or leased by the Seller. To the Seller's knowledge, no Wilkesboro
Improvement or portion thereof is dependent for its access, operation or utility
on any land, building or other improvement not included in the Wilkesboro Real
Property.
6.3.7 REAL PROPERTY LAWS. The Wilkesboro Real
Property and its continued use, occupancy and operation as currently used,
occupied and operated does not constitute a material nonconforming use under any
applicable Real Property Law. The continued existence, use, occupancy and
operation of each Wilkesboro Improvement in the manner presently used, occupied
or operated is not dependent on the granting of any special permit, exception,
approval or variance. The Seller has no knowledge of any pending or anticipated
change in any Real Property Law that would have a material adverse effect upon
the ownership, use, occupancy or operation of the Wilkesboro Real Property or
any portion thereof, or upon the making of reasonable additions or alterations
to the Wilkesboro Improvements thereat or upon reconstruction of any Wilkesboro
Improvement in the event of a casualty. No dispute currently exists between the
Seller and any governmental authority having jurisdiction over the Wilkesboro
Real Property with respect to any Real Property Law or the application thereof
to the Wilkesboro Real Property.
6.4 OWNERSHIP AND ADEQUACY OF ASSETS. The Seller owns outright
and has good title to all of the Wilkesboro Assets being transferred to the
Buyer hereunder (other than the Wilkesboro Leased Real Property and leased
equipment), in each case free and clear of any Liens (other than Liens securing
indebtedness under the Bank Credit Agreements and equipment Liens as described
in Schedule 6.4. The Wilkesboro Assets include all rights, properties and other
assets necessary to the conduct of the Wilkesboro Business in the same manner as
it has been conducted prior to the date hereof.
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6.5 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
6.5:
(a) Neither the Seller's conduct of the Wilkesboro
Business nor its ownership or operation of the Wilkesboro Assets is or has been
in material violation of any applicable Environmental Law.
(b) The Seller has all Wilkesboro Permits required
pursuant to Environmental Laws in connection with the ownership or operation of
the Wilkesboro Business or the Wilkesboro Assets, all such Wilkesboro Permits
are in full force and effect, no action or proceeding to revoke, limit or modify
any such Wilkesboro Permits is pending and the ownership and operation of the
Wilkesboro Business and the Wilkesboro Assets is in material compliance in all
respects with all terms and conditions thereof. All such Wilkesboro Permits are
listed on Schedule 6.5(b).
(c) The Seller has not received, and will not receive
due to the consummation of this transaction, any Environmental Action relating
to its ownership or operation of the Wilkesboro Business or the Wilkesboro
Assets.
(d) The Seller has filed all notices required under
Environmental Laws indicating the past or present Release (as defined in Section
17.1(n)), generation, treatment, storage or disposal of Hazardous Substances (as
defined in Section 17.1(j)) in connection with its ownership or operation of the
Wilkesboro Business or the Wilkesboro Assets.
(e) The Seller has not entered into any written
agreement with any governmental authority or any other person by which the
Seller has assumed responsibility, either directly or as a guarantor or surety
for the remediation of any condition arising from or relating to a Release or
threatened Release of Hazardous Substances into the Environment (as defined in
Section 17.l(e)).
(f) To the Seller's knowledge, there is not now and
has not been at any time in the past a Release or threatened Release of
Hazardous Substances into the Environment at, on, in or under any of the
Wilkesboro Assets, or arising in any way out of its ownership or operation of
the Wilkesboro Business or the Wilkesboro Assets.
(g) There is not now and has not been at any time in
the past at, on or in any of the Wilkesboro Assets and, to the knowledge of the
Seller, was not at, on or in any real property previously owned, leased or
operated by the Seller or any predecessor or affiliate in connection with the
Wilkesboro Business (i) any generation, use, handling, Release, treatment,
recycling, storage or disposal of any "hazardous wastes" (as defined in the
Resource Conservation and Recovery Act), (ii) any underground storage tank,
surface impoundment, lagoon or other containment facility (past or present) for
the temporary or permanent storage, treatment or disposal of Hazardous
Substances, (iii) any landfill or solid waste disposal area, (iv) any
asbestos-containing material, (v) any polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other equipment, (vi) any Release or
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threatened Release, or any visible signs of Releases or threatened Releases, of
a Hazardous Substance to the Environment in form or quantity requiring Remedial
Action (as defined in Section 17.1(o)) under Environmental Laws or (vii) any
Hazardous Substances present at such property, excepting such quantities as are
or were handled in accordance with all applicable manufacturer's instructions
and Environmental Laws and in proper storage containers, and as are necessary
for the operations of the Business and the Assets.
(h) To the knowledge of the-Seller, based on
reasonable investigation, there is no basis or reasonably anticipated basis for
any Environmental Action or Environmental Compliance Costs (as defined in
Section 17.1(g)) in connection with the Wilkesboro Business or the Wilkesboro
Assets.
(i) The Seller has not transported, stored, treated
or disposed, nor has it allowed or arranged for any third persons to transport,
store, treat or dispose, any Hazardous Substance generated in connection with
its ownership or operation of the Wilkesboro Business or the Wilkesboro Assets
to or at (i) any location other than a site lawfully permitted to receive such
substances for such purposes or (ii) any location designated for Remedial Action
pursuant to Environmental Laws; nor has it performed, arranged for or allowed by
any method or procedure such transportation or disposal in contravention of any
Environmental Laws or in any other manner that may result in Environmental
Compliance Costs or in an Environmental Action. All locations at which any
Hazardous Substances generated in connection with the Seller's ownership or
operation of the Wilkesboro Business or the Wilkesboro Assets have been disposed
of are listed on Schedule 6.5(i).
7. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Seller as follows:
7.1 DUE INCORPORATION AND QUALIFICATION. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the state of North Carolina and has the corporate power and lawful authority
to own, lease and operate its assets, properties and business and to carry on
its business as now conducted. Prior to the consummation of the Closing, the
Buyer is not required to be qualified as a foreign corporation in any
jurisdiction.
7.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. The Buyer has
the requisite corporate power and authority to enter into, execute and deliver
this Agreement and each and every other agreement and instrument contemplated
hereby to which the Buyer is or will be a party, and to perform fully the
Buyer's obligations hereunder and thereunder, and this Agreement and each such
other agreement and instrument, upon execution and delivery by the Buyer, will
be duly executed and delivered by the Buyer and (assuming due execution and
delivery hereof and thereof by the other parties hereto and thereto) will be
valid and binding obligations of the Buyer enforceable against the Buyer in
accordance with their respective terms.
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7.3 NON-CONTRAVENTION. Neither the execution and delivery of
this Agreement or any other agreement or instrument contemplated hereby, the
consummation of the transactions contemplated hereby or thereby nor the
performance of this agreement or any other agreement or instrument contemplated
hereby in accordance with their respective terms and conditions by the Buyer (a)
requires the approval or consent of any governmental body or (b) conflicts with
or results in any breach or violation of, results in a material modification of
the effect of, otherwise causes the termination of, or constitutes (or with
notice or lapse of time or both would constitute) a default under, any
certificate of incorporation, by-law, judgment, decree, order, statute, rule,
Permit or governmental regulation applicable to the Buyer.
7.4 NO BROKER. No broker, finder, agent or similar
intermediary has acted for or on behalf of the Buyer or any affiliate of the
Buyer in connection with this Agreement or the transactions contemplated hereby,
and no broker, finder, agent or similar intermediary is entitled to any
broker's, finder's or similar fee or other commission in connection therewith
based on any agreement, arrangement or understanding with the Buyer or any of
its affiliates; provided, however, that the Buyer has received financial advice
from Jacobs Capital, L.L.C. ("JACOBS") and that the Buyer will be solely
responsible for the fees and expenses of such firm.
7.5 FINANCING. The Buyer has received commitment letters for
the financings needed to effectuate the transactions contemplated by this
Agreement. The Buyer has delivered to the Seller true and complete copies of all
such financing commitment letters and the Buyer has no reason to believe it will
not be able to consummate the financing described thereon.
8. COVENANTS AND AGREEMENTS. The parties covenant and agree as follows:
8.1 CONDUCT OF BUSINESS. From the date hereof through the
Closing Date, the Seller shall conduct the Business in the ordinary course of
business and, without the prior written consent of the Buyer, the Seller shall
not undertake any of the actions specified in Sections 4.9, 5.5(i) and 6.5(i).
8.2 INSURANCE. From the date hereof through the Closing Date,
the Seller shall maintain in force (including necessary renewals thereof) the
insurance policies relating to the Business or any of the Assets listed on
Schedule 4.8, except to the extent that they may be replaced with policies
appropriate to insure the assets, properties and business of the Business or any
of the Assets to the same extent as currently insured.
8.3 PRESERVATION OF BUSINESS. From the date hereof through the
Closing Date, the Seller shall use its best efforts to preserve the business
organization of the Business intact, use its best efforts to keep available the
services of the employees and the present consultants and agents of the
Business, use its best efforts to maintain the present suppliers and customers
of the Business and use its best efforts to preserve the goodwill of the
Business.
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8.4 LITIGATION. From the date hereof through the Closing Date,
the Seller shall promptly notify the Buyer of any investigations of which the
Seller has knowledge or any lawsuits, claims or proceeding that after the date
hereof are commenced or, to the knowledge of the Seller, threatened against the
Seller or against any officer, director, employee, consultant, agent,
stockholder or other representative of the Seller arising out of or relating to
the affairs or conduct of the Business or relating to any of the Assets.
8.5 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES
OF THE SELLER. From the date hereof through the Closing Date, the Seller shall
not take any action that would result (or omit to take any action if such
omission would result) in nonsatisfaction of the condition set forth in Section
9.1 that all representations and warranties contained in Sections 4, 5 and 6
shall continue to be true in all material respects on and as of the Closing Date
as if made on and as of the Closing Date and the Seller shall promptly give
notice to the Buyer of any event, condition or circumstance occurring from the
date hereof through the Closing Date that would cause such representations and
warranties to become untrue in any respect or that would constitute a violation
or breach of this Agreement.
8.6 CORPORATE EXAMINATIONS AND INVESTIGATIONS.
(a) Prior to the Closing Date, the Buyer shall be
entitled, through its employees and representatives, including, without
limitation, Kennedy Covington Lobdell & Hickman, L.L.P., Deloitte & Touche, and
Jacobs to make such investigation of the assets, properties, business and
operations of the Business and such examination of the books, records and
financial conditions of the Business as the Buyer reasonably deems necessary.
Any such investigation and examination shall be conducted at reasonable times
and under reasonable circumstances and the Seller shall cooperate fully therein.
No investigation by the Buyer shall, however, diminish or obviate in any way any
of the representations, warranties, covenants or agreements of the Seller under
this Agreement. In order that the Buyer may have full opportunity to make such
business, accounting, legal and environmental review, examination or
investigation as it deems necessary, the Seller shall furnish or make available
to the representatives of the Buyer during such period all such information and
copies of such documents concerning the affairs of the Seller as such
representatives may reasonably request, and the Seller shall cause its officers,
employees, consultants, agents, accountants and attorneys to cooperate fully
with such representatives in connection with such review and examination and to
make full disclosure to the Buyer of all material facts affecting the financial
condition and business operations of the Business. In addition, the Seller shall
make available to the Buyer and its representatives full and complete copies of
all returns, reports and forms filed by the Seller relating to Taxes on the
Business for taxable periods for which the statute of limitations for the
assessment of taxes has not expired.
(b) Notwithstanding the foregoing, without the prior
written consent of the Seller, the Buyer shall not take groundwater or soil
samples or perform any soil or groundwater testing. If the Buyer requests
permission to engage in groundwater and/or soil sampling or testing, and such
permission is denied by the Seller, then the Buyer may elect within five
business days of such denial to terminate this Agreement without penalty.
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8.7 OTHER TRANSACTIONS. Prior to the Closing Date or
termination of this Agreement other than by the Seller's breach, neither the
Seller nor any of its respective representatives shall, directly or indirectly,
(a) encourage, initiate or engage in any discussions or negotiations with, or
provide any information to, any corporation, partnership, person or other entity
or group, other than the Buyer, concerning or (b) consummate, any sale of all or
any material part of the Assets or the Business, any merger or consolidation of
the Seller with or into any other entity or any other transaction effecting a
change in control of the Seller or otherwise involving all or any material part
of the Business or any of the Assets (each an "ACQUISITION"), except for
discussions and negotiations with respect to consents necessary to the
transactions contemplated hereby and except for any sales of any of the Assets
in the ordinary course of the Seller's business; provided, however, that nothing
contained in this Section 8.7 shall (i) prohibit the Seller from selling,
assigning or transferring its business or assets to another person or from
merging or consolidating with another person, so long as the prospective buyer
agrees to honor this Agreement and to consummate the transactions contemplated
by this Agreement and the Seller remains liable under Sections 13 and 14 hereof,
or (ii) prohibit the Board of Directors of the Seller from furnishing
information to, or entering into discussions or negotiations with, or otherwise
facilitating any effort or attempt to make or implement an Acquisition with, any
person or entity that after the date hereof makes an unsolicited written, bona
fide proposal (an "UNSOLICITED PROPOSAL") to acquire the Business or the Assets
pursuant to a merger, consolidation, share exchange, sale of stock or sale of
assets or other similar transaction, if, and only to the extent that (A) the
Board of Directors of the Seller receives the written advice of counsel that
such action is necessary for the Board of Directors of the Seller to comply with
its fiduciary duties to shareholders under applicable law and (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, the Seller provides reasonable notice to the Buyer
to the effect that it is furnishing information to, or entering into discussions
or negotiations with, or otherwise facilitating any effort or attempt to make or
implement an Acquisition Proposal with, such person or entity. If any third
party contacts the Seller or any of its affiliates with any proposal or
expression of interest concerning any such transaction, the Seller promptly
shall notify the Buyer of the identity of such third party and the nature and
terms, if any, of such proposal or expression of interest.
8.8 THIRD PARTY CONSENTS. Prior to the Closing Date, the
Seller, at its sole expense, shall obtain all consents, permits and approvals
from parties to any contracts or other agreements with the Seller that relate to
the Business or any of the Assets, and from governmental and regulatory
authorities, that may be required in connection with the performance by the
Seller of its obligations under this Agreement, the continuance of such
contracts or other agreements after the Closing, the assignment of such
contracts or other agreements to the Buyer and the continued validity and
effectiveness of all Permits after the Closing. All such consents shall be in
writing and executed counterparts thereof shall be delivered to the Buyer at or
prior to the Closing. The Seller shall not agree to any modification of any
contract, agreement or Permit in the course of obtaining any such consent.
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In the event any such consent or approval is not
obtained and the Buyer chooses to waive, in part, this Section 8.8 on or prior
to the Closing Date, the Seller shall assist the Buyer in obtaining any such
approval or consent after the Closing Date until such time as such consent or
approval has been obtained; and the Seller will cooperate with the Buyer in any
lawful and economically feasible arrangement to provide that the Buyer shall
receive the interest of the Seller in the benefits under any such instrument,
contract, lease or permit or other agreement or arrangement, including
performance by the Seller as agent, if economically feasible, provided that the
Buyer shall undertake to pay or satisfy the corresponding liabilities for the
enjoyment of such benefit to the extent the Buyer would have been responsible
therefor hereunder if such consent or approval had been obtained.
8.9 ENVIRONMENTAL TRANSFER, LAWS. The Seller represents and
warrants to the Buyer that no Environmental Laws require the submission of
notice to the Buyer or to any government authority in connection with the
transfer of title to the Assets and to the Business, except for Environmental
Laws concerning the transfer or modification of permits, licenses or
authorizations issued pursuant to Environmental Laws.
8.10 TITLE REPORT AND SURVEY. Within ten (10) days after the
date hereof, the Seller shall deliver to the Buyer's counsel copies of all
existing title policies and surveys with respect to the Real Property.
8.11 EMPLOYMENT STATUS.
(a) At the Closing, the Buyer shall offer employment
to such of Sellers' Employees as Buyer shall determine in its sole discretion.
