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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8941
FRUIT OF THE LOOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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5000 SEARS TOWER,
233 SOUTH WACKER DRIVE,
CHICAGO, ILLINOIS 60606
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (312) 876-1724
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $.01 par value New York Stock Exchange
7% Debentures Due 2011 American Stock Exchange
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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 statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form
10-K. / /
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 that 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
As of March 13, 1996, there were outstanding 69,275,957 shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 6,690,976
shares of the Registrant's Class B Common Stock, par value $.01 per share. The
aggregate market value of the Registrant's Class A Common Stock held by
nonaffiliates at March 13, 1996 was approximately $1,721,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information from the proxy statement for
the Annual Meeting of Stockholders to be held on May 14, 1996.
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FRUIT OF THE LOOM, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 6
Item 3. Legal Proceedings........................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders (None).................. 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 9
Item 6. Selected Financial Data..................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 11
Item 8. Financial Statements and Supplementary Data................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure (None)........................................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 44
Item 11. Executive Compensation...................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 45
Item 13. Certain Relationships and Related Transactions.............................. 45
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............. 48
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PART I
ITEM 1. BUSINESS
Fruit of the Loom, Inc. ("Fruit of the Loom" or the "Company") is a
vertically integrated international basic apparel company, emphasizing branded
products for consumers ranging from infants to senior citizens. It is one of the
largest domestic producers of underwear and of activewear for the imprinted
market, selling products principally under the FRUIT OF THE LOOM(R), BVD(R),
SCREEN STARS(R), BEST(TM), MUNSINGWEAR(R), WILSON(R), BOTANY 500(R) and JOHN
HENRY(R) brand names. Fruit of the Loom also manufactures and markets sports
licensed apparel bearing the names, tradenames and logos of the National
Football League, the National Basketball Association, Major League Baseball and
the National Hockey League, professional sports teams and most major colleges
and universities, as well as the likenesses of certain popular professional
athletes under the PRO PLAYER(R) and OFFICIAL FAN(R) brands. The Company
manufactures and markets men's and boys' basic and fashion underwear, activewear
for the imprint market, casualwear, jeanswear using the GITANO(R) brand name,
licensed sports apparel, women's and girls' underwear, infants' and toddlers'
apparel and family socks.
The Company is a fully integrated manufacturer, performing most of its own
spinning, knitting, cloth finishing, cutting, sewing and packaging. Management
believes that the Company is a low cost producer in the markets it serves.
Management considers the Company's primary strengths to be its excellent brand
recognition, low cost production, strong relationships with mass merchandisers
and discount chains and its ability to effectively service its customer base.
Management believes that consumer awareness of the value and excellent quality
at competitive prices of FRUIT OF THE LOOM brand products will benefit the
Company in the current retail environment where consumers are more value
conscious.
During 1995 the Company took several actions in an effort to substantially
reduce the Company's cost structure, streamline operations and further improve
customer service. These actions included the closing of certain domestic
manufacturing operations, further consolidation of the Company's Gitano and
licensed sportswear operations, the curtailment of selling and marketing
activities in Mexico and the accelerated migration of some manufacturing cut and
sew operations to lower cost, offshore locations. In addition, the Company
reviewed the operations of Salem Sportswear Corporation ("Salem") and Gitano
Fashions Limited ("Gitano") and decided to discontinue the use of the SALEM(R)
brand and redeployed the other tangible assets relating to the Salem business to
other brands within the Company's licensed sports apparel operations. The
Company also implemented a plan to restructure the Gitano business and to
improve Gitano's profitability. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "SPECIAL CHARGES"
in the Notes to Consolidated Financial Statements.
During the last five calendar years, the Company has been one of the market
leaders in men's and boys' underwear, with an annual market share ranging from
approximately 35% to 40%. In 1995, the Company's share in the men's and boys'
underwear market was approximately 35%, roughly equal to the market share of its
principal competitor.
The Company offers a broad array of men's and boys' underwear, including:
briefs, boxer shorts, T-shirts and A-shirts, colored and "high fashion" (as well
as RIBBED WHITES(TM)) underwear. It sells all-cotton and cotton-blend underwear
under its FRUIT OF THE LOOM and BVD brand names. Products sold under the BVD
brand name are priced higher than those sold under the FRUIT OF THE LOOM brand
name and are generally designed to appeal to a more premium market. Under
licensing arrangements, the Company manufactures and markets men's and boys'
underwear bearing the MUNSINGWEAR, KANGAROO(R), BOTANY 500 and JOHN HENRY
trademarks as well as certain activewear bearing the MUNSINGWEAR and BOTANY 500
trademarks in the United States and certain foreign markets.
Management believes the Company is the largest of the domestic activewear
manufacturers that supply screen printers and that it has a market share of
approximately 35% of the screen print T-shirt market. The Company produces and
sells blank T-shirts and fleecewear under the SCREEN STARS brand name and
premium fleecewear and T-shirts under the FRUIT OF THE LOOM, LOFTEEZ(TM) and
BEST(TM) BY FRUIT
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ITEM 1. BUSINESS -- (CONTINUED)
OF THE LOOM labels. These products are manufactured in a variety of styles and
colors and are sold to distributors, screen printers and specialty retailers,
who generally apply a decoration prior to sale at retail. Product quality,
delivery responsiveness and price are important factors in the sale of
activewear. Management believes that the Company's recent capacity additions,
improved distribution capabilities and its low cost position afford it a
competitive advantage in this market.
The Company markets casualwear under the FRUIT OF THE LOOM, BVD and
MUNSINGWEAR brands. The Company markets a selection of basic styles of jersey
and fleece tops, shorts and bottoms to mass merchandisers. There are separate
Spring and Fall lines with updated color selections for each of the men's,
women's, boys' and girls' categories. A national marketing program includes
national advertising and local cooperative advertising, promotions and in-store
merchandising. The casualwear market is fragmented and has no dominant brands.
In March 1994, the Company purchased certain assets of Gitano, including
GITANO and other trademarks. Gitano designs, manufactures (including contract
manufacturing) and markets women's and men's jeanswear and jeans related
sportswear. In addition to its core apparel products, Gitano licenses the
production and sale of a variety of accessories and other products bearing the
GITANO trademark. In 1995, the Company closed the Gitano New York office and
consolidated all Gitano related management functions into the Company's existing
operations.
The Company entered the imprinted licensed sportswear business through its
acquisitions of Salem, Artex Manufacturing Co. Inc. ("Artex") and Pro Player,
Inc. ("Pro Player"), which were acquired in November 1993, January 1994 and
August 1994, respectively. The Company designs, manufactures and markets sports
apparel under licenses granted by major American sports leagues, professional
players and many American colleges and universities. The Company sells a wide
variety of quality sportswear, including T-shirts, sweatshirts, shorts and
outerwear under the OFFICIAL FAN and PRO PLAYER brands. The Company manufactures
and markets a wide variety of decorated sportswear to retail stores, college
book stores and mass merchants. The Company is currently one of only three
companies using the "dual" license concept of combining licensed cartoon
characters with the logos of major professional sports leagues. The Company has
licenses from all the major professional sports leagues as well as from Warner
Bros. for LOONEY TUNES(R). Under its PRO PLAYER brand, the Company designs and
markets heavy jackets, light jackets, headwear and other outerwear bearing the
logos or insignia of professional and college teams and leagues. In addition,
the Company (under license agreements) manufactures and markets sportswear
featuring the well known WILSON trademark. In late December 1994, the Company
announced the closing of substantially all of the operating locations of Artex
and the consolidation of these operations into existing Company facilities. In
1995, certain of the Salem operating locations were consolidated into existing
Company facilities.