(b) As soon as practicable following the Closing
Date, the Seller shall cause the Ithaca Industries Employee Retirement Plan (the
"401(k) Plan") to transfer to a plan sponsored or to be established by the Buyer
all assets under such plan and liabilities for benefit payments with respect to
any participant who, immediately after the Closing, is employed by the Buyer.
The Seller shall, prior to such transfer, contribute to the 401(k) Plan all
amounts required to be contributed to the 401(k) Plan on account of the period
through the Closing Date. The Buyer represents and covenants that the transferee
plan (i) is or will be a qualified plan and (ii) will preserve all accrued
benefits to the extent as required by section 411(d)(6) of the Code.
(c) The Buyer shall be solely responsible for any
severance or termination pay due on account of the termination of employment of
the Seller's employees on or after the Closing Date, either because they are not
offered employment by the Buyer or for any other reason other than their refusal
to accept employment on substantially the same terms and conditions as in effect
at the time of Closing. The Seller shall be solely responsible for any severance
or termination pay due on account of the termination of employment of any of the
Seller's employees prior to the Closing Date.
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8.12 REPLACEMENT OF LETTERS OF CREDIT. Set forth on Schedule
8.12 is a list of all letters of credit posted by or on behalf of the Seller in
connection with the Business. The Buyer agrees that it will replace each letter
of credit on or prior to the Closing Date with letters of credit issued by the
Buyer's lenders and cause Seller's letters of credit to be returned to the
Seller at Closing or in the alternative the Buyer will supply a back-to-back
letter of credit to Seller's issuer. The Buyer agrees to indemnify and hold
harmless the Seller from and against any losses incurred by the Seller after the
Closing in connection with, or in any way relating to, the Buyer's failure to
replace the letters of credit listed on Schedule 8.12 or failure to issue a
back-to-back letter of credit.
8.13 Y2K COMPLIANCE. The Seller will, at its own expense,
continue its Y2K compliance activities and testing related to the Business in
accordance with past practices up until the Closing.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER. The
obligations of the Buyer to complete the Closing are subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more of
which may be waived by it:
9.1 REPRESENTATIONS AND COVENANTS OF THE SELLER. The
representations and warranties of the Seller contained in this Agreement shall
be true in all material respects, except where qualified by materiality, then
true according to their terms, on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Seller and its
affiliates shall have performed and complied with all covenants or agreements
required by this Agreement to be performed or complied with by the Seller or its
affiliates on or prior to the Closing Date. The Seller shall have delivered to
the Buyer a certificate, dated the Closing Date and signed by a senior executive
officer of the Seller, to the foregoing effect and stating that all conditions
to the Buyer's obligations hereunder have been satisfied.
9.2 GOVERNMENTAL PERMITS AND APPROVALS. All Permits and
approvals from any governmental or regulatory body required for the lawful
consummation of the Closing shall have been obtained.
9.3 CONSENTS. All consents, permits and approvals from the
Seller's board of directors, lenders, parties to any contracts, leases or other
agreements of the Seller, and from governmental and regulatory authorities, that
may be required in connection with (a) the performance by the Seller of its
obligations under this Agreement, (b) the assignment of each of the contracts
and agreements listed on Schedules 4.16, the Real Property Leases and the Space
Leases and (c) the continued validity and effectiveness of the Permits after the
Closing shall have been obtained and no modification to any such contract,
agreement or Permit shall have been made in connection with the obtaining of
such consents. All consents and approvals from the Buyer's board of directors
and lenders shall have been obtained.
9.4 NO MATERIAL ADVERSE CHANGE. Since January 31, 1999, there
shall have been no material adverse change in the assets, properties, business,
prospects,
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operations or condition (financial or otherwise) of the Business or any of the
Assets, and the Seller shall not know of any such change that is threatened, nor
shall there have been any damage, destruction or loss materially adversely
affecting the Business or any of the Assets, whether or not covered by
insurance.
9.5 LITIGATION. No action, suit or proceeding shall have been
instituted or, to the knowledge of the Seller, threatened by any governmental or
regulatory body or any other person before any court or governmental or
regulatory body to restrain, modify or prevent the carrying out of the
transactions contemplated hereby or that has or may have a material adverse
effect on any of the assets, properties, business, prospects, operations or
condition (financial or otherwise) of the Business or any of the Assets.
9.6 OPINION OF COUNSEL TO THE SELLER. The Buyer shall have
received an opinion substantially in the form attached as Exhibit C, of Paul,
Weiss, Rifkind, Wharton & Garrison, counsel to the Seller, dated the Closing
Date and addressed to the Buyer.
9.7 ADDITIONAL CLOSING DOCUMENTS OF THE SELLER. The Seller
shall have executed and delivered to the Buyer the following documents, each
dated the Closing Date:
(a) a bill of sale and assignment in the form of
Exhibit D (the "BILL OF SALE AND ASSIGNMENT");
(b) a trademark assignment in the form of Exhibit E
(the "TRADEMARK ASSIGNMENT");
(c) a patent assignment in the form of Exhibit F (the
"PATENT ASSIGNMENT");
(d) an assignment and assumption in the form of
Exhibit G-1 and G-2 (a "REAL PROPERTY LEASE ASSIGNMENT AND ASSUMPTION
AGREEMENT") for each Real Property Lease;
(e) a special warranty deed (the "DEED") (or its
equivalent in each applicable state) in proper statutory form for recording for
each parcel of Owned Real Property;
(f) such further instruments of sale, transfer,
conveyance, assignment or delivery covering the Assets or any part thereof as
the Buyer may reasonably require to assure the full and effective sale,
transfer, conveyance, assignment or delivery to it of the Assets (including the
Siler City Permits and the Wilkesboro Permits);
(g) any and all real property transfer tax returns
and other similar filings required by law in connection with the transactions
contemplated hereby and relating to the Real Property and the Real Property
Leases, any part thereof or ownership interest therein, all duly and properly
executed and acknowledged by the Seller, together with such
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filings as shall have been required by law or reasonably requested by the Buyer;
(h) an affidavit of an officer of the Seller sworn to
under penalty of perjury, setting forth the Seller's name, address and Federal
tax identification number and stating that the Seller is not a "foreign person"
within the meaning of section 1445 of the Code; and
(i) a certificate, in form and substance satisfactory
to the Buyer in its reasonable judgment, signed by the secretary of the Seller,
certifying that full and complete copies of the following are attached thereto:
(i) minutes of the board of directors of the Seller authorizing and approving
this Agreement and the transactions contemplated hereby and (ii) such other
documents or instruments as the Buyer may reasonably request to carry out the
intent and purpose of this Agreement.
9.8 TITLE INSURANCE. The Buyer shall have received, at its own
cost and expense, an owner's extended coverage policy of title insurance with
respect to each parcel of Owned Real Property and a leasehold extended coverage
policy of title insurance with respect to each parcel of Leased Real Property,
in each case issued on the Closing Date. Each such title insurance policy shall
be in an amount designated by the Buyer and shall insure the Buyer's ownership
of fee title (with respect to the Owned Real Property) or leasehold title (with
respect to the Leased Real Property) without any of the Schedule B standard
preprinted exceptions (other than taxes not yet due and payable) and free and
clear of Title Defects and other exceptions to or exclusions from coverage
except those Title Defects listed on Schedules 5.3.1(b), 5.3.2(b), 6.3.1(b) and
6.3.2(b). Each such title insurance policy shall be in form satisfactory to the
Buyer.
9.9 SURVEY. The Buyer shall have received, at the Buyer's
expense, a current survey of each parcel of Owned Real Property and of each
parcel of Leased Real Property, in each case prepared in insurable form in
accordance with standards applicable to registered and licensed land surveyors
making surveys in the States in which such parcels are located. Each such survey
shall be certified to the Buyer and the Title Company and shall be in form
satisfactory to the Buyer.
9.10 ESTOPPEL CERTIFICATES.
(a) The Buyer shall have received, without expense to
it, a current estoppel certificate from the landlord under each Real Property
Lease stating (i) that such Real Property Lease is in full force and effect and
has not been amended, modified or supplemented other than as set forth on
Schedules 5.3.2(a) and 6.3.2(a), (ii) that all rent and other sums and charges
payable under such Real Property Lease are current and setting forth the date
through which such payments have been made, (iii) setting forth the term of such
Real Property Lease, (iv) the amount of any tenant security or other similar
deposit held by or on behalf of such landlord under such Real Property Lease,
(v) that no notice of default on the part of the Seller or termination notice
has been served under such Real Property Lease that remains outstanding, (vi)
that to the best of such landlord's knowledge, no
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uncured default or termination event or condition exists under such Real
Property Lease and that no event has occurred or condition exists that, with the
giving of notice or the lapse of time or both, would constitute such a default
or termination event or condition and (vii) that the consummation of the
transactions provided for herein will not constitute a default under such Real
Property Lease or grounds for the termination thereof or for the exercise of any
other right or remedy adverse to the interests of the tenant thereunder. Each
such estoppel certificate shall otherwise be in form satisfactory to the Buyer.
(b) The Buyer shall have received, without expense to
it, a current estoppel certificate from the Space Tenant under each Space Lease
stating (i) that such Space Lease is in full force and effect and has not been
amended, modified or supplemented other than as set forth on Schedules 5.3.4 and
6.3.4, (ii) that all rent and other sums and charges payable under such Space
Lease are current and setting forth the date through which such payments have
been made, (iii) that no rent or other sum or charge has been paid more than one
month in advance, (iv) the amount of any tenant security or other similar
deposit made under such Space Lease, (v) that no notice of default or
termination under such Space Lease is outstanding, (vi) that to the best of such
Space Tenant's knowledge, the landlord under such Space Lease is not in default
of any obligations on its part to be performed under such Space Lease, (vii)
that no default, event or condition has occurred or exists under such Space
Lease that entitles such Space Tenant to terminate such Space Lease and that no
event has occurred or condition exists that, with the giving of notice or the
lapse of time or both, would entitle such Space Tenant to terminate such Space
Lease, (viii) that, as of the date of such certificate, such Space Tenant has no
charge, lien, claim, defense or offset of any kind against the rents or other
charges payable by such Space Tenant under such Space Lease or otherwise against
the Seller, (ix) that any and all construction and/or alteration work required
to be performed by the landlord under such Space Lease has been performed and
(x) that the consummation of the transactions provided for herein will not
constitute a default under such Space Lease or grounds for the termination
thereof or for the exercise of any other right or remedy adverse to the
interests of the Seller as landlord thereunder. Each such estoppel certificate
shall otherwise be in form satisfactory to the Buyer.
9.11 ENVIRONMENTAL AUDIT. An environmental consultant,
selected by the Buyer shall have delivered to the Buyer final written reports of
the results of environmental assessments, including evaluation of compliance
with Environmental Laws, of the Business and the Assets, which shall be
satisfactory in scope and content to the Buyer. The environmental consultant's
assessments and reports shall be conducted and prepared at the sole expense of
the Buyer.
9.12 EXISTING LIENS. Prior to the Closing, the Buyer shall
have received copies of Requests for Information (Form UCC-11), or equivalent
reports, listing all effective financing statements that name the Seller as
debtor and that are filed in any county of North Carolina.
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9.13 COMPLETION OF FINANCING. The Buyer shall have completed
the financings contemplated by the commitment letters, copies of which have
heretofore been delivered to the Seller.
10. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLER. The
obligations of the Seller to complete the Closing are subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Seller.
10.1 REPRESENTATIONS AND COVENANTS OF THE BUYER. The
representations and warranties of the Buyer contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Buyer shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by the Buyer on or prior to the
Closing Date. The Buyer shall have delivered to the Seller a certificate, dated
the Closing Date and signed by a senior executive officer of the Buyer, to the
foregoing effect and stating that all conditions to the Seller's obligations
hereunder have been satisfied.
10.2 GOVERNMENTAL PERMITS AND APPROVALS. All Permits and
approvals from any governmental or regulatory body required for the lawful
consummation of the Closing shall have been obtained.
10.3 LITIGATION. There shall not be in effect any preliminary
or permanent injunction or other order issued by a court or other governmental
body or agency of competent jurisdiction directing that the transactions
contemplated hereby not be consummated.
10.4 OPINION OF COUNSEL TO THE BUYER. The Seller shall have
received an opinion substantially in the form attached hereto as Exhibit H of
Kennedy Covington Lobdell & Hickman, L.L.P., counsel to the Buyer, dated the
Closing Date and addressed to the Seller.
10.5 CONSENT OF THE LENDERS UNDER THE BANK CREDIT AGREEMENT.
Seller shall have received consent from the lenders under the Bank Credit
Agreements to the transactions contemplated hereby; provided that the Seller
hereby represents and warrants to the Buyer that it has no reason to believe it
will not be able to obtain the consent of such lenders.
10.6 ADDITIONAL CLOSING DOCUMENTS OF THE BUYER.
(a) The Buyer shall have executed and delivered to
the Seller the following documents, each dated the Closing Date:
(i) an assumption of liabilities in the form
of Exhibit I (the "ASSUMPTION OF LIABILITIES");
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(ii) a Real Property Lease Assignment and
Assumption Agreement for each Real Property Lease;
(iii) a certificate, in form and substance
reasonably satisfactory to the Seller, signed by the secretary of the Buyer,
certifying that full and complete copies of the following are attached thereto:
(A) resolutions of the board of directors of the Buyer authorizing and approving
this Agreement and the transactions contemplated hereby and (B) such other
documents or instruments as the Seller may reasonably request to carry out the
intent and purpose of this Agreement; and
(iv) an assumption of the Seller's
employment agreements with Brian F. Slagle, Glenn "Buzz" Floyd and Wiley L.
Brown substantially in the form of Exhibit J-1, J-2 and J-3.
10.7 RECEIPT OF REPLACEMENT LETTERS OF CREDIT. The Seller
shall have received the letters of credit referred to in Section 8.12.
11. POST-CLOSING COVENANTS AND AGREEMENTS.
11.1 AUDIT OF BUSINESS. The Buyer shall at its expense conduct
a Final Audit in accordance with the terms and conditions of Section 3.2(a).
11.2 EXPENSES OF SALE. Except to the extent otherwise
expressly provided in this Agreement, the parties to this Agreement shall bear
their respective direct and indirect expenses incurred in connection with the
negotiation, preparation, execution and performance of this Agreement and the
transactions contemplated hereby, whether or not the transactions contemplated
hereby are consummated, including, without limitation, all fees, charges,
disbursements and expenses of agents, representatives, counsel and accountants.
All transfer, documentary, gross receipt, sales and use taxes and similar
liabilities, if any, resulting from the sale, assignment, transfer and delivery
hereunder of any of the Assets or the Business shall be paid by the Seller.
11.3 INDEMNIFICATION OF BROKERAGE. The Buyer, on the one hand,
and the Seller, on the other hand, each agrees to indemnify and save the other
harmless from any claim or demand for commission or other compensation by any
broker, finder, agent or similar intermediary claiming to have been employed by
or on behalf of the Buyer or any of its affiliates (other than Jacobs, for whom
the Buyer shall be solely responsible), on the one hand, or by the Seller or any
of its affiliates, on the other hand, and to bear the cost of legal expenses
incurred in defending against any such claim.
11.4 BULK SALES LAWS. The Buyer and Seller acknowledge that
this transaction involves a transfer in bulk, and not in the ordinary course of
the Seller's business, a major part of the materials, supplies, merchandise or
other inventory of the Seller's business and acknowledge that the North Carolina
bulk transfer laws are applicable to the transactions contemplated by this
Agreement. The Seller agrees promptly and
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diligently to pay and discharge when due or to contest or litigate all claims of
creditors that are asserted against the Buyer by reason of any non-compliance
with such laws, except to the extent such claims are Assumed Liabilities.
11.5 COLLECTION OF RECEIVABLES. The Seller agrees that the
Buyer shall have the right and authority to collect for its own account or the
account of its affiliates all receivables of the Seller that are transferred and
assigned to the Buyer as provided herein and the Buyer and its affiliates have
the right to endorse with the name of the Seller any checks received on account
of any such receivable. The Seller agrees that it will promptly transfer and
deliver to the Buyer any cash or other property that the Seller may receive in
respect of such receivables.
11.6 MAIL. The Seller agrees that at any time and from time to
time after the Closing, the Buyer and the Buyer's affiliates shall have the
right and authority to open all mail received by the Business, even if addressed
to the Seller, for processing or forwarding to the Seller, as appropriate.
11.7 TRUE-UP OF BONUS PLAN OBLIGATION. Within 10 days after
the actual obligation of the Seller under the Bonus Plan is finally determined,
the Seller shall notify the Buyer thereof and if the amount as determined is
less than $270,000, which amount shall be calculated in accordance with the
analysis dated February 10, 1999 provided by the Seller to the Buyer, the Buyer
shall pay to the Seller, in cash or equivalent, the difference. Any disagreement
between the Buyer and the Seller shall be settled by submitting the issue to the
Accounting Firm, whose decision shall be final and binding on both the Buyer and
the Seller and whose fees shall be paid one-half by the Seller and one-half by
the Buyer.
11.8 FURTHER ASSURANCES. At any time and from time to time
after the Closing, at the Buyer's or Seller's request and without further
consideration, the Seller and the Buyer shall execute and deliver such further
documents, and perform such further acts, as may be necessary in order to
effectively transfer and convey the Assets to the Buyer, or to enable the Buyer
to properly assume the Assumed Liabilities on the terms herein contained, and to
otherwise comply with the terms of this Agreement and consummate the
transactions herein provided.
11.9 TRANSITIONAL AGREEMENTS. The Seller agrees that in order
to effect an orderly transition of the Business to the Buyer,
(a) The Seller will provide to the Buyer, at a charge
of $100.00 per hour, assistance from appropriate Seller personnel in the
installation of the EDI and order entry system from Wilkesboro to Siler City;
(b) The Seller will provide the following reporting
services as currently being performed (including but not limited to payroll,
production planning and order entry) to facilitate the management of the
Wilkesboro facilities for a period of up to five months, at the Buyer's
election, at the following charges to the Buyer: (i) source
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payroll plus gross to net interface at a charge to the Buyer of $4,200.00 per
month; (ii) order processing and shipping plus EDI and accounts receivable
interfaces, at a charge to the Buyer of $8,400.00 per month; and (iii)
manufacturing (minus inventory), production planning, scheduling, and production
control, at a charge to the Buyer of $16,800.00 per month.
(c) The Seller will assume responsibility for, and
will pay, all health and hospitalization claims, and workers compensation claims
that are reported after the Closing for costs or occurrences dating prior to the
Closing Date, and all payroll and associated costs through the Closing Date.
(d) The Seller will, as soon as practicable but in no
event later than 5 days after the Closing, provide to the Buyer all accounts
receivable invoices showing customers, dates and amounts as of a date as near as
practicable to the Closing Date; and
(e) The Seller will permit the Buyer to utilize, in
the normal course of business, the Seller's telephone system for 30 days after
the Closing, at a cost of $500.00 per month plus the cost of calls made by the
Buyer; and
11.10 NON-COMPETITION COVENANT OF THE SELLER.
(a) NON-COMPETE. For a period of five years following
the Closing Date, the Seller shall not, directly or indirectly, through any
subsidiary or otherwise, in the Restricted Territory (as defined in Section
11.10(d)), in any form or manner, (i) engage in the women's hosiery business,
whether for its own account or for the account of any other person; or (ii)
become interested in any such person as a partner, stockholder, officer,
director, principal, agent, employee, trustee, consultant or in any other
relationship or capacity ("COMPETITION"); provided, however, Seller may own,
directly or indirectly, solely as a passive investment, securities of any person
which are traded on any national securities exchange if (x) the Seller or any of
its affiliates (1) is not a controlling person of, or a member of a group which
controls, such person and (2) does not, directly or indirectly, own 1% or more
of any class of securities of such person and (y) such person does not, directly
or indirectly, derive 20% or more of its total revenues from activities
described in clause (i) above. Notwithstanding the prior sentence, the Seller
may sell, assign or transfer all or substantially all its business or assets to,
or may merge or consolidate with, any person who is, or becomes, engaged in the
hosiery business.
(b) NO SOLICITATION. For a period of five years
following the Closing Date, the Seller shall not, directly or indirectly,
through any subsidiary or otherwise, in the Restricted Territory solicit or
enter into any transaction with any customer of the Buyer for the purpose of
making any sale to such customer of products, processes, goods or services the
sale of which would constitute Competition.
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(c) NO INDUCEMENT OF EMPLOYEES. For a period of five
years following the Closing Date, the Seller shall not, directly or indirectly,
through any subsidiary or otherwise, induce or attempt to induce any Employee to
leave his or her employment with the Buyer.
(d) RESTRICTED TERRITORY. For purposes of this
Agreement "Restricted Territory" shall mean:
(i) any State in which the Business
conducts, or has demonstrable plans to conduct, business as of the Closing Date;
(ii) any State east of the Mississippi River
and the State of Texas; and
(iii) the United States.
(e) SPECIFIC PERFORMANCE. The right and remedy to
have this Section 11.10 specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Buyer and that money
damages will not provide adequate remedy to the Buyer.
11.11 CORPORATE RECORDS RETAINED BY THE SELLER. After the
Closing Date, the Seller shall not destroy any book, record, report, file,
contract or any other document pertaining to the Business during the next six
years beginning on the Closing Date, without first giving 30 days prior written
notice of the documents intended to be destroyed to the Buyer, and allowing the
Buyer to copy, at the Buyer's expense, or to remove and take possession, at the
Buyer's expense, of any book, record, report, file, contract or any other
document intended to be destroyed. After the Closing Date, the Buyer shall be
entitled, through its officers, directors, employees, auditors and other
representatives, to full and free access to the books, records, reports, files,
contracts and other documents of the Seller, and the Buyer shall also be
entitled to make copies, at the Buyer's expense, of any such documents.
11.12 BUSINESS RECORDS ACQUIRED BY THE BUYER. After the
Closing Date, the Buyer shall not destroy any book, record, report, file,
contract or any other document pertaining to the Business Records during the
next six years beginning on the Closing Date, without first giving 30 days prior
written notice of the documents intended to be destroyed to the Seller, and
allowing the Seller to copy, at the Seller's expense, or to remove and take
possession, at the Seller's expense, of any book, record, report, file, contract
or any other document pertaining to the Business Records, intended to be
destroyed. After the Closing Date, the Seller shall be entitled, through its
officers, directors, employees, auditors and other representatives, to full and
free access for bona fide business purposes to the books, records, reports,
files, contracts and other documents pertaining to the Business Records for
periods prior to the Closing Date, and the Seller shall also be entitled to make
copies, at the Seller's expense, of any such documents.
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11.13 TRANSITION OF LIFE INSURANCE BENEFITS. For a period of
30 days after the Closing Date (or until such time as Buyer's life insurance
plan is established for employees of the Business and such employees are
transferred to Buyer's life insurance plan, if earlier), employees of the
Business will continue to receive life insurance benefits from the Seller
consistent with current practice. Buyer shall reimburse Seller at Seller's cost
for all of Seller's actual expenditures with respect to the provision of life
insurance benefits to such transferred employees.
11.14 CONFIDENTIALITY. The Buyer shall not use (except as
required by law or applicable regulation and then the Buyer shall use reasonable
efforts to permit the Seller an opportunity to review and comment on any such
disclosure prior to dissemination), and shall cause its officers not to use, in
any way whatsoever, any confidential information it has obtained from the Seller
pertaining to the non-hosiery business of the Seller ("Confidential
Information"). The Buyer shall keep confidential and shall not disclose, and
shall cause its officers to keep confidential and not disclose, any Confidential
Information. The term "Confidential Information" will not include information
which is or becomes publicly available other than as a result of disclosure by
the Buyer or its officers.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE SELLER.
Notwithstanding any right of the Buyer fully to investigate the affairs of the
Seller and the Business and the Assets and notwithstanding any knowledge of
facts determined or determinable by the Buyer pursuant to such investigation or
right of investigation, the Buyer shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller contained in
this Agreement. All such representations, warranties, covenants and agreements
shall survive the execution and delivery hereof and the Closing hereunder,
except that:
(a) the representations and warranties of Seller
contained in Sections 4.17, 4.18 and 4.19 shall not survive the Closing Date;
(b) any theretofore unasserted General Claim (as
defined in this Section 12) shall expire on the close of business on the day
that is the second anniversary of the Closing Date;
(c) any theretofore unasserted Tax/Benefits Claim (as
defined in this Section 12) shall expire when the applicable period under the
statute of limitations therefor has expired; and
(d) any theretofore unasserted Covenant Claim (as
defined in this Section 12) and Environmental Claim (as defined in this Section
12) shall expire on the close of business on the day that is the sixth
anniversary of the Closing Date.
As used in this Agreement, the following terms have
the following meanings:
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(i) "GENERAL CLAIM" means any claim arising
out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of the Seller contained in this Agreement or any
certificates or schedules delivered by the Seller pursuant hereto; provided that
the term General Claim shall not mean or include any Environmental Claim or Tax/
Benefits Claim;
(ii) "ENVIRONMENTAL CLAIM" means any claim
made pursuant to Section 14;
(iii) "TAX/BENEFITS CLAIM" means any claim
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation or warranty of the Seller contained in this Agreement related to
Taxes or any Benefit Plan; and
(iv) "COVENANT CLAIM" means any claim
arising out of or otherwise in respect of any breach of any covenant or
agreement of the Seller or the Buyer, as the case may be, contained in this
Agreement or any agreement contemplated hereby; provided that the term "Covenant
Claim" shall not mean or include any Environmental Claim.
13. INDEMNIFICATION.
13.1 OBLIGATION OF THE SELLER TO INDEMNIFY. Subject to the
limitations contained in Section 15, the Seller shall indemnify, defend and hold
harmless the Buyer, its directors, officers, employees, affiliates and assigns
(collectively, the "BUYER INDEMNIFIED PARTIES") and the Business from and
against any losses, liabilities, damages, deficiencies, costs or expenses
(including interest, penalties, amounts paid in settlement and reasonable
attorneys' fees and disbursements) (collectively, "LOSSES") based upon, arising
out of or otherwise in respect of:
(a) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Seller contained in this
Agreement or any certificates or schedules delivered by the Seller pursuant
hereto or any facts or circumstances constituting such an inaccuracy or breach;
(b) any liability or obligation of, or claim against,
the Seller or any affiliate thereof (excluding the Assumed Liabilities) whether
or not such liability or obligation was known at the Closing;
(c) any liability or obligation of, or claim against,
the Seller, any of its Affiliates or all or any portion of the Business or any
of the Assets (other than the Assumed Liabilities) (i) relating to any period on
or prior to the Closing Date or (ii) arising out of any facts or circumstances
existing at or prior to the Closing Date whether or not such liability or
obligation was known at the time of Closing;
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(d) any failure to comply with any "bulk sales" laws
applicable to the transactions contemplated hereby except to the extent that
claims relate to Assumed Liability;
(e) any Excluded Liability;
(f) enforcing Buyer's rights under this Agreement
(including this Article 13 thereof).
13.2 OBLIGATION OF THE BUYER TO INDEMNIFY.
(a) The Seller shall be entitled to rely fully upon
the representations, warranties, covenants and agreements of the Buyer contained
in this Agreement. All such representations, warranties, covenants and
agreements shall survive the execution and delivery of this Agreement and the
Closing hereunder.
(b) The Buyer shall indemnify, defend and hold
harmless the Seller, its shareholders, directors and officers, from and against
any Losses based upon, arising out of or otherwise in respect of (i) any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Buyer contained in this Agreement or any certificate delivered
by the Buyer pursuant hereto or any facts or circumstances constituting such an
inaccuracy or breach or (ii) any Assumed Liability or (iii) enforcing Seller's
rights under this Agreement.
13.3 NOTICE TO INDEMNIFYING PARTY. If either the Buyer, on the
one hand, or the Seller, on the other, as the case may be (the "Indemnitee"),
has a claim or potential claim or receives notice of any claim or potential
claim or the commencement of any action or proceeding that could give rise to an
obligation on the part of the Seller, on the one hand, or the Buyer, on the
other, as the case may be, to provide indemnification (the "INDEMNIFYING PARTY")
pursuant to Section 13.1 or 13.2, the Indemnitee shall give the Indemnifying
Party reasonable notice thereof. The omission by any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Indemnifying Party may
elect to compromise or defend, at such Indemnifying Party's own expense and by
such Indemnifying Party's own counsel, any such matter involving the asserted
liability of the Indemnitee. If the Indemnifying Party elects to compromise or
defend such asserted liability, it shall within 30 days (or sooner, if the
nature of the asserted liability so requires) notify the Indemnitee of its
intent to do so and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, any such asserted
liability. If the Indemnifying Party elects not to compromise or defend such
asserted liability, or fails to notify the Indemnitee of its election as herein
provided, the Indemnitee may, at the Indemnifying Party's expense, pay,
compromise or defend such asserted liability. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnitee may settle or compromise any
claim over the objection of the other; provided, however, that if the settlement
or compromise does not
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result in any liability to the Indemnified Party or otherwise adversely affect
the Indemnified Party, consent to such settlement or compromise shall not be
unreasonably withheld. In any event, the Indemnitee and the Indemnifying Party
may each participate, at its own expense, in the defense of such asserted
liability. If the Indemnifying Party chooses to defend any claim, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
Notwithstanding the foregoing, the Indemnitee shall have the right to employ
separate counsel at the Indemnifying Party's expense and to control its own
defense of such asserted liability if (a) there are or may be legal defenses
available to such Indemnitee or to other Indemnitees that are different from or
additional to those available to the Indemnifying Party or (b) in the reasonable
opinion of counsel to such Indemnitee, a conflict or potential conflict exists
between the Indemnifying Party and such Indemnitee that would make such separate
representation advisable.
14. INDEMNIFICATION BY THE SELLER FOR ENVIRONMENTAL ACTIONS AND
ENVIRONMENTAL COMPLIANCE COSTS.
14.1 OBLIGATION OF THE SELLER TO INDEMNIFY.
(a) The Seller shall indemnify, defend and hold
harmless the Buyer Indemnified Parties and the Business from and against (i) any
and all Environmental Actions based upon, arising out of or otherwise in respect
of (A) any Release of Hazardous Substances on or prior to the Closing Date or
the ownership or operation of the Business or of the Assets on or prior to the
Closing Date, (B) any inaccuracy in or breach of any representation, warranty,
covenant or agreement of the Seller contained in this Agreement or in any
certificate, schedule, instrument or other document prepared by or on behalf of
the Seller and delivered pursuant hereto relating to Environmental Laws or (C)
any and all obligations, debts or liabilities of the Seller (other than Assumed
Liabilities) relating to Environmental Laws and (ii) any and all Losses based
upon, arising out of or otherwise in respect of any such Environmental Action
(not including diminution in value of any real property).
(b) The Seller shall indemnify, defend and hold
harmless the Buyer Indemnified Parties and the Business from and against any and
all Environmental Compliance Costs based upon, arising out of or otherwise in
respect of (i) the condition of the Environment on or prior to the Closing Date
on, at or under any real property owned, leased, operated or used by the Seller
in connection with the Business, (ii) the Seller's ownership or operation of the
Business or the Assets on or prior to the Closing Date, (iii) the condition of
the Assets on or prior to the Closing Date, (iv) any inaccuracy in or breach of
any representation, warranty, covenant or agreement of the Seller contained in
this Agreement or in any certificate, schedule, instrument or other document
prepared by or on behalf of the Seller and delivered pursuant hereto relating to
Environmental Laws and (v) any and all obligations, debts or liabilities of the
Seller (other than Assumed Liabilities) relating to Environmental Laws.
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(c) This Section 14 shall be the Buyer Indemnified
Parties' and the Business's sole source of indemnification or other remedy
pursuant to this Agreement with respect to Losses arising pursuant to
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety (with respect to health and safety, to
the extent relating to the presence of Hazardous Substances or the exposure of
the individuals to Hazardous Substances).