The Company produces women's and girls' underwear under the FRUIT OF THE
LOOM brand name. The Company introduced its women's and girls' lines in 1984
using the branded, packaged product strategy that it had successfully employed
in the men's and boys' market. In 1994, the Company introduced a new panty
program with all new product, new fit, new construction and redesigned
packaging. The Company's products are packaged, typically three to a pack,
making them convenient for the merchant to handle and display. During the last
five calendar years, in the fragmented women's and girls' underwear market, the
Company was one of the branded market leaders with a market share ranging from
approximately 13% to 17%. In 1995, the Company's share in the women's and girls'
underwear market was approximately 16% compared to a market share of 27% for the
largest competing brand. No other competitor had more than a 4% market share in
1995.
The Company has granted a license to Warnaco Inc. for the manufacture and
sale of bras, slips, camisoles and other products under the FRUIT OF THE LOOM
brand name in North America. The Company also licenses the use of the FRUIT OF
THE LOOM brand name to a manufacturer of sheer hosiery.
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ITEM 1. BUSINESS -- (CONTINUED)
The Company offers a broad array of childrenswear including decorated
underwear (generally with pictures of licensed movie or cartoon characters)
under the FUNPALS(R) and FUNGALS(R) brand names and layette sets under the FRUIT
OF THE LOOM brand and the WINNIE THE POOH(TM) license which includes both
packaged and hanging sets.
The Company produces cotton socks for men, women, boys and girls under the
FRUIT OF THE LOOM brand. These products are manufactured in a variety of styles
and colors including tube, crew and anklets. The Company entered the basic
family sock market in mid-1986 through acquisitions and management believes the
Company is now one of the two largest domestic manufacturers and that no
manufacturer has more than an 11% market share.
MARKETING AND DISTRIBUTION
The Company sells its products to over 22,000 accounts, including all major
discount and mass merchandisers, wholesale clubs and screen printers. The
Company also sells to many department, specialty, drug and variety stores,
national chains, supermarkets and sports specialty stores. The Company's
products are principally sold by a nationally organized direct sales force of
full-time employees. Certain of the Company's imprinted sportswear products are
sold through independent sales representatives. The Company's products are
shipped from 15 primary distribution centers.
Management believes that one of the Company's primary strengths is its
excellent relationships with mass merchandisers and discount chains. These
retailers accounted for approximately 66% of the men's and boys' underwear and
approximately 62% of the women's and girls' underwear sold in the United States
in 1995, up from approximately 59% and 54%, respectively, in 1991. The Company
supplied approximately 45% of the men's and boys' underwear and approximately
23% of the women's and girls' underwear sold by discount and mass merchandisers
in the United States in 1995. During the last several years many of the
Company's principal customers have revamped their inventory and distribution
systems requiring their suppliers to offer more flexible product deliveries. In
response to these demands, the Company has invested heavily in warehousing and
distribution facilities.
Sales to one customer amounted to approximately 19.5%, 15.6% and 13.4% of
consolidated net sales in 1995, 1994 and 1993, respectively. Additionally, sales
to a second customer amounted to approximately 10.8%, 11.8% and 12.3% of
consolidated net sales in 1995, 1994 and 1993, respectively. Management does not
believe the loss of any one customer would adversely affect its business as a
large percentage of these sales would shift to other outlets due to the high
degree of brand awareness of and consumer loyalty to the Company's products. The
Company's business is seasonal to the extent that approximately 56% of annual
sales occur in the second and third quarters. Sales are generally the lowest in
the first quarter.
INTERNATIONAL OPERATIONS
The Company primarily sells activewear through its foreign operations,
principally in the United Kingdom, continental Europe, Canada, Japan and Mexico.
The Company's approach has generally been to establish production in the
Company's larger foreign markets by both acquiring existing manufacturing
facilities and building new plants in order to decrease the impact of foreign
currency fluctuations on international sales and to better serve these markets.
The Company has established manufacturing plants in Canada, the Republic of
Ireland and Northern Ireland (United Kingdom) as a means of accomplishing these
objectives. In addition, the Company has established manufacturing operations in
Mexico, Honduras, El Salvador and Jamaica to assemble fabrics which have been
manufactured and cut in the Company's United States' operations, as well as
externally sourced fabric, into finished goods for sale principally in the
United States. The Company has established manufacturing operations in Morocco
where cut fabrics from the Republic of Ireland are sewn and returned to Europe
for sale.
Since 1991, the Company's international sales have more than doubled. Sales
from international operations during 1995 were $362,800,000 and were principally
generated from products manufactured at the
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ITEM 1. BUSINESS -- (CONTINUED)
Company's foreign facilities. These international sales accounted for
approximately 15.1% of the Company's net sales in 1995. Management believes
international sales will continue to be a source of growth for the Company,
particularly in Europe. This growth will depend on continued demand for the
Company's products in diverse international marketplaces. See "BUSINESS SEGMENT
AND MAJOR CUSTOMER INFORMATION" in the Notes to Consolidated Financial
Statements.
MANUFACTURING
Principal manufacturing operations consist of spinning, knitting, cloth
finishing, cutting, sewing and packaging. In addition, licensed sportswear
products are generally produced by applying decorative images, most often by
screen printing or embroidery, to blank garments. The Company knits yarn into
fabric using a multiple-knitting technique that produces long tubes of fabric
corresponding in weight and diameter to various sizes and styles required to
make underwear and activewear. Substantially all of the Company's products are
either bleached to remove the ecru color of natural cotton or dyed for colored
products. To achieve certain colors, the fabric must be dyed.
Computer controlled die cutting is used in all areas where management
believes it is more efficient. Fabric is distributed to employees operating
individual sewing machines. To increase efficiency, each employee specializes in
a particular function, such as sewing waistbands on briefs. Quality checkpoints
occur at many intervals in the manufacturing process, and each garment is
inspected prior to packaging. Where appropriate, the Company uses contract
manufacturing to further minimize its costs. Such contract manufacturing
accounted for less than 5% of the Company's total production in 1995.
As part of the closure of the Gitano New York office, responsibility for
denim manufacturing was transferred to existing Company manufacturing
operations. Denim fabric, which has been purchased from numerous sources in the
past and sewn in the Company's Jamaica facility, will now be produced in the
Company's own facilities. Existing yarn spinning operations will produce yarn
for denim. The Company has added new equipment for dyeing, slashing, weaving and
washing which will make the production of jeans totally vertical. The new
operations will give the Company the flexibility to produce a variety of fabric
weights in the desired colors and shades as required by the retail market.
Management believes that the vertical nature of the jeans manufacturing process
will give it a competitive cost advantage versus other major jeans manufacturers
which are not vertically integrated to this extent.
COMPETITION
All of the Company's markets are highly competitive. Competition in the
underwear and activewear markets is generally based upon quality, price and
delivery. The Company's vertically integrated manufacturing structure,
supplemented with offshore sewing of fabrics supplied by the Company's domestic
knitting operations, allows it to produce high quality products at costs which
management believes are among the lowest in the industry. The Company has
recently invested additional capital in warehousing and distribution facilities
to service its customer base effectively. In response to market conditions, the
Company, from time to time, reviews and adjusts its product offerings and
pricing structure.
LICENSING AND TRADEMARKS
The Company owns the FRUIT OF THE LOOM, BVD, SCREEN STARS, BEST, LOFTEEZ
and certain other trademarks, which are registered or protected by common law in
the United States and in many foreign countries. These trademarks are used on
men's, women's and children's underwear and activewear marketed by the Company.
The Company owns the GITANO trademark which is registered in the United States
and in many foreign countries for use principally in connection with women's
jeanswear, sportswear and certain other apparel and accessory items.