14.2 PROCEDURE FOR INDEMNIFICATION FOR ENVIRONMENTAL
LIABILITIES. Claims for indemnification pursuant to this Section 14 shall be
subject to the procedural provisions of Section 13.3; provided, however, that
the Indemnitee shall have the exclusive right to manage and control all actions
resulting in Environmental Compliance Costs with respect to which the Indemnitee
has made a claim for indemnification pursuant to Section 14.1(b). The Indemnitee
shall keep the Indemnifying Party fully informed of the progress of such
actions. The Indemnifying Party shall be obligated to indemnify the Indemnitee
for all Environmental Compliance Costs resulting from such actions but only to
the extent that such Environmental Compliance Costs are incurred or undertaken
in the manner in which a reasonable and prudent person to whom no indemnity was
available would incur or undertake such Environmental Compliance Costs, avoiding
any material disruption of the Business, taking into account the nature of the
Business and the condition of and the operations of the Assets, as well as
methods commonly used to minimize environmental liabilities, which include but
are not limited to passive remediation to resolve certain releases of Hazardous
Substances, regulatory variances, so-called "brownfields" legislation, policies
or programs (such as North Carolina's Brownfield Property Reuse Act, 1997 N.C.
Sess. Laws 97-0357), and available defenses to regulatory enforcement, provided,
however, that it is acknowledged and agreed that such a reasonable and prudent
person would in any event comply with at least the minimum requirements of
Environmental Laws, and provided, further, that such a reasonable and prudent
person shall be assumed to have considered in its evaluation of the appropriate
action the possible future costs of leaving Hazardous Substances in the
environment, including possible future remedial obligations, diminished property
values, limits on the expansion of operations, and personal injury and property
damage claims by third parties arising out of the presence of the Hazardous
Substances.
15. LIMITATION ON INDEMNIFICATION. The indemnification provided for in
Articles 13 and 14 shall be subject to the following limitations:
(a) The Seller shall not be obligated to make any payment for
indemnification pursuant to Section 13.1 in respect of any General Claim (except
those based upon, arising out of or otherwise in respect of Sections 4.1, 4.2,
4.11, 4.20, 5.3.1 and 6.3.1 (the "BASKET EXCLUSIONS")) until the aggregate
amount of such payments, exclusive of those in respect of the Basket Exclusions,
exceeds $250,000 (the "BASKET AMOUNT"), whereupon the Seller shall be obligated
to pay all such amounts for indemnification in excess of the Basket Amount;
provided, however, that solely for determining whether the amount of the
Seller's indemnification obligations exceed $250,000 in the aggregate, a breach
of the Seller's representations or warranties shall be determined without regard
to any limitation or qualification as to materiality set forth in such
representation or warranty.
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(b) The Buyer shall be entitled to receive any indemnification
payments in respect of the Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether the aggregate of all
other indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(c) The Seller's maximum liability for indemnification payment
under Article 13 shall be $6,000,000.
(d) In the event that the Indemnifying Party is obligated to
indemnify the Indemnified Party pursuant to this Article 13 or Article 14, the
Loss shall be reduced by the amount actually received by the Indemnified Party
from its insurance carriers.
(e) From and after the Closing Date, the remedies provided in
Section 11.10, Section 17.13 and Articles 13 and 14 of this Agreement shall be
exclusive and neither party shall be entitled to any other remedy at law or in
equity.
(f) No fact, circumstance or omission shall constitute a
breach of any representation, warranty, covenant or agreement of the Seller
contained in this Agreement or any certificates or schedules delivered by the
Seller pursuant hereto if Brian F. Slagle, Glenn "Buzz" Floyd or Wiley L. Brown
has or had actual knowledge thereof on or prior to the date of this Agreement.
(g) To the extent that any fact, circumstance or omission
would constitute a breach hereunder and would also constitute or have
constituted a breach if timely asserted under the Asset Purchase Agreement dated
as of March 13, 1998 by and between the Seller and Glendale (the "ORIGINAL
AGREEMENT"), then the Buyer's sole remedy under this Agreement shall be an
assignment of the Seller's rights under the Original Agreement.
16. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated prior to the Closing as
follows:
(i) at the election of the Seller, if any one or more
of the conditions set forth in Section 10 has not been fulfilled as of April 30,
1999; provided, however, that there shall be a 30-day extension for any
outstanding consents from third parties required to be received hereunder.
(ii) at the election of the Buyer, if any one or more
of the conditions set forth in Section 9 has not been fulfilled as of April 30,
1999; provided, however, that there shall be a 30-day extension for any
outstanding consents from third parties required to be received hereunder.
(iii) at the election of the Seller or the Buyer, if
the Closing does not occur on or before April 30, 1999; provided, however, that
there shall be a 30-day extension for any outstanding consents from third
parties required to be received hereunder.
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(iv) at any time on or prior to the Closing Date, by
mutual written consent of the Seller and the Buyer;
(v) at the election of the Seller, if there has been
a material breach of any representation, warranty, covenant or agreement on the
part of the Buyer contained in this Agreement, which breach has not been cured
within fifteen (15) Business Days of notice to Buyer of such breach;
(vi) at the election of the Buyer, if there has been
a material breach of any representation, warranty, covenant or agreement on the
part of the Seller contained in this Agreement, which breach has not been cured
within fifteen (15) Business Days notice to the Seller of such breach; or
(vii) at the election of the Buyer, if permission to
take ground water and/or soil samples is denied by the Seller under Section
8.6(b), within five business days of such denial.
(b) If this Agreement so terminates, it shall become null and
void and have no further force or effect, except that any such termination shall
be without prejudice to the rights of any party on account of the
nonsatisfaction of the conditions set forth in Sections 9 and 10 resulting from
the intentional or willful breach or violation of the representations,
warranties, covenants or agreements of another party under this Agreement.
Notwithstanding anything in this Agreement to the contrary, Sections 11.2, 11.3,
16(c) and 17.2 shall survive any termination of this Agreement.
(c) If this Agreement is terminated the Buyer and Seller agree
that for a period of one year following such termination each will not, directly
or indirectly, offer employment to any officer or employee of the other unless
such officer or employee has, without any solicitation or encouragement by the
other, already terminated his or her employment.
17. MISCELLANEOUS.
17.1 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(a) "AFFILIATE," with respect to any person, means and
includes any other person controlling, controlled by or under common control
with such person.
(b) "BANK CREDIT AGREEMENTS" means the Loan and Security
Agreement, dated as of March 24, 1998, between the Seller, the lenders party
thereto from time to time (the Lenders), NationsBank, N.A. (the Agent),
NationsBanc Montgomery Securities LLC (the Syndication Agent and Arranger) and
Bank America Business Credit, Inc. (the Documentation Agent) and the Loan and
Security Agreement, dated as of March 24, 1998, between the Seller, the lenders
party thereto from time to time (the Lenders) and
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NationsBank, N.A. (the Collateral Agent).
(c) "CONTRACTS AND OTHER AGREEMENTS" means and includes all
contracts, agreements, understandings, indentures, notes, bonds, loans,
instruments, leases, mortgages, franchises, licenses, commitments or binding
arrangements, express or implied.
(d) "DOCUMENT OR OTHER PAPER" means and includes any document,
agreement, instrument, certificate, notice, consent, affidavit, letter,
telegram, telex, statement, computer disk, microfiche or other document in
electronic format, schedule (including any schedule to this Agreement), exhibit
(including any Exhibit to this Agreement) or any other paper whatsoever.
(e) "ENVIRONMENT" means navigable waters, waters of the
contiguous zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both inside
and outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
(f) "ENVIRONMENTAL ACTION" means any notification, whether
direct or indirect, formal or informal, written or oral, pursuant to
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety (with respect to health and safety, to
the extent relating to the presence of Hazardous Substances or the exposure of
individuals to Hazardous Substances), that the ownership or operation of the
Business or any of the Assets, or any by-product thereof, or any of the current
or past operations of the Seller, or any by-product thereof, or any of the
property currently or formerly owned, leased or operated by the Seller, during
such ownership, lease, or operation, or the operations or property of any
predecessor of the Seller, during such ownership, lease or operation is, or may
be implicated in, or subject to any proceeding, action, investigation, claim,
lawsuit, order, agreement or evaluation by any governmental authority or any
other person.
(g) "ENVIRONMENTAL COMPLIANCE COSTS" means any expenditures,
costs, assessments or expenses (including, without limitation, any expenditures,
costs, assessments or expenses in connection with the conduct of any Remedial
Action, as well as reasonable fees, charges, disbursements and expenses of
attorneys, experts, personnel and consultants), whether direct or indirect,
necessary to cause the Business or any of the Assets to be in compliance with
any and all requirements, as in effect at the Closing Date and with respect to
which the Buyer reasonably believes the Business or any of the Assets are
obligated to comply, of Environmental Laws, principles of common law concerning
pollution, protection of the Environment or health and safety (with respect to
health and safety, to the extent relating to the presence of Hazardous
Substances or the exposure of individuals to Hazardous Substances), or Permits
issued pursuant to Environmental Laws; provided, however, that Environmental
Compliance Costs do not include expenditures, costs, assessments or expenses
necessary in connection with normal maintenance of the Business or any of the
Assets or the replacement of equipment in the normal course of events due to
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ordinary wear and tear.
(h) "ENVIRONMENTAL LAWS" means all laws, ordinances,
regulations, codes, orders, judgments, injunctions, awards or decrees relating
to pollution, protection of the Environment, public or worker health and safety
(with respect to health and safety to the extent relating to the presence of
Hazardous Substances or the exposure of individuals to Hazardous Substances), or
the emission, discharge, release or threatened release of Hazardous Substances
into the Environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C.
ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 136 et seq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 et seq., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C. ss. 300f et seq., the Oil Pollution
Act of 1990, 33 U.S.C. ss. 2701 et seq., and analogous state acts.
(i) "GAAP" means generally accepted accounting principles then
in effect, consistently applied.
(j) "HAZARDOUS SUBSTANCE" means any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or waste, petroleum or petroleum-derived substance
or waste, radioactive substance or waste, or any constituent of any such
substance or waste, or any other substance regulated under or defined by any
Environmental Law.
(k) "LIEN" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement, or
any other encumbrance, restriction or limitation whatsoever.
(l) "PERSON" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust, unincorporated
organization, governmental or regulatory body or other entity.
(m) "PROPERTY" means real, personal or mixed property,
tangible or intangible.
(n) "RELEASE" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into or through the indoor or outdoor Environment or into, through or
out of any property, including the movement of Hazardous Substances through or
in the air, soil, surface water, ground water or property.
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(o) "REMEDIAL ACTION" means all actions, whether voluntary or
involuntary, reasonably necessary to comply with Environmental Laws to (i) clean
up, remove, treat, cover or in any other way adjust Hazardous Substances in the
indoor or outdoor Environment, (ii) prevent or control the Release of Hazardous
Substances so that they do not migrate or endanger or threaten to endanger
public health or welfare or the Environment or (iii) perform such remedial
studies, investigations, restoration and post- remedial studies, investigations
and monitoring as may be required by applicable Environmental Laws.
(p) "SELLER'S KNOWLEDGE" means the personal knowledge of Jim
D. Waller or Richard Thrush after due inquiry. "DUE INQUIRY" means conducting an
appropriate review with suitable employees, consultants and advisors who are
reasonably likely to have knowledge of the subject matter.
17.2 PUBLICITY. No publicity release or announcement
concerning this Agreement or the transactions contemplated hereby shall be
issued without advance approval of the form and substance thereof by the Seller
and the Buyer; provided, however, that the parties hereto may, on a confidential
basis, advise their respective affiliates, employees, customers, suppliers,
agents, accountants, attorneys and prospective financing sources with respect to
the contents of this Agreement and the transactions contemplated hereby.
17.3 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or overnight courier,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed, sent by facsimile or telexed with confirmed answerback or on the
next business day when given by overnight courier, as follows:
(a) if to the Seller, to it at:
Ithaca Industries, Inc.
Highway 268 W.
P.O. Box 620
Wilkesboro, NC 28697
Attention: Jim D. Waller
Facsimile: (336) 667-2407
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Carl L. Reisner, Esq.
Facsimile: (212) 757-3990
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(b) if to the Buyer, to it at:
Glendale Group, Ltd.
1200 East 3rd Street
Siler City, NC 27344
Attention: Brian F. Slagle
Facsimile: (919) 663-2649
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
Bank of America Corporate Center
Suite 4200
100 North Tryon Street
Charlotte, NC 28202-4006
Attention: Clarence W. Walker, Esq.
Facsimile: (704) 331-7598
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
17.4 ENTIRE AGREEMENT. This Agreement (including the Exhibits
and Schedules hereto) and the collateral agreements executed in connection with
the consummation of the transactions contemplated hereby contain the entire
agreement among the parties with respect to the transactions contemplated hereby
and supersede all prior agreements, written or oral, with respect thereto.
17.5 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
Seller and the Buyer or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder, nor any single
or partial exercise of any right, power or privilege hereunder, preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies of any party based upon, arising
out of or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
17.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina applicable
to agreements made
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and to be performed entirely within such State, without regard to the choice of
law principles thereof.
17.7 BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and legal representatives. This Agreement is not assignable except
(i) by operation of law, (ii) that the Buyer may assign any or all of its rights
to any subsidiary, to any successor to all or substantially all of its business
or assets or to any bank or other person that may provide financing for the
transactions contemplated by this Agreement (including but not limited to First
Union National Bank or any of its successors), and (iii) the Seller may assign
any or all of its rights to NationsBank, N.A. or to any successor of
NationsBank, N.A. under the Bank Credit Agreements and any amendments thereto.
17.8 VARIATIONS IN PRONOUNS. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
17.9 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
17.10 EXHIBITS AND SCHEDULES. The Exhibits and Schedules to
this Agreement (but not documents incorporated by reference to such Exhibits and
Schedules that are not separately attached hereto as Exhibits or Schedules) are
a part of this Agreement as if set forth in full herein. All references herein
to Sections, Exhibits and Schedules shall be deemed references to such parts of
this Agreement, unless the context shall otherwise require.
17.11 HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
17.12 NO THIRD PARTY RIGHTS. Except as otherwise specifically
provided in Sections 13 and 14, nothing in this Agreement, expressed or implied,
is intended to confer on any person not a party hereto any rights or remedies by
reason of this Agreement.
17.13 SPECIFIC PERFORMANCE. The Seller and the Buyer each
acknowledge that the Buyer would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms and therefore agree that the Buyer shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled at law or in equity.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush
---------------------
Name: Richard P. Thrush
Title: Senior Vice President
GLENDALE GROUP, LTD.
By: /s/ Brian F. Slagle
-------------------
Name: Brian F. Slagle
Title: President
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated January 31, 1998 by and between Ithaca
Industries, Inc. (the "Company") and Richard P. Thrush (the "Executive").
WHEREAS, the Company desires to employ Executive and to enter into an
agreement embodying the terms of such employment;
WHEREAS, Executive desires to accept such employment and enter into
such an agreement;
WHEREAS, the Company considers it essential to its best interests and
the best interests of its stockholders to foster the continued employment of
Executive by the Company during the term of this agreement; and
WHEREAS, Executive is willing to accept and continue his employment on
the terms hereinafter set forth in this agreement (the "Agreement");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and for other good and valuable consideration, the parties agree as
follows:
1. Term of Employment. Subject to the provisions of Section 9 of this
Agreement, Executive shall be employed by the Company for a period commencing on
February 9, 1998 (the "Effective Date") and ending on February 8, 2000 (the
"Employment Term"). The Employment Term shall be automatically extended for
successive one year periods unless the Company provides the Executive with
written notice, in accordance with Section 9(e) hereof, at least 30 days prior
to
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2
the end of the Employment Term that it does not wish to extend the Employment
Term. If the Company elects not to extend the Employment Term, the Executive
shall be entitled to terminate his employment as of the end of the Employment
Term and such termination shall be treated as the Executive were terminated
without Cause on the last day of the Employment Term.
2. Position.
(a) Executive shall serve as the Company's Senior Vice
President of Finance and Administration, Secretary and Chief Financial Officer.
In such position, Executive shall have such duties and authority as shall be
determined from time to time by the Board of Directors of the Company (the
"Board") and the Chief Executive Officer of the Company and the Executive shall
report directly to the Chief Executive Officer.
(b) During the Employment Term, Executive will devote
substantially all of his business time and best efforts to the performance of
his duties hereunder and will not engage in any other business, profession or
occupation for compensation or otherwise which would conflict with the rendition
of such services either directly or indirectly, without the prior written
consent of the Board.
(c) Executive shall be based at the Company's offices in
Wilkesboro, North Carolina and will live within a one-hour (approximately 40
mile) radius of such office.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary (the "Base Salary") at the annual rate of $250,000,
payable in regular bi-monthly installments in accordance with the Company's
usual
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3
payment practices. Executive shall be entitled to such increases in his Base
Salary, if any, as may be determined from time to time in the sole discretion of
the Board.
4. Bonus. With respect to each fiscal year during the Employment Term,
Executive shall be eligible to earn an annual bonus award of up to fifty percent
(50%) of the Executive's Base Salary. The amount of the bonus, if any, awarded
to Executive in any year (the "Bonus"), shall be based upon the achievement of
annual performance targets established by the Executive and the Chief Executive
Officer within the first three months of each fiscal year during the Employment
Term.
5. Equity Arrangements. You will be granted stock options for 85,000
shares of common stock under the Ithaca Industries, Inc. 1996 Long Term Stock
Incentive Plan which terms shall be set forth in an individual award agreement,
substantially in the form set forth on Exhibit I hereto.
6. Employee Benefits. During the Employment Term, Executive shall be
provided employee benefits, including but not limited to health insurance, short
term and long term disability insurance and participation in the Company's
401(k) Plan (collectively "Employee Benefits") on the same basis as those
benefits are generally made available to other senior executives of the Company.
Executive shall be provided with four weeks of paid vacation per year.
7. Business Expenses and Perquisites. During the Employment Term,
reasonable business expenses incurred by Executive in the performance of his
duties hereunder and submitted to the Company in writing shall be reimbursed by
the Company in accordance with Company policies. During the Employment Term, the
Executive shall be entitled to full time use of an automobile provided by the
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4
Company, at the Company's expense, and shall be reimbursed for all reasonable
expenses in connection with the use or operation of such automobile.
8. Moving Expenses. The Company agrees to reimburse Executive for all
reasonable costs and expenses incurred in connection with Executive's relocation
to Wilkesboro, including the cost of a reasonable number of house-hunting trips
for Executive and his spouse. In addition, the Company will reimburse Executive
for reasonable brokerage fees in connection with the sale of his current
principal residence and will pay the Executive an additional amount equal to two
weeks' Base Salary for incidental moving expenses. All amounts payable under
this Section 8 will be net of all federal, state and local income taxes.
9. Termination. Notwithstanding any other provision of this Agreement:
(a) For Cause by the Company. The Employment Term and
Executive's employment hereunder may be terminated by the Company for "Cause."
For purposes of this Agreement, Cause shall mean (i) Executive's engagement in
misconduct which is materially injurious to the Company or its affiliates, (ii)
Executive's continued failure to substantially perform his duties hereunder,
(iii) Executive's repeated dishonesty in the performance of his duties
hereunder, (iv) Executive's commission of an act or acts constituting any (x)
fraud against, or misappropriation or embezzlement from the Company or any of
its affiliates or (y) crime involving moral turpitude or (v) Executive's breach
of Sections 10 or 11 hereof. If Executive is terminated for Cause, he shall be
entitled to receive his Base Salary through the date of termination. Upon
termination of Executive's employment
<PAGE>
5
for Cause pursuant to this Section 9(a), the Executive shall have no further
rights to any compensation (including any Bonus) or any other benefits under
this Agreement. All other benefits, if any, due Executive following Executive's
termination of employment pursuant to this Subsection 9(a) shall be determined
in accordance with the plans, policies and practices of the Company.
(b) Disability or Death. The Employment Term and Executive's
employment hereunder shall terminate upon his death and if Executive becomes
disabled, as defined under the Company's long term disability plan, or if there
is no such plan in effect, if the Participant becomes physically or mentally
incapacitated and is therefore unable for a period of six (6) months in any
twelve (12) consecutive month period to perform his duties (such incapacity is
hereinafter referred to as "Disability"). Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to the
Company and Executive shall be final and conclusive for all purposes of the
Agreement.
Upon termination of Executive's employment hereunder for either
Disability or death, Executive or his estate (as the case may be) shall be
entitled to receive his Base Salary through February 8, 2000 and a pro rata
portion of any Bonus that the Executive would have been entitled to receive
pursuant to Section 4 hereof in
<PAGE>
6
the year of Executive's termination of employment, payable when such Bonus would
have otherwise been payable had the Executive's employment not terminated,
provided, that the amount such Bonus shall be reduced by the aggregate amount of
any payments received, or to be received, under any death benefit or disability
policies of the Company.
Upon termination of Executives employment due to Disability or death
pursuant to this Section 9(b), Executive shall have no further rights to any
compensation or any other benefits under this Agreement. All other benefits, if
any, due Executive following Executive's termination for Disability or death
shall be determined in accordance with the plans, policies and practices of the
Company.
(c) Without Cause by the Company. The Employment Term and
Executive's employment hereunder may be terminated by the Company without Cause.
If Executive's employment is terminated by the Company without Cause (other than
by reason of Disability or death), Executive shall (i) continue to receive his
Base Salary for one year following such termination of employment (the
"Severance Period"), and (ii) be entitled to continue to participate in the
Company's medical plan or receive substantially comparable benefits ("Continued
Medical Coverage") during the Severance Period, subject to continued compliance
with Sections 10 and 11 hereof, and subject to Section 13(f) hereof. The
Continued Medical Coverage shall be in lieu of coverage otherwise available to
Executive during the Severance Period under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") or any other applicable continuation of
coverage laws and such Continued Medical Coverage shall be contingent on the
execution by Executive and
<PAGE>
7
Executive's spouse of any waivers of COBRA that the Company may reasonably
request. Upon termination of Executive's employment by the Company without Cause
pursuant to this Section 9(c), Executive shall have no further rights to any
compensation or any other benefits under this Agreement. All other benefits, if
any, due Executive following Executive's termination of employment by the
Company without Cause shall be determined in accordance with the plans, policies
and practices of the Company.
(d) Termination by Executive. The Employment Term and
Executive's employment hereunder may be terminated by Executive for any reason.
Such termination shall be treated for all purposes as a termination for Cause
pursuant to Section 9(a) and the provisions of Section 9(a) shall apply to such
termination.
(e) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 13(h)
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
10. Non-Competition. (a) Executive acknowledges and recognizes the
highly competitive nature of the businesses of the Company and its affiliates
and accordingly agrees as follows:
(i) During the Employment Term and until the later of (i) one
year following the date the Executive ceases to be employed by the
<PAGE>
8
Company and (ii) the expiration of the Severance Period (the
"Restricted Period"), the Executive will not directly or indirectly,
(i) engage in any business for the Executive's own account which is
principally engaged in the hosiery or underwear business or any other
business which competes with the business of the Company or any
affiliate of the Company (the "Company Affiliates"), (ii) enter the
employ of, or render any services to, any person who is principally
engaged in the hosiery or underwear business or any other business
which competes with the business of the Company or the Company
Affiliates (the "Competitive Businesses"), (iii) acquire a financial
interest in, or otherwise become actively involved with, any person who
is principally engaged in any Competitive Businesses, directly or
indirectly, as an individual, partner, shareholder, officer, director,
principal, agent, trustee or consultant, or (iv) interfere with
business relationships (whether formed before or after the date of this
Agreement) between the Company and customers or suppliers of the
Company or the Company Affiliates.
(ii) Notwithstanding anything to the contrary in this
Agreement, the Executive may, directly or indirectly own, solely as an
investment, securities of any person engaged in the Competitive
Businesses which are publicly traded on a national or regional stock
exchange or on the over-the-counter market if the Executive (i) is not
a controlling person of, or a member of a group which controls, such
person and (ii) does not, directly or indirectly, own 1% or more of any
class of securities of such person.
<PAGE>
9
(iii) During the Restricted Period, the Executive will not,
directly or indirectly, (i) solicit or encourage any employee of the
Company or the Company Affiliates to leave the employment of the
Company or the Company Affiliates, or (ii) hire any such employee who
has left the employment of the Company or the Company Affiliates (other
than as a result of the termination of such employment by the Company
or the Company Affiliates) within one year after the termination of
such employee's employment with the Company or the Company Affiliates.
(iv) During the Restricted Period, the Executive will not,
directly or indirectly, solicit or encourage to cease to work with the
Company or the Company Affiliates any consultant then under contract
with the Company or the Company Affiliates.
(b) It is expressly understood and agreed that although
Executive and the Company consider the restrictions contained in this Section 10
to be reasonable, if a final judicial determination is made by a court of
competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against Executive,
the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any restriction
contained in this Agreement is unenforceable, and such restriction cannot be
amended so as to make it enforceable,
<PAGE>
10
such finding shall not affect the enforceability of any of the other
restrictions contained herein.
11. Confidentiality. Executive will not at any time (whether during or
after his employment with the Company) disclose or use for his own benefit or
purposes or the benefit or purposes of any other person, firm, partnership,
joint venture, association, corporation or other business organization, entity
or enterprise other than the Company and any of its subsidiaries or affiliates,
any trade secrets, information, data, or other confidential information relating
to customers, development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, manufacturing processes,
financing methods, plans, or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
<PAGE>
11
12. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 10 or Section 11 would be inadequate and, in recognition
of this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available.
13. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina.
(b) Entire Agreement/Amendments. This Agreement contains the
entire understanding of the parties with respect to the employment of Executive
by the Company. There are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject matter
herein other than those expressly set forth herein. This Agreement may not be
altered, modified, or amended except by written instrument signed by the parties
hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
<PAGE>
12
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by
Executive. This Agreement may be assigned by the Company to a company which is a
successor in interest to substantially all of the business operations of the
Company. Such assignment shall become effective when the Company notifies the
Executive of such assignment or at such later date as may be specified in such
notice. Upon such assignment, the rights and obligations of the Company
hereunder shall become the rights and obligations of such successor company,
provided that any assignee expressly assumes the obligations, rights and
privileges of this Agreement.
(f) Mitigation. Executive shall be required to mitigate the
amount of any payment provided for pursuant to this Agreement during the second
six months of the Severance Period by seeking other employment, taking into
account the provisions of Section 10 of this Agreement. Anything in this
Agreement to the contrary notwithstanding, in the event that Executive provides
services for pay to anyone other than the Company or any of its affiliates or
subsidiaries from the date Executive's employment hereunder is terminated until
the end of the Severance Period, the amounts paid to Executive during the second
six months of the Severance Period pursuant to this Agreement shall be reduced
by the amounts of salary, bonus or other cash compensation earned by Executive
during such period as a result of Executive's performing such services,
provided, however, that if Executive becomes
<PAGE>
13
employed by another employer at any time during the Severance Period and becomes
covered under such new employer's medical plan, the Executive shall immediately
inform the Company and the Continued Medical Coverage shall immediately cease
and the Company will have no further obligation to provide the Continued Medical
Coverage.
(g) Successors; Binding Agreement. This Agreement shall inure
to the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributes, devises and legatees.
(h) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the execution page of this Agreement, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
(i) Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
<PAGE>
14
(j) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ Richard P. Thrush
---------------------
Richard P. Thrush
2105 Graywalsh Drive
Wilmington, NC 28405
ITHACA INDUSTRIES, INC.
By: /s/ Jim D. Waller
---------------------
Title: President
Highway 268 W.
P.O. Box 620
Wilkesboro, NC 28597
Exhibit 10.6
AMENDMENT AND WAIVER AGREEMENT
THIS AMENDMENT AND WAIVER AGREEMENT (this "Agreement") is made and
entered into as of this 30th day of April, 1999, among ITHACA INDUSTRIES, INC.,
a Delaware corporation ("Borrower"), the Lenders party to this Agreement (the
"Lenders"), and NATIONSBANK, N.A., a national banking association, as agent for
the Lenders (the "Agent").
W I T N E S S E T H :
WHEREAS, Borrower, the Lenders, the Agent, NationsBanc Montgomery
Securities LLC, as Syndication Agent and Arranger, and BankAmerica Business
Credit, Inc., as Documentation Agent, entered into that certain Loan and
Security Agreement, dated as of March 24, 1998, pursuant to which the Lenders
agreed to make certain loans to Borrower (as amended, modified, supplemented and
restated from time to time, the "Loan Agreement"); and
WHEREAS, Borrower has entered into an Asset Purchase Agreement, dated
as of April 29, 1999, with Glendale Group, Ltd., a North Carolina corporation
("Buyer"), pursuant to which Borrower has agreed to sell, and Buyer has agreed
to purchase, Borrower's women's hosiery business (as amended, the "Purchase
Agreement"); and
WHEREAS, the consummation of the transactions contemplated by the
Purchase Agreement would constitute a violation of certain covenants set forth
in the Loan Agreement; and
WHEREAS, Borrower has asked the Agent and the Lenders to consent to the
consummation of the transactions contemplated by the Purchase Agreement and to
waive certain Events of Default under the Loan Agreement; and
WHEREAS, the Agent and the Lenders are willing to grant such consent
and waiver, subject to the terms and conditions set forth herein, including the
amendments to the Loan Agreement set forth herein; and
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly
defined herein shall have the respective meanings given to such terms in the
Loan Agreement.
2. In reliance upon the representations, warranties, agreements and
covenants of
<PAGE>
Borrower set forth herein and in the Loan Agreement, as amended hereby, the
Agent and the Lenders agree to waive the following defaults (the "Specified
Defaults"): (a) the default under SECTIONS 12.1(A), (C) and (D) of the Loan
Agreement for the fiscal year ended January 30, 1999 and the anticipated default
under SECTIONS 12.1(A), (C) and (D) of the Loan Agreement for the fiscal quarter
ending May 1, 1999, (b) the default under SECTION 11.1(B) of the Loan Agreement
arising from the failure of Borrower to deliver to the Agent and the Lenders its
audited year-end financial statements for the fiscal year ended January 30, 1999
within the timeframe required thereunder, and (c) any default arising directly
from the consummation of the transactions contemplated by the Purchase
Agreement, including the sale of the Assets (as defined in the Purchase
Agreement) and the repurchase by Borrower of 400,000 shares of its capital stock
from Buyer on the effective date of the consummation of the transactions
contemplated by the Purchase Agreement, including any default under SECTIONS
5.9, 11.1(B), 12.6 and 12.7 thereof (collectively, the "Specified Defaults");
provided, however, the waiver of the Specified Default under SECTION 11.1(B)
shall no longer be effective (and the default thereunder shall no longer
constitute a Specified Default) after May 17, 1999 unless Borrower has complied
with the terms thereof on or before May 17, 1999. However, the Agent and the
Lenders reserve all of their rights and remedies at all times with respect to
any Default or Event of Default, other than the Specified Defaults, whether
presently existing or occurring hereafter
3. In order to induce the Agent and the Lenders to enter into this
Agreement and grant the accommodations set forth herein, Borrower hereby
represents, warrants, agrees and covenants that (a) Borrower has heretofore
furnished to the Agent true, complete and correct copies of the Purchase
Agreement (including any schedules, exhibits and annexes thereto) and each other
agreement, document and certificate executed (or to be executed) in connection
therewith (collectively, the "Purchase Documents"), (b) the Purchase Agreement
has not been amended, supplemented or modified except as previously disclosed in
writing to the Agent and, together with the other Purchase Documents,
constitutes the complete understanding between Borrower and Buyer in respect of
the acquisition of the Assets and the other matters and transactions covered
thereby, (c) to Borrower's knowledge, the Purchase Agreement and each of the
other Purchase Documents has been duly executed and delivered by Buyer and is a
valid, legal and binding obligation of Buyer, (d) the representations and
warranties of Borrower contained in the Purchase Agreement and each of the other
Purchase Documents are (or will be) true and correct in all material respects on
the effective date of this Agreement as if made on and as of such date, except
to the extent that any such representation or warranty relates solely to an
earlier date, and the Agent and the Lenders are entitled to rely on such
representations and warranties with the same force and effect as though they
were incorporated in this Agreement and made to the Agent and the Lenders
directly, (e) on and as of the effective date of this Agreement, Borrower knows
of no reason to believe that the representations and warranties of, and
information concerning, Buyer contained in the Purchase Agreement and each of
the other Purchase Documents are not true and correct in all material respects,
(f) upon the effective date of this Agreement, the transactions contemplated by
the Purchase Agreement and the other Purchase Documents shall have been
consummated in accordance with Applicable Laws and, except as previously
disclosed in writing to the Agent, in the manner provided therein in accordance
with the terms thereof without any material waivers or amendments thereto, and
each of the conditions to such consummation set forth in the Purchase Agreement
and the other Purchase Documents shall have been fulfilled without any material
waiver of any thereof, except with the prior written consent of the Required
Lenders, (g) attached hereto as Exhibit A are true and correct copies of the
forecasted balance sheets, income statements, cash flow statements
2
<PAGE>
and Borrowing Base availability calculations of Borrower and its Subsidiaries
for their 2000 through 2003 fiscal years, together with supporting details and a
statement of underlying assumptions (the "Projections"), (h) the Projections
have been prepared by Borrower in good faith in light of the past operations of
Borrower and its Subsidiaries and, as of the effective date of this Agreement,
reflect Borrower's good faith and reasonable estimates of the future financial
performance and of the other information projected therein for the periods set
forth therein, it being recognized by the Agent and the Lenders that such
projections as to future events are only estimates and that actual results
during the periods covered by the Projections will differ from the projected
results, (i) attached hereto as Exhibit B are true and correct copies of the pro
forma balance sheet of Borrower and its Subsidiaries as at April 30, 1999, after
giving effect to the transactions contemplated by this Agreement and the
Purchase Agreement (the "Pro Forma"), (j) the Pro Forma presents fairly, on a
pro forma basis in all material respects, the financial position of Borrower and
its Subsidiaries as at April 30, 1999, (k) attached hereto as Exhibit C is a
true and correct copy of the Amendment and Waiver Agreement, dated of even date
herewith, with respect to the Second Lienholder Amendment and Waiver (the
"Second Lienholder Amendment and Waiver"), and (l) upon the effective date of
this Agreement, the Second Lienholder Amendment and Waiver shall be in full
force and effect and all conditions precedent to the effectiveness thereof shall
have been satisfied or waived.