The Company licenses properties from different companies for its decorated
underwear products. Among the characters licensed are: BATMAN(TM), BATMAN
FOREVER(TM), LOONEY TUNES, SONIC THE
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ITEM 1. BUSINESS -- (CONTINUED)
HEDGEHOG(TM), MIGHTY MORPHIN POWER RANGERS(TM), LAMB CHOP(R), VR TROOPERS(TM),
SKELETON WARRIORS(TM), PEANUTS(TM), POCAHONTAS(TM) and WINNIE THE POOH. The
Company also has a license to use the MUNSINGWEAR, KANGAROO, BOTANY 500 and JOHN
HENRY trademarks on its men's and boys' underwear and certain activewear. The
Company has a license to use the WILSON brand on its sweatshirts and sweatpants,
T-shirts, shorts and other athletic activewear.
In addition, the Company owns the OFFICIAL FAN and PRO PLAYER trademarks
for its licensed sportswear business. The Company licenses properties, including
team insignia, images of professional athletes and college logos, from the
National Football League, the National Basketball Association, Major League
Baseball, the National Hockey League, professional players' associations and
certain individual players and many American colleges and universities. These
owned and licensed trademarks are used on sports apparel, principally T-shirts,
shorts, sweatshirts and jerseys, marketed by the Company. The Company also
licenses properties from Warner Bros. for LOONEY TUNES for use in a dual license
concept combining cartoon characters with major professional sports leagues.
In 1994, the Company entered into a licensing agreement with the Walt
Disney Company whereby the Company's European subsidiary offered for sale a
variety of casualwear apparel products bearing the world famous DISNEY(R)
characters in Europe, Eastern Europe and the Middle East. Collections offered
included T-shirts, sweatshirts, sweatpants, shorts, shirts, turtlenecks, polos
and leggings as well as a number of denim products. The Company terminated this
license agreement in 1995.
IMPORTS
Management believes that many domestic apparel manufacturers continue to
move sewing operations offshore to lower costs and compete with enhanced import
competition that is resulting from the Uruguay Round of the General Agreement on
Tariffs and Trade agreement. To maintain the Company's position as a low cost
manufacturer, the Company is increasing the percentage of garments sewn in the
Caribbean and Central America and returned to the United States under Section
9802 of the tariff schedule. The Company also has assembly operations in Mexico.
The Company believes that its domestic yarn spinning, knitting, bleaching and
dyeing operations continue to provide it with a competitive advantage. Thus, the
Company's strategy is to combine low cost textile manufacturing in the United
States with a mix of sewing in the United States and offshore so that the
Company can continue to offer value to its customers.
Imports from the Caribbean, Central America and Mexico likely will continue
to rise more rapidly than imports from other parts of the world. This is because
Section 9802 (previously Section 807) grants preferential quotas when United
States made and cut fabrics are used, as customs duty is paid only on the value
added outside the United States. United States apparel and textile
manufacturers, including the Company, will continue to use Section 9802 to
compete with direct imports.
Direct imports accounted for approximately 23% of the United States men's
and boys' underwear market (66% if Section 9802 imports are included) in 1995
and about 37% (90% including Section 9802 imports) of the women's and girls'
underwear market. With regard to activewear and cotton socks, imports accounted
for approximately 46% and 2% of these respective markets in 1994, the latest
period for which data is available.
Consequently, management does not believe that direct imports presently
pose a significant threat to its business. United States tariffs and quotas
established under the international agreement known as the Multifiber
Arrangement ("MFA") limit the growth of imports from certain low-wage foreign
suppliers such as China, India and Pakistan, thus limiting the price pressure on
domestic manufacturers resulting from imports from these countries. However,
import competition will continue to increase and accelerate as MFA quotas are
phased out. Quotas will be completely eliminated on January 1, 2005.
EMPLOYEES
The Company employs approximately 33,300 persons. Approximately 5,900
employees, principally international, are covered by collective bargaining
agreements.
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ITEM 1. BUSINESS -- (CONCLUDED)
MISCELLANEOUS
MATERIALS AND SUPPLIES. Materials and supplies used by the Company are
available in adequate quantities. The primary raw materials used in the
manufacturing processes are cotton and polyester which are subject to the price
volatility of the commodity markets. The Company periodically enters into
futures contracts and call options as hedges for its purchases of cotton for
inventory as a means of fixing its cotton costs. As of December 31, 1995 the
Company has entered into contracts which cover a significant portion of its
estimated cotton usage for 1996 and 1997.
OTHER. The Company was incorporated under the laws of the state of Delaware
in 1985. The principal executive offices of the Company are located at 233 South
Wacker Drive, 5000 Sears Tower, Chicago, Illinois 60606, telephone (312)
876-1724. As used in this Annual Report on Form 10-K, the term "the Company"
refers to Fruit of the Loom, Inc. and its subsidiaries, together with its
predecessor, Northwest Industries, Inc. ("Northwest"), unless otherwise stated
or indicated by the context. Market share data contained herein are for domestic
markets and are based upon information supplied to the Company by the National
Purchase Diary, which management believes to be reliable.
ITEM 2. PROPERTIES
In 1995, as part of the Company's review of manufacturing capacity and
utilization, the Company commenced a plan which included the closure of certain
domestic manufacturing facilities and the acceleration of offshore manufacturing
capabilities. These actions were part of the Company's continuing effort to
improve its manufacturing cost structure. See "ITEM 1. BUSINESS" and "ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" for further discussion of the plan.
The Company's remaining properties and facilities aggregate approximately
18,782,000 square feet of usable space, of which approximately 6,856,000 square
feet of facilities are under leases expiring through 2017. Management believes
that the Company's remaining facilities and equipment are in good condition and
that the Company's remaining properties, facilities and equipment are adequate
for its current operations. Capital spending, primarily to enhance distribution
and yarn manufacturing capabilities and to establish and support offshore
assembly operations, is expected to approximate $75,000,000 in 1996. Management
believes that these actions, together with planned capital expenditures, will
allow the Company to accommodate current and anticipated sales growth and remain
a low cost producer in the next several years.
Set forth below is a summary of the principal facilities owned or leased by
the Company:
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PRIMARY USE LOCATIONS OWNED LEASED
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Manufacturing.................................. 52 6,860,000 3,539,000
Warehouse and distribution..................... 35 4,898,000 3,001,000
Sales and administration....................... 26 168,000 316,000
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ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities, such
as those under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, its regulations and similar state statutes
("Superfund Legislation") in connection with the sale of certain discontinued
operations, some of which were significant generators of hazardous waste. The
Company and its subsidiaries have also retained certain liabilities related to
the sale of products in connection with the sale of certain discontinued
operations. The Company's retained liability reserves at December 31, 1995
related to discontinued operations consist primarily of certain environmental
and product liability reserves of approximately $85,800,000. The Company has
recorded receivables related to these liabilities of approximately $39,100,000
which, management believes, will be
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ITEM 3. LEGAL PROCEEDINGS -- (CONTINUED)
recovered from insurance and other sources. Management and outside environmental
consultants evaluate, on a site-by-site or a claim-by-claim basis, the extent of
environmental damage, the type of remediation that will be required and the
Company's proportionate share of those costs as well as the Company's liability
in each case. The Company's retained liability reserves related to discontinued
operations principally pertain to 11 specifically identified environmental sites
and the aforementioned product liabilities. Four sites and the total product
liabilities individually represent more than 10% of the net reserve and, in the
aggregate, represent approximately 95% of the net reserve. Management believes
it has adequately estimated the impact of remediating identified sites, the
expected contribution from other potentially responsible parties and recurring
costs for managing sites as well as the ultimate resolution of the product
liability claims. Management currently estimates actual payments before
recoveries to range from approximately $5,600,000 to $28,300,000 annually
between 1996 and 1999 and $19,300,000 in total subsequent to 1999. Only the
long-term monitoring costs of approximately $11,300,000, primarily scheduled to
be paid in 2000 and beyond, have been discounted. The discount rate used was
10%. The undiscounted aggregate long-term monitoring costs, to be paid over
approximately the next 20 years, is approximately $28,200,000. Management
believes that adequate reserves have been established to cover potential claims
based on facts currently available and current Superfund Legislation. The
Company has provided the foregoing information in accordance with Staff
Accounting Bulletin 92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and Federal
regulatory agencies under Superfund Legislation and by private citizens under
Superfund Legislation and common law theories. Since 1982, the United States
Environmental Protection Agency (the "EPA") has actively sought compensation for
response costs and remedial action at offsite disposal locations from waste
generators under the Superfund Legislation, which authorizes such action by the
EPA regardless of fault, legality of original disposal or ownership of a
disposal site. The EPA's activities under the Superfund Legislation can be
expected to continue during 1996 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal Manufacturing Corporation ("Universal"), to
MagneTek, Inc., ("MagneTek"). At the time of the sale there was a suit pending
against Universal and Northwest by L.M.P. Corporation ("LMP"). The suit (the
"LMP Litigation") alleged that Universal and Northwest fraudulently induced LMP
to sell its business to Universal and then suppressed the development of certain
electronic lighting ballasts in breach of the agreement of sale, which required
Universal to pay to LMP a percentage of the net profits from such business from
1982 through 1986. Two additional plaintiffs, Stevens Luminoptics Partnership
and Calmont Technologies Inc., joined the litigation in 1986. In December 1989
and January 1990, a jury returned certain verdicts against Universal and also
returned verdicts in favor of Northwest and on certain issues in favor of
Universal. A judgment totalling $25,800,000, of which $7,500,000 represented
punitive damages, reflecting these verdicts was entered by the Alameda County,
California Superior Court in January 1990 against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the plaintiffs'
petition for review. The case was then remanded to the trial court. In October
1994, following a retrial of the LMP Litigation, a jury returned a verdict of
approximately $96,000,000 against Universal. The jury verdict included breach of
contract and fraud damages and approximately $6,000,000 in punitive damages. The
Company is obligated to indemnify Universal for damages incurred in this case.