4. The Loan Agreement is amended by deleting the reference to
"$40,000,000" contained in clause (b)(ii)(B) of the definition of "Borrowing
Base" set forth in SECTION 1.1 and replacing it with "$35,000,000".
5. The Loan Agreement is amended by deleting clause (g) of the
definition of "Eligible Receivable" set forth in SECTION 1.1 and replacing it
with the following:
(g) such Receivable is not owing by an Account Debtor whose
then-existing accounts owing to the Borrower (together with accounts
owing from Affiliates of such Account Debtor) exceed in face amount 15%
(in the case of J.C. Penney, 60%, and in the case of Sears, 25%) of the
Borrower's total Eligible Receivables, provided this restriction shall
only exclude the amount in excess of such concentration limit,
6. The Loan Agreement is amended by deleting the definition of "Hosiery
Inventory" set forth in SECTION 1.1.
7. The Loan Agreement is amended by deleting the definition of
"Revolving Credit Facility" set forth in SECTION 1.1 and replacing it with the
following:
"Revolving Credit Facility" means (a) during the months of
January through May and October through December, the principal amount
of $50,000,000 and (b) during the months of June through September, the
principal amount of $55,000,000, or such lesser or greater amounts as
shall be agreed upon from time to time in writing by the Agent, the
Lenders and the Borrower.
3
<PAGE>
8. The Loan Agreement is amended by deleting the definition of "WIP
Advance Rate" set forth in SECTION 1.1 and replacing it with the following:
"WIP Advance Rate" means the applicable advance rate set forth
below:
Period Advance Rate
------ ------------
To and including first anniversary of the 55%
Agreement Date
From first anniversary of the Agreement 50%
Date to and including second anniversary
of the Agreement Date
From second anniversary of the Agreement 45%
Date to and including third anniversary
of the Agreement Date
From third anniversary of the Agreement 40%
Date to and including fourth anniversary
of the Agreement Date
From fourth anniversary of the Agreement 35%
Date to and including fifth anniversary
of the Agreement Date
9. The Loan Agreement is amended by deleting the definition of "WIP
Deductions" set forth in SECTION 1.1 and replacing it with the following:
"WIP Deductions" means, for any fiscal year (commencing with
the fiscal year ending in January 2000), 5% of the average amount of
work-in-process Eligible Inventory during such fiscal year (determined
from the month-end Borrowing Base Certificates for such fiscal year).
10. Borrower acknowledges that (a) the outstanding principal balance of
the Term Loan as of the date hereof is $21,384,996.75, and (b) on the effective
date of this Agreement, Borrower shall make a principal payment of $6,001,993.00
for application to the Term Loan, from the proceeds of the sale of the Assets
pursuant to the Purchase Agreement, resulting in an outstanding principal
balance of $15,383,003.75. Based on the foregoing, the Loan Agreement is amended
by deleting SECTION 4.3 and replacing it with the following:
SECTION 4.. Repayment of Term Loan. The principal amount of
the Term Loan is due and payable, and shall be repaid in full by the
Borrower, in consecutive monthly installments on successive Installment
Payment Dates as set forth below, together with a final payment of all
unpaid principal on March 1, 2003:
4
<PAGE>
Amount of Each
Monthly Payment Date Monthly Payment
-------------------- ---------------
May 1, 1999 to and including $83,333.33
January 1, 2000
February 1, 2000 to and including $208,333.33
January 1, 2001
February 1, 2001 to and including $375,000.00
January 1, 2002
February 1, 2002 to and including $535,916.66
January 1, 2003
February 1, 2003 $601,001.96
March 1, 2003 All remaining principal
The Borrower hereby irrevocably instructs the Agent to charge the
Borrower's Loan Account, on each Installment Payment Date and Interest
Payment Date, for all principal and interest due on the Term Loan, and
each such charge shall be deemed a Prime Rate Revolving Credit Loan.
11. The Loan Agreement is amended by deleting SECTIONS 5.9(A)(II) and
(III) and replacing them with the following:
(ii) Within 2 Business Days of receipt by the Borrower or any
of its Subsidiaries of the Net Proceeds of any other permitted Asset
Disposition (including the disposition of plant and equipment held for
disposal as of the Agreement Date and the disposition of Borrower's
plant and equipment located in Cairo, Georgia and Swainsboro, Georgia),
the Borrower shall apply the Net Proceeds to the outstanding balance of
the Revolving Credit Loans. Within 5 Business Days of the date of the
Borrower's or any Subsidiary's receipt of the Net Proceeds from such
sale, if such sale was of assets other than Equipment, or within 15
Business Days of the end of the fiscal month in which such Equipment
was sold, if such sale was of Equipment, the Borrower shall make a
prepayment of principal on the Term Loan in an amount equal to 80% of
the Net Proceeds from such Asset Disposition or, if greater, the amount
originally loaned to the Borrower under the Term Loan with respect to
the disposed assets, which Term Loan prepayment shall be advanced by
the Agent as a Revolving Credit Loan; provided no such repayment of the
Revolving Credit Loan or prepayment of the Term Loan shall be required
with respect to Net Proceeds not in excess of $250,000 during any
fiscal year from permitted Asset Dispositions (other than the sale of
Borrower's narrow fabrics business, the disposition of plant and
equipment held for disposal as of the Agreement Date and the
disposition of Borrower's plant
5
<PAGE>
and equipment located in Cairo, Georgia and Swainsboro, Georgia). In
the event a Contingent Liability Reserve was deducted from the sale
proceeds in order to calculate Net Proceeds, the amount of such
Contingent Liability Reserve shall be reserved against the Borrowing
Base by the Agent until such time as the actual amount of liability is
determined.
(iii) Notwithstanding the foregoing, if the Borrower
reasonably expects the Net Proceeds of any permitted Asset Disposition
(other than the sale of Borrower's narrow fabrics business, the
disposition of plant and equipment held for disposal as of the
Agreement Date and the disposition of Borrower's plant and equipment
located in Cairo, Georgia and Swainsboro, Georgia) to be reinvested
within six months in productive assets of a kind then used or useable
in the business of the Borrower and that are not subject to any Lien
other than Permitted Liens (other than Purchase Money Liens) and Liens
in favor of the Agent, for the benefit of the Secured Creditors, then
(A) to the extent such proceeds do not exceed the balance from time to
time of the Revolving Credit Loans, such proceeds shall be applied to
the repayment of the outstanding balance of the Revolving Credit Loans
and the Agent shall, until such time as the reinvestment of such
proceeds, establish a reserve against the Borrowing Base in the amount
of the proceeds so applied, and (B) to the extent such proceeds exceed
the balance from time to time of the Revolving Credit Loans, the
Borrower shall deposit such proceeds with the Agent to be held as Cash
Collateral in which the Agent, for the ratable benefit of the Secured
Creditors, shall have a first priority security interest. Upon the
Borrower's reinvestment of such Net Proceeds as described above, the
Agent shall release its security interest in such Cash Collateral in
respect of the reinvested funds and shall eliminate the reserve against
the Borrowing Base. To the extent that the Borrower fails to reinvest
such proceeds within six months as provided above, the Borrower
authorizes and directs the Agent to eliminate such reserve, to apply
the amount of the Cash Collateral in respect of the unreinvested amount
to the prepayment of the Term Loan to the extent required under CLAUSE
(II) above, to make Revolving Credit Loans in an amount equal to the
reserved amount that is not reinvested, and to apply the proceeds of
such Revolving Credit Loans to the prepayment of the Term Loan to the
extent required under CLAUSE (II) above.
12. The Loan Agreement is amended by deleting SECTION 12.1 and
replacing it with the following:
SECTION 12.1. Financial Ratios.
(a) Minimum Tangible Net Worth. Permit Consolidated Tangible
Net Worth of the Borrower and its Consolidated Subsidiaries, as of any
fiscal quarter end (commencing with the fiscal quarter ending on July
31, 1999), to be less than $12,250,000 plus 75% of Consolidated Net
Income (without deduction for any net loss) on a cumulative basis from
and including May 1, 1999 to and including such fiscal quarter end.
6
<PAGE>
(b) Minimum Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio, as of the end of any fiscal
quarter, calculated on a rolling four-quarter basis (except for the
calculation as of the end of the second and third fiscal quarters of
fiscal year 2000, which shall be on a fiscal year to date basis), to be
less than 1.0 to 1.
(c) Maximum Funded Indebtedness to Cash Flow Ratio. Permit the
ratio of (i) Consolidated Funded Indebtedness as of any fiscal quarter
end to (ii) Consolidated Operating Cash Flow to be greater than: 4.80
to 1.0 as of the end of the second fiscal quarter of fiscal year 2000;
4.55 to 1.0 as of the end of the third fiscal quarter of fiscal year
2000 or as of fiscal year end 2000; 4.30 to 1.0 as of any fiscal
quarter end in fiscal year 2001; or 4.05 to 1.0 as of the end of any
fiscal quarter thereafter. Consolidated Operating Cash Flow shall be
calculated on an annualized fiscal year to date basis in the case of
the calculation of this covenant as of the end of the second and third
fiscal quarters of fiscal year 2000, and on a rolling four-quarter
basis for all calculations thereafter. Consolidated Operating Cash
Flow, for the purpose of this covenant, will include, or exclude, as
applicable, the effect of acquisitions and divestitures on a proforma
basis as if such acquisitions or divestitures occurred on the first day
of such applicable period.
13. The Loan Agreement is amended by deleting SECTION 12.5 and
replacing it with the following:
SECTION 12.5. Capital Expenditures. Make or incur any Capital
Expenditures in the aggregate (for the Borrower and its Subsidiaries)
in excess of the amount set forth below for the fiscal year set forth
opposite such amount:
Fiscal Year Amount
----------- ------
1999 $9,000,000
2000 $5,500,000
2001 $4,000,000
2002 $4,000,000
2003 $4,000,000
Notwithstanding the foregoing, up to 50% of the unused portion of the
limit set forth above with respect to any fiscal year may be carried
forward and utilized in the immediately succeeding fiscal year.
14. The Loan Agreement is amended by deleting clause (d) of SECTION
12.7 and replacing it with the following:
(d) the sale of Borrower's narrow fabrics business, the
disposition of plant and equipment held for disposal as of the
Agreement Date and the disposition of Borrower's plant and equipment
located in Cairo, Georgia and Swainsboro, Georgia, provided the Net
Proceeds of any such sale or disposition are applied as set forth in
SECTION 5.9;
7
<PAGE>
15. The Loan Agreement is amended by deleting SECTION 12.10 and
replacing it with the following:
SECTION 12.10. Capitalized Lease Obligations. Incur or permit
to exist any Capitalized Lease Obligation if such Capitalized Lease
Obligation, when added to existing Capitalized Lease Obligations and
Permitted Purchase Money Indebtedness, would exceed $8,000,000 in the
aggregate.
16. The Loan Agreement is amended by deleting SECTION 12.11 and
replacing it with the following:
SECTION 12.11. Operating Lease Obligations. Enter into any
Operating Lease if the aggregate annual rental payable under all
Operating Leases of the Borrower and its Subsidiaries would exceed
$12,000,000 in the aggregate.
17. The Loan Agreement is amended by deleting SECTION 12.14 and
replacing it with the following:
SECTION 12.14. Minimum Availability. Except as permitted by
the Agent under SECTION 5.7(D), permit Availability to be less than (a)
$3,000,000 at any time on or prior to August 1, 1999, or (b) $4,000,000
at any time thereafter.
18. The Loan Agreement is amended by deleting ANNEX II attached thereto
and replacing it with ANNEX II attached to this Agreement.
19. Borrower covenants and agrees that it will promptly deliver to the
Agent, and in any event within three Business Days after Borrower's receipt
thereof, the Closing Balance Sheet and any Notice of Disagreement (as such terms
are defined in the Purchase Agreement) or final determination of the Closing
Tangible Net Worth (as defined in the Purchase Agreement).
20. The Loan Agreement is amended by deleting Schedules 7.1(f), 7.1(h),
7.1(p), 7.1(t), 7.1(u), 7.1(v), 7.1(w), 7.1(x), 7.1(bb), 7.1(cc) and 1.1B and
replacing them with the Schedules attached to this Agreement.
21. The parties hereto acknowledge and agree that there will no longer
be a Documentation Agent under the Loan Agreement.
22. The parties hereto acknowledge and agree that, notwithstanding
anything to the contrary set forth in the Loan Agreement, including the
provisions of SECTIONS 2.3 and 9.1, all remittances and payments with respect to
Receivables shall be applied as set forth in the Glendale Intercreditor
Agreement until the Transition Date (as defined in the Glendale Intercreditor
Agreement), and thereafter shall be applied as set forth in the Loan Agreement.
As used herein, "Glendale Intercreditor Agreement" means the Agreement, dated on
or about the date hereof, among, inter alia, Borrower, the Agent, the Lenders
and Buyer, in substantially the form attached hereto as Exhibit E. Borrower
acknowledges and agrees that, in the event Borrower fails to
8
<PAGE>
provide the Agent written instructions as to the application of any Payments (as
defined in the Glendale Intercreditor Agreement) in accordance with the terms of
the Glendale Intercreditor Agreement within five Business Days after the posting
of the deposit or other receipt of such Payments in the Deposit Account (as
defined in the Glendale Intercreditor Agreement), at the election of the Agent
or the Required Lenders, all of the Loans shall bear interest at the respective
rates applicable thereto pursuant to the Loan Agreement plus the Default Margin
until and including the date upon which the Agent receives such written
instructions.
23. Each of the Lenders hereby authorizes and directs the Agent (a) to
release the Lien and Security Interest of the Agent and the Lenders in all of
the Assets, and (b) to execute and deliver to Borrower the release letter in
substantially the form attached hereto as Exhibit D and such other releases and
documents as the Agent may deem appropriate or necessary in order to evidence
and effectuate such release.