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on other
information currently available, management believes that the court committed
numerous errors during the trial and, accordingly, that the judgment will not
stand on appeal. The Company filed its opening brief in the LMP appeal on
September 27, 1995. The plaintiffs' responsive brief was filed in March 1996.
7
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ITEM 3. LEGAL PROCEEDINGS -- (CONCLUDED)
In March 1988, a class action suit entitled Endo, et al. v. Albertine, et
al. was filed in the United States District Court for the Northern District of
Illinois (the "District Court") against the Company, its then directors, certain
of its then executive officers, its then underwriters and the Company's current
independent auditors in connection with the Company's initial public offering of
Class A Common Stock and certain debt securities in March 1987. The suit
alleges, among other things, violations of Federal and state securities laws
against all of the defendants, as well as breaches of fiduciary duties by the
director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In December
1990, a magistrate judge recommended that the District Court dismiss all of the
plaintiffs' claims with prejudice. On January 29, 1993, the District Court
adopted in part and rejected in part the magistrate judge's recommendation for
dismissal of the complaint. As a result, the litigation will continue as to
various remaining counts of the complaint. Both the defendants and the
plaintiffs filed motions for summary judgment which were denied in all material
respects. Management and the Board of Directors believe that this suit is
without merit and intend to continue to vigorously defend against this
litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust, and
I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934, as amended
(the "Act"), and that Mr. Farley and Mr. Holland also violated Section 20a of
the Act. According to the plaintiffs, beginning before June 1992 and continuing
through early June 1993, the Company, with the knowledge and assistance of the
individual defendants, issued positive public statements about its expected
sales increases and growth through 1993 and afterwards. They also allege that
beginning in approximately mid-1992 and continuing afterwards, the Company's
business was not as strong and its growth prospects were not as certain as
represented. The plaintiffs further allege that during the end of 1992 and
beginning of 1993, certain of the individual defendants traded the stock of the
Company while in the possession of material, non-public information. The
plaintiffs ask for unspecified amounts as compensatory damages, pre-judgment and
post-judgment interest, attorneys' fees, expert witness fees and costs and ask
the District Court to impose a constructive trust on the proceeds of the
individual defendants' trades to satisfy any potential judgment. Management
believes that this suit is without merit and management and the Company intend
to vigorously defend against this litigation.
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned matters will not have a material
adverse effect on the financial condition or results of operations of the
Company, but the ultimate resolution of certain of these matters, if
unfavorable, could be material to the results of operations of a particular
future period.
In March 1992, the Company received a refund of approximately $60,000,000
relating to Federal income taxes paid by Northwest plus interest thereon
applicable to the tax years 1964-1968. However, in September 1992, the Internal
Revenue Service (the "IRS") issued a statutory notice of deficiency in the
amount of approximately $7,300,000 for the taxable years from which the March
1992 refund arose, exclusive of interest which would have accrued from the date
the IRS asserted the tax was due until payment, presently a period of about 28
years. In October 1994 the United States Tax Court ruled in favor of the Company
in the above case. On January 5, 1996, the United States Court of Appeals for
the Seventh Circuit affirmed the decision of the United States Tax Court. The
IRS has a period of 90 days from the date of the decision to petition for review
by the United States Supreme Court. The Company believes, based on information
currently available, that the IRS position is without merit and that the Company
will prevail should the IRS appeal and the United States Supreme Court decide to
hear the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
William Farley, an executive officer and director of the Company, holds
100% of the common stock of Farley Inc. ("FI"). William Farley and FI together
own all of the Class B Common Stock of the Company outstanding. See
"CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY" in the Notes to
Consolidated Financial Statements. William Farley also owns 318,000 shares of
the Class A Common Stock of the Company. As of March 13, 1996, there were 2,188
registered holders of record of the Class A Common Stock of the Company.
COMMON STOCK PRICES AND DIVIDENDS PAID
The Company's Class A Common Stock is listed on the New York Stock
Exchange. The following table sets forth the high and low market prices of the
Class A Common Stock for 1995 and 1994:
<TABLE>
<CAPTION>
MARKET PRICES
----------------------------
1995 1994
------------ ------------
HIGH LOW HIGH LOW
---- ---- ---- ----
<S> <C> <C> <C> <C>
1st Quarter....................................... $27 1/8 $23 1/8 $31 5/8 $23
2nd Quarter....................................... 27 3/4 19 7/8 33 25 3/4
3rd Quarter....................................... 24 7/8 20 3/8 27 1/2 23 1/4
4th Quarter....................................... 25 1/8 16 1/2 29 7/8 24 5/8
</TABLE>
No dividends were declared on the Company's common stock issues during 1995
or 1994. The Company does not currently anticipate paying any dividends in 1996.
For restrictions on the present or future ability to pay dividends, see
"LONG-TERM DEBT" in the Notes to Consolidated Financial Statements.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA(1):
Net sales.................................... $2,403.1 $2,297.8 $1,884.4 $1,855.1 $1,628.1
Gross earnings............................... 517.4(2) 646.5 647.4 660.3 525.6
Operating earnings (loss).................... (108.1)(3) 235.0(5) 381.5 409.9 319.3
Interest expense............................. 116.9 95.4 72.7 82.1 114.9
Earnings (loss) before income tax (benefit)
expense, extraordinary items and cumulative
effect of change in accounting
principles................................. (246.7)(3)(4) 133.5 367.1 319.9 201.0
Earnings (loss) before extraordinary items
and cumulative effect of change in
accounting principles...................... (227.3)(3)(4) 60.3 212.8(6) 188.5 111.0(7)
Earnings (loss) per common share before
extraordinary items and cumulative effect
of change in accounting principles:
Primary.................................... (2.99) .79 2.80(6) 2.48 1.60(7)
Fully diluted.............................. (2.99) .79 2.80(6) 2.48 1.55(7)
Average common shares outstanding:
Primary.................................... 76.0 76.0 76.0 76.0 69.4(8)(9)
Fully diluted.............................. 76.0 76.0 76.0 76.0 72.8(8)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................ $2,919.5 $3,163.5 $2,734.0 $2,281.9 $2,114.9
Long-term debt...................................... 1,427.2 1,440.2 1,194.0 756.3 811.2
Deferred and noncurrent income taxes................ -- 43.4 51.0 49.1 167.4
Other noncurrent liabilities........................ 292.9 222.3 191.5 187.9 77.3
Common stockholders' equity......................... 895.6 1,125.8 1,047.0 855.0 688.7
</TABLE>
- -------------------------
(1) This information should be read in conjunction with "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
and the Financial Statements and Supplementary Data.
(2) Includes pretax charges of $146.7 related to costs associated with the
closing or disposal of a number of domestic manufacturing facilities and
attendant personnel reductions and charges related to inventory writedowns
and valuations and foreign operations.
(3) Includes pretax charges of approximately $158.5 related principally to the
write-off of Salem and Gitano goodwill and $193.7 related to costs
associated with the closing or disposal of a number of domestic
manufacturing facilities and attendant personnel reductions and charges
related to inventory writedowns and valuations and foreign operations.
(4) Includes pretax charges of approximately $20.7 related to certain
obligations and other matters related to former subsidiaries and certain
fees related to the modification of certain agreements.
(5) Includes pretax charges of approximately $40 to write inventories down to
net realizable value and a pretax charge of $18 related to the write-off of
Artex intangibles.
(6) Includes a pretax gain of $67.3 ($.55 per share on both a primary and fully
diluted basis) from the Company's investment in Acme Boot Company, Inc.
("Acme Boot"). Excluding this gain, earnings per share were $2.25 on both a
primary and fully diluted basis.
(7) Includes the effect of a court ordered refund of Federal income taxes of
$10.5, plus interest of $49.4, ($.57 per share on both a primary and fully
diluted basis), a pretax charge of $10.2 ($.12 per share on both a primary
and fully diluted basis) for certain obligations and other matters related
to former subsidiaries and a pretax charge of $39.2 ($.45 per share on both
a primary and fully diluted basis) to write down the Company's investment in
Acme Boot to its then market value.
(8) In May 1991, the Company completed an underwritten primary offering of 7.5
shares of its Class A Common Stock.
(9) In July 1991, the Company called for redemption all of its 6 3/4%
Convertible Subordinated Debentures due March 1, 2002 (the "Debentures")
totaling $59.9. The Debentures were converted into Class A Common Stock of
the Company at a conversion price of $11.25 per share. Approximately 5.3
shares were issued in the conversion.
10
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, certain matters set
forth in this Annual Report on Form 10-K are forward looking statements that
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward looking statements. Potential risks
and uncertainties include such factors as the financial strength of the retail
industry (particularly the mass merchant channel), the level of consumer
spending for apparel, the amount of sales of the Company's activewear
screenprint products, the competitive pricing environment within the basic
apparel segment of the apparel industry, the ability of the Company to
successfully move labor-intensive segments of the manufacturing process offshore
and the success of planned advertising, marketing and promotional campaigns.
Investors are also directed to consider other risks and uncertainties discussed
in documents filed by the Company with the Securities and Exchange Commission.
The table below sets forth selected operating data (in millions of dollars
and as percentages of net sales) of the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales...................................... $2,403.1 $2,297.8 $1,884.4
Gross earnings................................. $ 517.4 $ 646.5 $ 647.4
Gross margin................................... 21.5 % 28.1% 34.4%
Operating earnings (loss)...................... $ (108.1) $ 235.0 $ 381.5
Operating margin............................... (4.5)% 10.2% 20.2%
</TABLE>
OPERATIONS
In the fourth quarter of 1995, management announced plans to close certain
manufacturing operations and to take other actions to reduce costs and
streamline operations. As a result, the Company recorded charges of
approximately $372,900,000 ($287,400,000 after tax) related to impairment
writedowns of goodwill, costs associated with the closing or realignment of
certain domestic manufacturing facilities and attendant personnel reductions and
charges related to inventory writedowns and valuations, foreign operations and
other corporate issues. These charges were taken in an effort to substantially
reduce the Company's cost structure, streamline operations and further improve
customer service. See "SPECIAL CHARGES" in the Notes to Consolidated Financial
Statements.
The above charges were recorded as $158,500,000 of impairment writedown of
goodwill, $146,700,000 of increases to cost of goods sold, $47,000,000 of
increases to selling, general and administrative costs and $20,700,000 of
increases to other expense in the accompanying Consolidated Statement of
Operations. These charges were based on management's best estimates of the
potential costs related to the aforementioned actions. The amounts the Company
will ultimately incur are dependent on certain risks and uncertainties and could
differ materially from the amounts assumed in arriving at these charges. See
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- USE OF ESTIMATES" in the Notes to
Consolidated Financial Statements.
1995 COMPARED TO 1994
Net sales increased 4.6% in 1995 compared to 1994. The increase in net
sales was primarily due to price increases in all of the Company's businesses.
In addition, the inclusion of a full year of the results of Pro Player, which
was acquired in August 1994, and the inclusion of a full year of the revenues of
the Company's jeans and sportswear subsidiary, Gitano, the assets of which were
acquired in late March 1994, also contributed to the increase in net sales.
Gitano's revenues now reflect Gitano's transition to a traditional wholesale
operation from a marketing service organization in late 1994. These increases
were offset by lower unit volume of the Company's activewear and casualwear
products as a result of the sluggish retail environment, a weak back-to-school
selling season and competitive selling pressures. In addition, lower unit volume
of certain products in the Company's licensed sports apparel business, which has
been adversely
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1995 COMPARED TO 1994 -- (CONTINUED)
affected by reduced consumer demand caused by labor issues in certain of the
professional sports leagues, resulted in lower unit sales levels in the 1995
period compared to 1994.
Gross earnings decreased 20% in 1995 compared to 1994 due principally to
the charges taken in the fourth quarter of 1995, the lower unit volume in
activewear and casualwear, the unfavorable effects of operating certain
facilities on reduced production schedules in response to lower than expected
consumer demand and the effects of cost increases, all of which more than offset
the effect of the price increases.
The gross margin was 21.5% in 1995 compared to 28.1% in 1994. The gross
margin was negatively affected by the charges taken in the fourth quarter of
1995, higher raw material costs, other general cost increases and the
unfavorable effects of operating certain facilities on reduced production
schedules. Higher sales of closeouts and discontinued products, principally in
the Company's casualwear and licensed sports apparel business as a result of the
Company's decision to eliminate a number of product offerings, also had a
negative impact on gross margin. In addition, a higher proportion of lower
margin Gitano products contributed to the gross margin decline. The effect of
these items on gross margin was partially offset by the effect of price
increases.
The Company had an operating loss of $108,100,000 in 1995 compared to
operating earnings of $235,000,000 in 1994. The operating margin decreased 14.7
percentage points to a negative 4.5% of net sales for 1995. The decrease in
operating earnings in 1995 resulted from lower gross earnings combined with
higher selling, general and administrative expenses and the recognition of an
impairment writedown of goodwill in 1995. Higher selling, general and
administrative costs arose principally from the charges taken in the fourth
quarter of 1995 and the inclusion of a full year of the Pro Player operations
acquired in 1994. The Pro Player operations include proportionally higher
selling expenses for royalties as compared to the Company's consumer packaged
goods and activewear operations. In addition, higher selling, general and
administrative expenses resulted from higher shipping costs as a result of new
distribution locations. The increase in selling, general and administrative
expenses also includes higher advertising and promotion expenses, charges in the
third quarter of 1995 related to severance costs and, in the first six months of
1995, charges related to the curtailment of selling and marketing activities in
Mexico, the closing of Gitano's New York office and the consolidation of all
Gitano related management functions into the Company's existing operations.