24. The effectiveness of this Agreement and the waiver and amendments
set forth herein shall be conditioned upon the receipt (a) by the Agent of at
least $15,000,000 from the proceeds of the sale of the Assets pursuant to the
Purchase Agreement for application to the outstanding Revolving Credit Loans on
a Ratable basis and $6,001,993 from the proceeds of the sale of the Assets
pursuant to the Purchase Agreement for application to the outstanding balance of
the Term Loan on a Ratable basis, and (b) by the Agent of the following
certificates, notes, agreements, acknowledgments and opinions, all of which
shall be in form and substance reasonably satisfactory to the Agent and the
Lenders:
(i) duly executed replacement Revolving Credit Notes;
(ii) a duly executed landlord waiver agreement with respect to
the real estate located at 1806 River Street, Wilkesboro, North
Carolina, to be sold by Borrower to Buyer, and leased back by Borrower
from Buyer, pursuant to the Purchase Agreement;
(iii) a certificate of the Secretary of Borrower as to such
corporate and other matters as the Agent may reasonably request, which
certificate shall contain a certified copy of Borrower's articles of
incorporation, a good standing certificate for Borrower from the State
of Delaware, a copy of Borrower's by-laws, and a copy of the
resolutions of Borrower's board of directors approving the transactions
contemplated hereby and by the Purchase Agreement;
(iv) an opinion of Borrower's counsel as to such matters as
the Agent may reasonably request;
(v) copies of the Projections and Pro Forma, together with a
certificate of the Financial Officer with respect thereto;
(vi) a certified copy of the duly executed and delivered
Second Lienholder Amendment and Waiver, including a certification of
the Financial Officer that such Second Lienholder Amendment and Waiver
is in full force and effect and all conditions precedent to the
effectiveness thereof have been satisfied or waived;
9
<PAGE>
(vii) on the effective date of this Agreement, (A) the Agent
shall have received true and complete executed or conformed copies of
the Purchase Documents and any amendments thereto; (B) the Purchase
Documents shall be in full force and effect and no material term or
condition thereof shall have been amended, modified or waived after the
execution thereof (other than solely to extend the date by which the
purchase contemplated thereby is required to occur) except with the
prior written consent of the Lenders; (C) none of the parties to any of
the Purchase Documents shall have failed to perform any material
obligation or covenant required by such Purchase Document to be
performed or complied with by it on or before the effective date of
this Agreement; (D) all representations and warranties of Borrower and
Buyer contained in the Purchase Agreement and the other Purchase
Documents shall be true and correct in all material respects with the
same effect as though made on and as of the effective date of this
Agreement; (E) all requisite approvals by governmental authorities and
regulatory bodies having jurisdiction over the parties to the Purchase
Agreement in respect of the sale of the Assets shall have been obtained
by such parties, and no such approvals shall impose any unsatisfied
conditions to the consummation of the sale of the Assets; (F) the sale
of the Assets shall have been consummated in accordance with the terms
and provisions of the Purchase Agreement and the other Purchase
Documents, without any amendment or waiver of any material provision
thereof; and (G) the Agent shall have received a certificate from an
officer of Borrower, or other evidence satisfactory to them, that each
of the conditions set forth in clauses (A) through (F) above have been
satisfied;
(vii) a duly executed Collateral Assignment of Purchase
Agreement made by Borrower in favor of the Agent, for the benefit of
the Secured Creditors, and duly acknowledged by Buyer;
(viii) the duly executed Glendale Intercreditor Agreement; and
(ix) such other certificates, notes, agreements and
acknowledgments as the Agent may reasonably request, including a
current Borrowing Base Certificate prepared on a pro forma basis giving
effect to the transactions contemplated by the Purchase Agreement.
25. As consideration for the accommodations set forth herein, on the
effective date of this Agreement, Borrower shall pay to the Lenders a
non-refundable fee as set forth in the fee letter of even date herewith between
Borrower and the Agent, such fee to be shared among the Lenders on a Ratable
basis.
26. To induce the Agent and the Lenders to enter into this Agreement,
Borrower hereby represents and warrants that, as of the date hereof, except for
the Specified Defaults, there exists no Default or Event of Default under the
Loan Agreement.
27. Borrower hereby restates, ratifies, and reaffirms each and every
term, condition, representation and warranty heretofore made by it under or in
connection with the execution and delivery of the Loan Agreement, as amended
hereby, and the other Loan Documents, as fully as though such representations
and warranties had been made on the date hereof and with specific reference to
this Agreement, except to the extent that any such representation or warranty
relates solely to a prior date.
10
<PAGE>
28. Except as expressly set forth herein, the Loan Agreement and the
other Loan Documents shall be and remain in full force and effect as originally
written, and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Agent and the Lenders.
29. In addition to any other fees described herein, Borrower agrees to
pay on demand all reasonable costs and expenses of the Agent in connection with
the preparation, execution, delivery and enforcement of this Agreement and all
other Loan Documents and any other transactions contemplated hereby, including,
without limitation, the reasonable fees and out-of-pocket expenses of legal
counsel to the Agent.
30. To induce the Agent and the Lenders to enter into this Agreement
and grant the accommodations set forth herein, Borrower (a) acknowledges and
agrees that no right of offset, defense, counterclaim, claim or objection exists
in favor of Borrower against the Agent or any Lender arising out of or with
respect to the Loan Agreement, the other Loan Documents or the Secured
Obligations, and (b) releases, acquits, remises and forever discharges the Agent
and each Lender and its affiliates and all of their past, present and future
officers, directors, employees, agents, attorneys, representatives, successors
and assigns from any and all claims, demands, actions and causes of action
(other than those based on fraud or criminal misconduct), whether at law or in
equity, whether now accrued or hereafter maturing, and whether known or unknown,
which Borrower now or hereafter may have by reason of any manner, cause or
things, in each case, to and including the date of this Agreement with respect
to matters arising out of the Loan Agreement, the other Loan Documents or the
Secured Obligations.
31. Borrower acknowledges that (a) except as expressly set forth
herein, neither the Agent nor any Lender has agreed to (and has no obligation
whatsoever to discuss, negotiate or agree to) any other restructuring,
modification, amendment, waiver or forbearance with respect to the Secured
Obligations or the Loan Agreement, (b) no understanding with respect to any
other restructuring, modification, amendment, waiver or forbearance with respect
to the Secured Obligations or the Loan Agreement shall constitute a legally
binding agreement or contract, or have any force or effect whatsoever, unless
and until reduced to writing and signed by authorized representatives of each
party hereto, and (c) the execution and delivery of this Agreement has not
established any course of dealing between the parties hereto or created any
obligation or agreement of the Agent or any Lender with respect to any future
restructuring, modification, amendment, waiver or forbearance with respect to
the Secured Obligations or the Loan Agreement.
32. Borrower agrees to take such further action as the Agent shall
reasonably request in connection herewith to evidence the agreements herein
contained.
33. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
34. This Agreement shall be binding upon and inure to the benefit of
the successors
11
<PAGE>
and permitted assigns, and legal representatives and heirs, of the parties
hereto.
35. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Georgia.
12
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent and the Lenders have caused
this Agreement to be duly executed, all as of the date first above written.
BORROWER:
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush
-------------------------
Name: Richard P. Thrush
Title: Senior Vice President
LENDERS:
NATIONSBANK, N.A.
By: /s/ Douglas E. Cowan
------------------------
Name: Douglas E. Cowan
Title: Vice President
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Douglas E. Cowan
------------------------
Name: Douglas E. Cowan
Title: Vice President
13
<PAGE>
NATIONAL BANK OF CANADA
By: /s/ Charles Collie
----------------------
Name: Charles Collie
Title: Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: /s/ M. Kim Carpenter
------------------------
Name: M. Kim Carpenter
Title: Vice President
FLEET BUSINESS CREDIT CORPORATION, as
successor to Sanwa Business Credit
Corporation
By: /s/ Mark Pickering
----------------------
Name: Mark Pickering
Title: Vice President
AGENT:
NATIONSBANK, N.A.
By: /s/ Douglas E. Cowan
------------------------
Name: Douglas E. Cowan
Title: Vice President
14
Exhibit 10.7
AMENDMENT AND WAIVER AGREEMENT
THIS AMENDMENT AND WAIVER AGREEMENT (this "Agreement") is made and
entered into as of this 30th day of April, 1999 among ITHACA INDUSTRIES, INC., a
Delaware corporation ("Borrower"), the Lenders party to this Agreement (the
"Lenders"), and NATIONSBANK, N.A., a national banking association, as the
collateral agent for the Lenders (the "Agent").
W I T N E S S E T H :
WHEREAS, Borrower, the Lenders, and the Agent entered into that
certain Loan and Security Agreement, dated as of March 24, 1998, pursuant to
which the Lenders agreed to make certain loans to Borrower (as amended,
modified, supplemented and restated from time to time, the "Loan Agreement");
and
WHEREAS, Borrower has entered into an Asset Purchase Agreement, dated
as of April 29, 1999, with Glendale Group, Ltd., a North Carolina corporation
("Buyer"), pursuant to which Borrower has agreed to sell, and Buyer has agreed
to purchase, Borrower's women's hosiery business (as amended, the "Purchase
Agreement"); and
WHEREAS, the consummation of the transactions contemplated by the
Purchase Agreement would constitute a violation of certain covenants set forth
in the Loan Agreement; and
WHEREAS, Borrower has asked the Lenders to consent to the consummation
of the transactions contemplated by the Purchase Agreement and to waive certain
Events of Default under the Loan Agreement; and
WHEREAS, the Lenders are willing to grant such consent and waiver,
subject to the terms and conditions set forth herein, including the amendments
to the Loan Agreement set forth herein; and
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly
defined herein shall have the respective meanings given to such terms in the
Loan Agreement.
2. In reliance upon the representations, warranties, agreements and
covenants of Borrower set forth herein and in the Loan Agreement, as amended
hereby, the Lenders agree to waive the following defaults (the "Specified
Defaults"): (a) the default under SECTIONS 12.1(A), (C) and (D) of the Loan
Agreement for the fiscal year ended January 30, 1999, and the anticipated
default under SECTIONS 12.1(A), (C) and (D) of the Loan Agreement for the fiscal
quarter ending May 31, 1999, (b) the default under SECTION 11.1(B) of the Loan
Agreement arising from the failure of Borrower to deliver to the Lenders its
audited year-end financial statements for the fiscal year
1
<PAGE>
ended January 30, 1999 within the timeframe required thereunder, and (c) any
default arising directly from the consummation of the transactions contemplated
by the Purchase Agreement, including the sale of the Assets (as defined in the
Purchase Agreement) and the repurchase by Borrower of 400,000 shares of its
capital stock from Glendale Group, Ltd. on the effective date of the
consummation of the transactions contemplated by the Purchase Agreement,
including any default under SECTIONS 11.1(B), 12.6 and 12.7 thereof; provided,
however, the waiver of the Specified Defaults under SECTION 11.1(B) shall no
longer be effective (and the default thereunder shall no longer constitute a
Specified Default) after May 17, 1999 unless Borrower has complied with the
terms thereof on or before May 17, 1999. However, the Lenders reserve all of
their rights and remedies at all times with respect to any Default or Event of
Default, other than the Specified Defaults, whether presently existing or
occurring hereafter.
3. In order to induce the Lenders to enter into this Agreement and
grant the accommodations set forth herein, Borrower hereby represents, warrants,
agrees and covenants that (a) Borrower has heretofore furnished to the Lenders
true, complete and correct copies of the Purchase Agreement (including any
schedules, exhibits and annexes thereto) and each other agreement, document and
certificate executed (or to be executed) in connection therewith (collectively,
the "Purchase Documents"), (b) the Purchase Agreement has not been amended,
supplemented or modified except as previously disclosed in writing to the
Lenders and, together with the other Purchase Documents, constitutes the
complete understanding between Borrower and Buyer in respect of the acquisition
of the Assets and the other matters and transactions covered thereby, (c) to
Borrower's knowledge, the Purchase Agreement and each of the other Purchase
Documents has been duly executed and delivered by Buyer and is a valid, legal
and binding obligation of Buyer, (d) the representations and warranties of
Borrower contained in the Purchase Agreement and each of the other Purchase
Documents are (or will be) true and correct in all material respects on the
effective date of this Agreement as if made on and as of such date, except to
the extent that any such representation or warranty relates solely to an earlier
date, and the Lenders are entitled to rely on such representations and
warranties with the same force and effect as though they were incorporated in
this Agreement and made to the Lenders directly, (e) on and as of the effective
date of this Agreement, Borrower knows of no reason to believe that the
representations and warranties of, and information concerning, Buyer contained
in the Purchase Agreement and each of the other Purchase Documents are not true
and correct in all material respects, (f) upon the effective date of this
Agreement, the transactions contemplated by the Purchase Agreement and the other
Purchase Documents shall have been consummated in accordance with Applicable
Laws and, except as previously disclosed in writing to the Lenders, in the
manner provided therein in accordance with the terms thereof without any
material waivers or amendments thereto, and each of the conditions to such
consummation set forth in the Purchase Agreement and the other Purchase
Documents shall have been fulfilled without any material waiver of any thereof,
except with the prior written consent of the Lenders, (g) attached hereto as
Exhibit A are true and correct copies of the forecasted balance sheets, income
statements, and cash flow statements of Borrower and its Subsidiaries for their
2000 through 2003 fiscal years, together with supporting details and a statement
of underlying assumptions (the "Projections"), (h) the Projections have been
prepared by Borrower in good faith in light of the past operations of Borrower
and its Subsidiaries, and, as of the effective date of this Agreement, reflect
Borrower's good faith and reasonable estimates of the future financial
performance and of the other information projected therein for the periods set
forth therein,
2
<PAGE>
it being recognized by the Lenders that such projections as to future events are
only estimates and that actual results during the periods covered by the
Projections will differ from the projected results, (i) attached hereto as
Exhibit B are true and correct copies of the pro forma balance sheet of Borrower
and its Subsidiaries as at April 30, 1999, after giving effect to the
transactions contemplated by this Agreement and the Purchase Agreement (the "Pro
Forma"), (j) the Pro Forma presents fairly, on a pro forma basis in all material
respects, the financial position of Borrower and its Subsidiaries as at April
30, 1999, (k) attached hereto as Exhibit C is a true and correct copy of the
Amendment and Waiver Agreement, dated of even date herewith, with respect to the
Senior Loan Agreement (the "Senior Lender Amendment and Waiver"), and (l) upon
the effective date of this Agreement, the Senior Lender Amendment and Waiver
shall be in full force and effect and all conditions precedent to the
effectiveness thereof shall have been satisfied or waived.
4. [Intentionally Deleted]
5. [Intentionally Deleted]
6. [Intentionally Deleted]
7. [Intentionally Deleted]
8. [Intentionally Deleted]
9. [Intentionally Deleted]'
10. [Intentionally Deleted]
11. The Loan Agreement is amended by deleting SECTION 12.1 and
replacing it with the following:
SECTION 12.1. Financial Ratios.
(a) Minimum Tangible Net Worth. Permit Consolidated Tangible
Net Worth of the Borrower and its Consolidated Subsidiaries, as of any
fiscal quarter end (commencing with the fiscal quarter ending on July
31, 1999), to be less than $12,000,000 plus 75% of Consolidated Net
Income (without deduction for any net loss) on a cumulative basis from
and including May 1, 1999 to and including such fiscal quarter end.
(b) Minimum Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio, as of the end of any fiscal
quarter, calculated on a rolling four-quarter basis (except for the
calculation as of the end of the second and third fiscal quarters of
fiscal year 2000, which shall be on a fiscal year to date basis), to
be less than 1.0 to 1.