Selling, general and administrative expenses were 17.9% of net sales in 1995
compared to 16.4% of net sales in 1994.
Interest expense for 1995 increased 22.5% from 1994. The increase was
primarily due to the effect of higher debt levels in 1995. Higher debt levels in
1995 were due principally to the acquisition of Pro Player in August 1994,
higher working capital levels in 1995 and, in the first three months of 1995,
the effect of higher debt levels resulting from the acquisition of Gitano in
March 1994.
Included in other expense-net in 1995 are charges of $20,700,000 related to
certain obligations and other matters related to former subsidiaries and certain
fees related to the modification of certain agreements. See "SPECIAL CHARGES" in
the Notes to Consolidated Financial Statements. Included in other expense - net
in 1994 is $16,000,000 of service fee income from Gitano's operations which
represented Gitano's transition to a marketing service organization from a
traditional wholesaler base. These revenues did not recur after 1994 as Gitano
reverted to a traditional apparel wholesaler. In 1994, this fee income was
partially offset by $12,500,000 of charges to provide for certain obligations of
and legal expenses pertaining to litigation related to retained liabilities of
former subsidiaries. In addition, other expense-net in 1995 and 1994 included
approximately $5,700,000 and $8,100,000, respectively, of deferred debt
amortization and bank fees. Other expense-net in 1995 includes $5,700,000 of
gains as compared to $1,900,000 of expense in 1994 related to the settlement of
certain foreign currency denominated transactions.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1995 COMPARED TO 1994 -- (CONCLUDED)
The effective income tax rate for 1995 and 1994 differed from the Federal
statutory rate of 35% primarily due to the impact of the impairment writedown of
goodwill in 1995 and goodwill amortization, portions of which are not deductible
for Federal income tax purposes, state income taxes, the provision for interest
related to prior years' taxes and the impact of certain non-deductible foreign
losses.
Effective January 1, 1995 the Company recorded the cumulative effect of a
change in accounting principle related to the Company's decision to adopt a more
conservative position as a result of changes in its business and to expense
pre-operating costs as incurred resulting in an after tax charge of $5,200,000
($.07 per share).
Earnings (loss) per share before extraordinary item and cumulative effect
of change in accounting principles was a loss of $2.99 for 1995 compared to
earnings of $.79 in 1994. The net loss per share in 1995 was $3.06 and included
a $.07 charge related to the cumulative effect of a change in accounting for
pre-operating costs.
Management believes that the moderate rate of inflation over the past few
years has not had a significant impact on the Company's sales or profitability.
1994 COMPARED TO 1993
Net sales increased 21.9% in 1994 compared to 1993. The increase in net
sales in 1994 was primarily due to the results of the Company's new licensed
sports apparel line, principally as a result of the acquisitions of Salem in
November 1993, Artex in January 1994 and Pro Player in August 1994. Also, volume
increases in certain of the Company's existing businesses reflecting improved
demand and the introduction of new programs and products in 1994 contributed to
the sales increase in 1994. In addition, the 1994 results include the operations
of Gitano since April 1994. These increases were partially offset by the
negative effects of lower average selling prices (principally for domestic
activewear in the first six months of 1994).
Gross earnings decreased .1% in 1994 compared to 1993. The gross margin was
28.1% in 1994 compared to 34.4% in 1993. In December 1994, the Company announced
the closing of substantially all of the operations of Artex, consolidating the
manufacturing portion of those operations into existing Company-owned
facilities. In addition, the Company's casualwear businesses, Fruit of the Loom
casualwear and Gitano, undertook significant product line reduction programs
during the fourth quarter, and administrative consolidations resulted in the
elimination of the New York casualwear group. The Company also undertook a
comprehensive review of its other domestic product offerings during the last
quarter of 1994. As a result of this review, a substantial number of slower
moving or less profitable items have been removed, principally from the
casualwear and licensed sports apparel lines, and written down to net realizable
value. The total of the various inventory related charges was approximately
$40,000,000. In addition, gross earnings and gross margin have been impacted by
the effects of lower prices and promotional activities, other general cost
increases, including cotton cost increases, and manufacturing inefficiencies as
certain sewing operations are transferred to offshore locations.
Operating earnings decreased 38.4% compared to 1993 while the operating
margin decreased ten percentage points to 10.2% of net sales in 1994. The
decreases in operating earnings resulted from higher selling, general and
administrative expenses and goodwill amortization (from the acquisitions of
Salem, Artex, Gitano and Pro Player) in 1994, coupled with the decrease in gross
earnings. Selling, general and administrative expenses increased to 16.4% of net
sales in 1994 compared to 12.7% of net sales in 1993. Higher selling and other
administrative costs arose both from the acquisitions of Salem, Artex, Gitano
and Pro Player and from the Company's continuing effort to improve customer
service by making investments in added distribution capabilities, computer
systems and other infrastructure required to service customers more effectively.
In addition, selling, general and administrative expenses in 1994 include
charges related to the consolidation of
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONCLUDED)
1994 COMPARED TO 1993 -- (CONCLUDED)
the Company's licensed sportswear operations. Costs associated with the closing
of the Artex operations included the write-off of approximately $18,000,000 of
intangibles. The increases in selling, general and administrative expenses also
include higher royalty costs in 1994, principally due to the acquisitions of the
Salem, Artex and Pro Player licensed sports apparel operations.
Interest expense in 1994 increased 31.2% from 1993. The increase was
principally attributable to the effect of higher debt levels in 1994. Higher
debt levels were primarily due to the acquisitions of Salem, Artex, Gitano and
Pro Player, which were financed through borrowings under the Company's
$800,000,000 revolving line of credit (the "New Credit Agreement"), and higher
working capital levels.
Included in other expense-net in 1994 is $16,000,000 of service fee income
from Gitano's operations which represented Gitano's transition to a marketing
service organization from a traditional wholesaler base. These revenues did not
recur after 1994 as Gitano reverted to a traditional apparel wholesaler. This
was partially offset by $12,500,000 of charges to provide for certain
obligations of and legal expenses pertaining to litigation related to retained
liabilities of former subsidiaries. In addition, other expense-net in 1994 and
1993 included approximately $8,100,000 and $7,900,000, respectively, of deferred
debt fee amortization and bank fees.
In 1993 the Company received approximately $72,900,000 from Acme Boot
representing the entire unpaid principal and liquidation preference (including
accrued interest and dividends) on its investment in the securities of the
affiliate. The Company recorded a pretax gain of $67,300,000 related to the
investment in Acme Boot upon the receipt of the above mentioned proceeds. See
"RELATED PARTY TRANSACTIONS" in the Notes to Consolidated Financial Statements.
The effective income tax rate for 1994 and 1993 differed from the Federal
statutory rate of 35% primarily due to the impact of goodwill amortization, a
portion of which is not deductible for Federal income tax purposes, state income
taxes and the provision for interest related to prior years' taxes.
In 1993 the Company recorded an extraordinary charge of $8,700,000 ($.11
per share) in connection with the refinancing of its bank credit agreements and
the redemption of its 12 3/8% Senior Subordinated Debentures due 2003 (the
"12 3/8% Notes"). The extraordinary charge consisted principally of the non-cash
write-off of the related unamortized debt expense on the bank credit agreements,
the 12 3/8% Notes and other debt issues and the premiums paid in connection with
the early redemption of the 12 3/8% Notes, both net of income tax benefits.
In the first quarter of 1993, the Company recorded the cumulative effect of
an accounting change related to the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"), resulting in a $3,400,000 ($.04 per share) benefit.
Earnings per share before extraordinary items and cumulative effect of
change in accounting principle decreased 71.8% to $.79 from $2.80 for 1993. Net
earnings per share in 1993 were $2.73 and included an $.11 extraordinary charge
related to the early retirement of debt and a $.04 benefit related to the
cumulative effect of a change in accounting for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from the Company's operations are the major source of
liquidity and are supplemented by funds obtained from capital markets including
bank facilities. In May 1995, the Company entered into a $155,000,000 short-term
revolving commitment (the "Short-Term Facility") to supplement its existing
revolving lines of credit. The Short-Term Facility was scheduled to expire in
May 1996 and has been extended until May 1997. No borrowings are outstanding
under this facility.
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
The Company has available for the funding of its operations approximately
$1,066,600,000 of revolving lines of credit, including the Short-Term Facility.
As of March 25, 1996 approximately $398,200,000 was available and unused under
these facilities.
Net cash provided by operating activities for the years ended December 31,
1995 and 1994 were $107,000,000 and $215,100,000, respectively. The primary
components of cash provided by operating activities in 1995 were the net loss as
adjusted for depreciation and amortization and impairment writedown of goodwill
(totaling $95,000,000) plus $59,200,000 of special charges related to long-term
items partially offset by deferred income tax benefits of $50,500,000. In 1995
working capital uses were a net $1,300,000 as an increase in inventory of
$22,700,000 and a decrease in accounts payable of $53,200,000 were substantially
offset by a decrease in notes and accounts receivable of $34,700,000 and other
working capital declines of $39,900,000 (primarily the effect of the fourth
quarter 1995 charges on other accounts payable and accrued expenses). The
primary components of cash provided by operating activities in 1994 were net
earnings plus depreciation and amortization (totaling $216,100,000) plus
$18,000,000 of special charges related to Artex intangibles partially offset by
an increase in working capital of $3,600,000. In 1994, increases in trade
accounts payable of $32,500,000 and other working capital declines (primarily
increased other current liabilities) of $60,600,000 only partially offset
increases in accounts receivable of $23,300,000 and inventories of $73,400,000.
The increases in inventory in both 1995 and 1994 reflected the Company's ongoing
efforts to improve customer service. In addition, in 1995, the sluggish retail
environment which led to lower than anticipated sales volumes and, in 1994, the
effect of the acquisitions of Artex, Gitano and Pro Player, resulted in higher
inventory levels.
Net cash used for investing activities in 1995 and 1994 were $103,300,000
and $430,800,000, respectively. Capital expenditures, net of amounts
attributable to capital leases of $3,900,000 and $40,600,000 in 1995 and 1994,
respectively, were $121,700,000 and $246,400,000 in 1995 and 1994, respectively.
In 1994 the Company used approximately $192,100,000 on the acquisitions of
Artex, Gitano and Pro Player, the funds for which were provided by borrowings
under the New Credit Agreement. Capital spending, primarily to enhance
distribution and yarn manufacturing capabilities and to establish and support
offshore assembly operations, is anticipated to approximate $75,000,000 in 1996.
Net cash used for financing activities in 1995 was $26,600,000 and
consisted primarily of principal payments on long-term debt and capital leases.
Net cash provided by financing activities in 1994 was $190,900,000 and consisted
principally of borrowings under the Company's bank credit agreements partially
offset by principal payments on long-term debt and capital leases.
In September 1994 the Company entered into a five year operating lease
agreement with two annual renewal options, primarily for certain machinery and
equipment. The total cost of the assets to be covered by the lease is limited to
$175,000,000. The total cost of assets under lease as of December 31, 1995 was
approximately $132,000,000. The lease provides for a substantial residual value
guarantee by the Company at the termination of the lease and includes purchase
and renewal options at fair market values.
Management believes the funding available to it is sufficient to meet
anticipated requirements for capital expenditures, working capital and other
needs.
The Company's debt instruments, principally its bank agreements, contain
covenants restricting its ability to sell assets, incur debt, pay dividends and
make investments and requiring the Company to maintain certain financial ratios.
See "LONG-TERM DEBT" in the Notes to Consolidated Financial Statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("Statement No. 123"), "Accounting for
Stock-Based Compensation," which provides an alternative to Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," in accounting for stock-based compensation issued to employees.
Statement No. 123 allows for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONCLUDED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONCLUDED)
companies that continue to account for stock-based compensation arrangements
under APB No. 25, Statement No. 123 requires disclosure of the pro forma effect
on net earnings and earnings per share of its fair value based accounting for
those arrangements. The disclosure requirements are effective for fiscal years
beginning after December 15, 1995. Management continues to evaluate the
provisions of Statement No. 123 and has not determined whether the Company will
adopt the recognition and measurement provisions or pro forma disclosure
provisions of Statement No. 123, which the Company expects would result in
increased compensation expense in future periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... 17
Consolidated Balance Sheet -- December 31, 1995 and 1994............................... 18
Consolidated Statement of Operations for Each of the Years Ended December 31, 1995,
1994
and 1993............................................................................. 19
Consolidated Statement of Cash Flows for Each of the Years Ended December 31, 1995,
1994
and 1993............................................................................. 20
Notes to Consolidated Financial Statements............................................. 21
Supplementary Data (Unaudited)......................................................... 43
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts..................................... 50
</TABLE>
- -------------------------
Note: All other schedules are omitted because they are not applicable or not
required.
16
<PAGE> 19
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
Fruit of the Loom, Inc.
We have audited the accompanying consolidated balance sheet of Fruit of the
Loom, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations and cash flows for each of the three years
in the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 consolidated financial position of
Fruit of the Loom, Inc. and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as whole, presents fairly in all material respects the
information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for pre-operating costs in 1995 and for income
taxes in 1993.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 1996
17
<PAGE> 20
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including restricted cash)....................... $ 26,500 $ 49,400
Notes and accounts receivable (less allowance for possible losses of
$26,600,000 and $20,700,000, respectively)................................ 261,000 295,600
Inventories
Finished goods............................................................ 522,300 496,200
Work in process........................................................... 132,400 141,500
Materials and supplies.................................................... 44,800 39,100
Other....................................................................... 72,800 54,800
---------- ----------
Total current assets.................................................... 1,059,800 1,076,600
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land........................................................................ 20,100 19,300
Buildings, structures and improvements...................................... 486,400 435,600
Machinery and equipment..................................................... 1,076,600 1,041,300
Construction in progress.................................................... 24,200 35,200
---------- ----------
1,607,300 1,531,400
Less accumulated depreciation............................................... 578,900 473,200
---------- ----------
Net property, plant and equipment....................................... 1,028,400 1,058,200
---------- ----------
OTHER ASSETS
Goodwill (less accumulated amortization of $257,800,000 and $242,400,000,
respectively)............................................................. 771,100 965,800
Other....................................................................... 60,200 62,900
---------- ----------
Total other assets...................................................... 831,300 1,028,700
---------- ----------
$2,919,500 $3,163,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt........................................ $ 14,600 $ 23,100
Trade accounts payable...................................................... 60,100 113,300
Accrued insurance obligations............................................... 38,800 23,600
Accrued advertising and promotion........................................... 23,800 23,400
Interest payable............................................................ 16,000 18,300
Accrued payroll and vacation pay............................................ 15,300 33,100
Accrued pension............................................................. 11,300 19,800
Other accounts payable and accrued expenses................................. 123,900 77,200
---------- ----------
Total current liabilities............................................... 303,800 331,800
---------- ----------
NONCURRENT LIABILITIES
Long-term debt.............................................................. 1,427,200 1,440,200
Net deferred income taxes................................................... -- 43,400
Other....................................................................... 292,900 222,300
---------- ----------
Total noncurrent liabilities............................................ 1,720,100 1,705,900
---------- ----------
COMMON STOCKHOLDERS' EQUITY
Common stock and capital in excess of par value, $.01 par value; authorized,
Class A, 200,000,000 shares, Class B, 30,000,000 shares; issued and
outstanding:
Class A Common Stock, 69,268,701 and 69,160,349 shares, respectively...... 465,600 463,700
Class B Common Stock, 6,690,976 shares.................................... 4,400 4,400
Retained earnings........................................................... 448,100 680,600
Currency translation and minimum pension liability adjustments.............. (22,500) (22,900)
---------- ----------
Total common stockholders' equity....................................... 895,600 1,125,800
---------- ----------
$2,919,500 $3,163,500
========== ==========
</TABLE>
See accompanying notes.