3
<PAGE>
(c) Maximum Funded Indebtedness to Cash Flow Ratio. Permit the
ratio of (i) Consolidated Funded Indebtedness as of any fiscal quarter
end to (ii) Consolidated Operating Cash Flow to be greater than: 5.00
to 1.0 as of the end of the second fiscal quarter of fiscal year 2000;
4.75 to 1.0 as of the end of the third fiscal quarter of fiscal year
2000 or as of fiscal year end 2000; 4.50 to 1.0 as of any fiscal
quarter end in fiscal year 2001; or 4.25 to 1.0 as of the end of any
fiscal quarter thereafter. Consolidated Operating Cash Flow shall be
calculated on an annualized fiscal year to date basis in the case of
the calculation of this covenant as of the end of the second and third
fiscal quarters of fiscal year 2000, and on a rolling four-quarter
basis for all calculations thereafter. Consolidated Operating Cash
Flow, for the purpose of this covenant, will include, or exclude, as
applicable, the effect of acquisitions and divestitures on a proforma
basis as if such acquisitions or divestitures occurred on the first
day of such applicable period.
12. The Loan Agreement is amended to delete the reference to
"$95,000,000" from clause (b) of SECTION 12.2 and replacing it with "$80,000,000
(which amount will be reduced to $70,383,003.76 as the First Lien Senior Secured
Facility is paid down from the proceeds of the April 30, 1999 sale of Borrower's
women's hosiery business)."
13. The Loan Agreement is amended by deleting SECTION 12.5 and
replacing it with the following:
SECTION 12.5. Capital Expenditures. Make or incur any Capital
Expenditures in the aggregate (for the Borrower and its Subsidiaries)
in excess of the amount set forth below for the fiscal year set forth
opposite such amount:
Fiscal Year Amount
----------- ------
1999 $10,000,000
2000 $6,500,000
2001 $5,000,000
2002 $5,000,000
2003 $5,000,000
Notwithstanding the foregoing, up to 50% of the unused portion of the
limit set forth above with respect to any fiscal year may be carried
forward and utilized in the immediately succeeding fiscal year.
14. The Loan Agreement is amended by deleting clause (d) of SECTION
12.7 and replacing it with the following:
4
<PAGE>
(d) the sale of Borrower's narrow fabrics business, the
disposition of plant and equipment held for disposal as of the
Agreement Date and the disposition of Borrower's plant and equipment
located in Cairo, Georgia and Swainsboro, Georgia, provided the Net
Proceeds of any such sale or disposition are applied as set forth in
SECTION 5.9 of the Senior Loan Agreement, or if the loans under the
Senior Loan Agreement have been paid in full, applied to the Term
Loans to the extent that it would have been required to be applied to
reduce the First Lien Senior Secured Facility; and
15. The Loan Agreement is amended by deleting the words "Senior Loans"
from clauses (e) and (f) of SECTION 12.7 and replacing them with the words
"loans outstanding under the Senior Loan Agreement".
16. The Loan Agreement is amended by deleting SECTION 12.10 and
replacing it with the following:
SECTION 12.10. Capitalized Lease Obligations. Incur or permit
to exist any Capitalized Lease Obligation if such Capitalized Lease
Obligation, when added to existing Capitalized Lease Obligations and
Permitted Purchase Money Indebtedness, would exceed $8,000,000 in the
aggregate.
17. The Loan Agreement is amended by deleting SECTION 12.11 and
replacing it with the following:
SECTION 12.11. Operating Lease Obligations. Enter into any
Operating Lease if the aggregate annual rental payable under all
Operating Leases of the Borrower and its Subsidiaries would exceed
$12,000,000 in the aggregate.
18. [Intentionally Deleted]
19. Borrower covenants and agrees that it will promptly deliver to the
Lenders, and in any event within three Business Days after Borrower's receipt
thereof, the Closing Balance Sheet and any Notice of Disagreement (as such terms
are defined in the Purchase Agreement) or final determination of the Closing
Tangible Net Worth (as defined in the Purchase Agreement).
20. The Loan Agreement is amended by deleting Schedules 7.1(f),
7.1(h), 7.1(p), 7.1(t), 7.1(u), 7.1(v), 7.1(w), 7.1(x), 7.1(bb), 7.1(cc) and
1.1B and replacing them with the Schedules attached to this Agreement.
21. [Intentionally Deleted]
22. Each of the Lenders hereby authorizes and directs the Agent (a) to
release the Lien and Security Interest of the Agent and the Lenders in all of
the Assets, and (b) to execute and deliver to Borrower the release letter in
substantially the form attached hereto as Exhibit D and such other
5
<PAGE>
releases and documents as the Agent may deem appropriate or necessary in order
to evidence and effectuate such release.
23. The effectiveness of this Agreement and the waiver and amendments
set forth herein shall be conditioned upon the receipt (a) by the Agent of at
least $15,000,000 from the proceeds of the sale of the Assets pursuant to the
Purchase Agreement for application to the revolving loans under the Senior Loan
Agreement, and $6,001,993 from the proceeds of the sale of the Assets pursuant
to the Purchase Agreement for application to the outstanding balance of the term
loan under the Senior Loan Agreement, and (b) by the Lenders (by wire transfer)
of the fee referred to in Section 24 below and the following certificates,
notes, agreements, acknowledgments and opinions, all of which shall be in form
and substance reasonably satisfactory to the Lenders:
(i) [intentionally deleted];
(ii) [intentionally deleted];
(iii) a certificate of the Secretary of Borrower as to such
corporate and other matters as the Lenders may reasonably request,
which certificate shall contain a certified copy of Borrower's articles
of incorporation, a good standing certificate for Borrower from the
State of Delaware, a copy of Borrower's by-laws, and a copy of the
resolutions of Borrower's board of directors approving the transactions
contemplated hereby and by the Purchase Agreement;
(iv) an opinion of Borrower's counsel as to such matters as
the Lenders may reasonably request;
(v) copies of the Projections and Pro Forma, together with a
certificate of the Financial Officer with respect thereto;
(vi) a certified copy of the duly executed and delivered
Senior Lender Amendment and Waiver, including a certification of the
Financial Officer that such Senior Lender Amendment and Waiver is in
full force and effect and all conditions precedent to the effectiveness
thereof have been satisfied or waived;
(vii) on the effective date of this Agreement, (A) the Lenders
shall have received true and complete executed or conformed copies of
the Purchase Documents and any amendments thereto; (B) the Purchase
Documents shall be in full force and effect and no material term or
condition thereof shall have been amended, modified or waived after the
execution thereof (other than solely to extend the date by which the
purchase contemplated thereby is required to occur) except with the
prior written consent of the Lenders; (C) none of the parties to any of
the Purchase Documents shall have failed to perform any material
obligation or covenant required by such Purchase Document to be
performed or complied with by it on or before the effective date of
this Agreement; (D) all representations and warranties of Borrower and
Buyer contained in the Purchase Agreement and the other Purchase
Documents shall be true and correct in all material respects with the
same effect
6
<PAGE>
as though made on and as of the effective date of this Agreement; (E)
all requisite approvals by governmental authorities and regulatory
bodies having jurisdiction over the parties to the Purchase Agreement
in respect of the sale of the Assets shall have been obtained by such
parties, and no such approvals shall impose any unsatisfied conditions
to the consummation of the sale of the Assets; (F) the sale of the
Assets shall have been consummated in accordance with the terms and
provisions of the Purchase Agreement and the other Purchase Documents,
without any amendment or waiver of any material provision thereof; and
(G) the Lenders shall have received a certificate from an officer of
Borrower, or other evidence satisfactory to them, that each of the
conditions set forth in clauses (A) through (F) above have been
satisfied;
(viii) [intentionally deleted]; and
(ix) such other certificates, notes, agreements and
acknowledgments as the Lenders may reasonably request.
24. As consideration for the accommodations set forth herein, on the
effective date of this Agreement, Borrower shall pay to the Lenders a
non-refundable fee as set forth in the fee letter of even date herewith between
Borrower and the Lenders.
25. To induce the Lenders to enter into this Agreement, Borrower hereby
represents and warrants that, as of the date hereof, except for the Specified
Defaults, there exists no Default or Event of Default under the Loan Agreement.
26. Borrower hereby restates, ratifies, and reaffirms each and every
term, condition, representation and warranty heretofore made by it under or in
connection with the execution and delivery of the Loan Agreement, as amended
hereby, and the other Loan Documents, as fully as though such representations
and warranties had been made on the date hereof and with specific reference to
this Agreement, except to the extent that any such representation or warranty
relates solely to a prior date.
27. Except as expressly set forth herein, the Loan Agreement and the
other Loan Documents shall be and remain in full force and effect as originally
written, and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Agent and the Lenders.
28. In addition to any other fees described herein, Borrower agrees to
pay on demand all reasonable costs and expenses of the Agent and the Lenders in
connection with the preparation, execution, delivery and enforcement of this
Agreement and all other Loan Documents and any other transactions contemplated
hereby, including, without limitation, the fees and out-of-pocket expenses of
legal counsel to the Agent and the Lenders.
29. To induce the Agent and the Lenders to enter into this Agreement
and grant the accommodations set forth herein, Borrower (a) acknowledges and
agrees that no right of offset, defense, counterclaim, claim or objection exists
in favor of Borrower against the Agent or any Lender arising out of or with
respect to the Loan Agreement, the other Loan Documents, or the Secured
Obligations,
7
<PAGE>
and (b) releases, acquits, remises and forever discharges the Agent and each
Lender and its affiliates and all of their past, present and future officers,
directors, employees, agents, attorneys, representatives, successors and assigns
from any and all claims, demands, actions and causes of action (other than those
based on fraud or criminal misconduct), whether at law or in equity, whether now
accrued or hereafter maturing, and whether known or unknown, which Borrower now
or hereafter may have by reason of any manner, cause or things, in each case, to
and including the date of this Agreement arising out of the Loan Agreement, the
other Loan Documents, or the Secured Obligations.
30. Borrower acknowledges that (a) except as expressly set forth
herein, neither the Agent nor any Lender has agreed to (and has no obligation
whatsoever to discuss, negotiate or agree to) any other restructuring,
modification, amendment, waiver or forbearance with respect to the Secured
Obligations or the Loan Agreement, (b) no understanding with respect to any
other restructuring, modification, amendment, waiver or forbearance with respect
to the Secured Obligations or the Loan Agreement shall constitute a legally
binding agreement or contract, or have any force or effect whatsoever, unless
and until reduced to writing and signed by authorized representatives of each
party hereto, and (c) the execution and delivery of this Agreement has not
established any course of dealing between the parties hereto or created any
obligation or agreement of the Agent or any Lender with respect to any future
restructuring, modification, amendment, waiver or forbearance with respect to
the Secured Obligations or the Loan Agreement.
31. Borrower agrees to take such further action as the Lenders shall
reasonably request in connection herewith to evidence the agreements herein
contained.
32. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
33. This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns, and legal representatives and heirs, of
the parties hereto.
8
<PAGE>
34. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Georgia.
IN WITNESS WHEREOF, Borrower, the Agent and the Lenders have caused
this Agreement to be duly executed, all as of the date first above written.
BORROWER:
ITHACA INDUSTRIES, INC.
By: /s/ Richard P. Thrush
-------------------------
Name: Richard P. Thush
Title: SVP
LENDERS:
FOOTHILL CAPITAL CORPORATION
By: /s/ Karen S. Sandler
------------------------
Name: Karen S. Sandler
Title: SVP
AGENT:
NATIONSBANK, N.A.
By: /s/ Douglas E. Cowan
------------------------
Name: Douglas E. Cowan
Title: Vice President
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-32429) of Ithaca Industries, Inc. of our report
dated March 25, 1999, except as to Note 14 which is as of April 30, 1999,
appearing on page 15 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page 41 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Charlotte, North Carolina
May 13, 1999
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Ithaca Industries, Inc. and Subsidiaries
We consent to incorporation by reference in the registration statement (No.
333-32429) on Form S-8 of Ithaca Industries, Inc. of our report dated March 27,
1998, relating to the consolidated balance sheet of Ithaca Industries, Inc. and
subsidiaries as of January 31, 1998 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
January 31, 1998; the 10-week period ended February 1, 1997; and the 42-week
period ended November 22, 1996 and the related financial statement schedule,
which report appears in the January 30, 1999 annual report on Form 10-K of
Ithaca Industries.
/s/ KPMG LLP
------------
KPMG LLP
Atlanta Georgia
May 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 19,071
<ALLOWANCES> 765
<INVENTORY> 49,707
<CURRENT-ASSETS> 71,851
<PP&E> 34,983
<DEPRECIATION> 8,967
<TOTAL-ASSETS> 129,161
<CURRENT-LIABILITIES> 26,287
<BONDS> 0
<COMMON> 104
0
0
<OTHER-SE> 14,186
<TOTAL-LIABILITY-AND-EQUITY> 129,161
<SALES> 187,660
<TOTAL-REVENUES> 187,660
<CGS> 162,399
<TOTAL-COSTS> 162,399
<OTHER-EXPENSES> 22,562
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,758
<INCOME-PRETAX> (2,619)
<INCOME-TAX> (969)
<INCOME-CONTINUING> (1,650)
<DISCONTINUED> (6,219)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,869)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>
Exhibit 99
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, NC 28697
(336) 667-5231
Contact for additional information:
Richard P. Thrush
Senior Vice President/CFO
(336) 667-5231 X314
FOR IMMEDIATE RELEASE
ITHACA INDUSTRIES ANNOUNCES SIGNING OF DEFINITIVE
AGREEMENT FOR SALE OF HOSIERY DIVISION
ACQUIRING COMPANY LED BY CURRENT DIVISION MANAGEMENT
WILKESBORO, N.C., APRIL 29, 1999--ITHACA INDUSTRIES, INC., one of the nation's
largest manufacturers of private-brand men's underwear and outerwear and women's
underwear products, today announced it has signed a definitive agreement for the
sale of its hosiery division to a management led group.
The newly formed company, which will be owned by the division's existing
management team, will be headquartered in Siler City, North Carolina and will
have manufacturing plants and distribution facilities in Siler City, Wilkesboro
and Liberty North Carolina. Brian F. Slagle will become the President and CEO of
the new company. Mr. Slagle stated "The acquiring company will be privately
owned and will focus its efforts on the continued development of its position as
a leading provider of private brand women's hosiery products in the United
States."
Jim D. Waller, Chairman, President and CEO of Ithaca Industries, Inc. stated
"The sale of the hosiery segment of our business will position Ithaca to focus
and grow as a private brand underwear and outerwear company. This narrowing of
our focus will allow us to maximize our leading position in this growing segment
of the apparel market." Ithaca will remain headquartered in Wilkesboro, North
Carolina with manufacturing plants and distribution facilities in Gastonia and
Graham North Carolina; Cairo, Glennville, Swainsboro and Vidalia Georgia;
Honduras and Mexico.
<PAGE>
ITHACA INDUSTRIES, INC.
The consummation of the transaction is currently scheduled for April 30 and is
subject to a number of conditions including completion of the Buyer's financing
arrangements and consent of Ithaca's lenders. Ithaca is in the process of
completing an amendment and consent under its credit agreements with its
lenders. The sale of the hosiery division will require Ithaca to report its
fiscal 1999 results to reflect the hosiery division as a discontinued operation
and will result in a one-time charge to earnings for fiscal 1999. Ithaca
anticipates that there may be a delay of not more than two weeks in the filing
of Ithaca's Annual Report on Form 10K with the Securities and Exchange
Commission.
Ithaca Industries, Inc. is one of the largest manufacturers of private-brand
men's underwear and outerwear and women's underwear products in the United
States. Products are sold through a wide range of retail distribution channels
and are offered to the public through more than 10,000 customer outlets,
including discount stores, department stores and specialty stores. Ithaca stock
(ITHI) is currently traded via the NASDAQ bulletin board.
THIS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
RISKS INCLUDE BUSINESS RISKS SUCH AS CHANGES IN THE PRICE OF RAW MATERIALS,
CONCENTRATION OF ITHACA'S PRINCIPAL CUSTOMERS, AVAILABILITY OF LABOR AND
COMPETITIVE FACTORS; INDUSTRY RISKS SUCH AS CHANGES IN THE RETAILING INDUSTRY
AND SHIFTS IN CONSUMER PREFERENCES; FINANCIAL RISKS SUCH AS LIQUIDITY AND ACCESS
TO CAPITAL; AND OTHER RISKS AS SET FORTH FROM TIME TO TIME IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