18
<PAGE> 21
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................ $2,403,100 $2,297,800 $1,884,400
Cost of sales............................................ 1,885,700 1,651,300 1,237,000
---------- ---------- ----------
Gross earnings......................................... 517,400 646,500 647,400
Selling, general and administrative expenses............. 429,700 376,300 240,100
Goodwill amortization.................................... 37,300 35,200 25,800
Impairment writedown of goodwill......................... 158,500 -- --
---------- ---------- ----------
Operating earnings (loss).............................. (108,100) 235,000 381,500
Interest expense......................................... (116,900) (95,400) (72,700)
Gain on Acme Boot investment............................. -- -- 67,300
Other expense-net........................................ (21,700) (6,100) (9,000)
---------- ---------- ----------
Earnings (loss) before income tax (benefit) expense,
extraordinary item and cumulative effect of change
in accounting principles............................ (246,700) 133,500 367,100
Income tax (benefit) expense............................. (19,400) 73,200 154,300
---------- ---------- ----------
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting
principles.......................................... (227,300) 60,300 212,800
Extraordinary item -- loss on early retirement of
debt................................................ -- -- (8,700)
---------- ---------- ----------
Earnings (loss) before cumulative effect of change in
accounting principles............................... (227,300) 60,300 204,100
Cumulative effect of change in accounting principles:
Pre-operating costs................................. (5,200) -- --
Income taxes........................................ -- -- 3,400
---------- ---------- ----------
Net earnings (loss).................................... $ (232,500) $ 60,300 $ 207,500
========== ========== ==========
Earnings (loss) per common share:
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting
principles.......................................... $ (2.99) $ .79 $ 2.80
Extraordinary item..................................... -- -- (.11)
Cumulative effect of change in accounting principles:
Pre-operating costs................................. (.07) -- --
Income taxes........................................ -- -- .04
Net earnings (loss) per common share................... $ (3.06) $ .79 $ 2.73
Average common shares outstanding...................... 76,000 76,000 76,000
</TABLE>
See accompanying notes.
19
<PAGE> 22
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)...................................... $(232,500) $ 60,300 $ 207,500
Adjustments to reconcile to net cash provided by
operating activities:
Cumulative effect of change in accounting
principles.......................................... 5,200 -- (3,400)
Impairment writedown of goodwill...................... 158,500 -- --
Depreciation and amortization......................... 169,000 155,800 121,600
Deferred income tax (benefit) expense................. (50,500) (7,600) 30,200
Decrease (increase) in notes and accounts
receivable.......................................... 34,700 (23,300) 14,200
Increase in inventories............................... (22,700) (73,400) (130,700)
(Decrease) increase in trade accounts payable......... (53,200) 32,500 (6,000)
Other working capital changes......................... 39,900 60,600 (29,700)
Special charges related to long-term items............ 59,200 18,000 --
Extraordinary item.................................... -- -- 8,700
Gain on Acme Boot investment.......................... -- -- (67,300)
Net payments on retained liabilities related to former
subsidiaries........................................ (16,300) (14,400) (38,600)
Other-net............................................. 15,700 6,600 (16,700)
--------- --------- ---------
Net cash provided by operating activities........ 107,000 215,100 89,800
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................... (125,600) (287,000) (262,500)
Less amount attributable to capital leases............... 3,900 40,600 2,900
--------- --------- ---------
Capital expenditures............................. (121,700) (246,400) (259,600)
Acquisition of Gitano.................................... -- (91,400) --
Acquisition of Pro Player................................ -- (55,700) --
Acquisition of Artex..................................... -- (45,000) --
Acquisition of Salem..................................... -- -- (157,600)
Net proceeds from Acme Boot investment................... -- -- 72,900
Other-net................................................ 18,400 7,700 8,400
--------- --------- ---------
Net cash used for investing activities........... (103,300) (430,800) (335,900)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under long-term debt
agreements............................................ (4,100) 232,300 782,400
Principal payments on long-term debt and capital
leases................................................ (23,000) (42,200) (100,700)
Decrease in short-term notes payable..................... -- -- (65,100)
Refinancing of long-term debt............................ -- -- (267,900)
Prepayment of long-term debt............................. -- -- (82,300)
Debt redemption premiums................................. -- -- (3,300)
Other-net................................................ 500 800 (200)
--------- --------- ---------
Net cash (used for) provided by financing
activities....................................... (26,600) 190,900 262,900
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents
(including restricted cash).............................. (22,900) (24,800) 16,800
Cash and cash equivalents (including restricted cash) at
beginning of year........................................ 49,400 74,200 57,400
--------- --------- ---------
Cash and cash equivalents (including restricted cash) at
end of year.............................................. $ 26,500 $ 49,400 $ 74,200
========= ========= =========
</TABLE>
See accompanying notes.
20
<PAGE> 23
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the accounts of the Company and all of its subsidiaries. All
material intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates depending upon certain risks and uncertainties. Potential risks and
uncertainties include such factors as the financial strength of the retail
industry (particularly the mass merchant channel), the level of consumer
spending for apparel, the amount of sales of the Company's activewear
screenprint products, the competitive pricing environment within the basic
apparel segment of the apparel industry, the ability of the Company to
successfully move labor-intensive segments of the manufacturing process offshore
and the success of planned advertising, marketing and promotional campaigns.
INVENTORIES. Inventory costs include material, labor and factory overhead.
Inventories are stated at the lower of cost or market (net realizable value).
Approximately 72% of year-end inventory amounts at December 31, 1995 and 1994
are determined using the last-in, first-out cost method. If the first-in,
first-out method had been used, such inventories would have been $88,500,000 and
$41,500,000 higher than reported at December 31, 1995 and 1994, respectively.
The remainder of the inventories are determined using the first-in, first-out
method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
cost. Depreciation, which includes amortization of assets under capital leases,
is based on the straight-line method over the estimated useful lives of
depreciable assets. Interest costs incurred in the construction or acquisition
of property, plant and equipment are capitalized.
GOODWILL. Goodwill is amortized using the straight-line method over periods
ranging from 15 to 40 years.
IMPAIRMENT. In 1995 the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("Statement No. 121"). Accordingly, when
indicators of impairment are present, the Company periodically evaluates the
carrying value of property, plant and equipment and intangibles in relation to
the operating performance and future undiscounted cash flows of the underlying
businesses. The Company adjusts the net book value of the underlying assets if
the sum of expected future cash flows is less than book value.
PRE-OPERATING COSTS. Prior to 1995 pre-operating costs associated with the
start-up of significant new production facilities were deferred and amortized
over three years. Effective January 1, 1995 the Company recorded the cumulative
effect of a change in accounting principle related to the Company's decision to
adopt a more conservative position as a result of changes in its business and to
expense pre-operating costs as incurred resulting in an after tax charge of
$5,200,000 ($.07 per share) in 1995.
FUTURES CONTRACTS. The Company periodically enters into futures contracts
and call options as hedges for its purchases of cotton for inventory as a means
of fixing its cotton costs. Futures contracts are closed by either cash
settlement or actual delivery of cotton. Gains and losses on these hedges are
matched to inventory purchases and charged or credited to cost of sales as such
inventory is sold. As of December 31, 1995 the Company has entered into
contracts which cover a significant portion of its estimated cotton usage for
1996 and 1997.
FORWARD CONTRACTS. Prior to 1995 the Company had entered into forward
contracts to cover its principal and interest obligations on certain foreign
currency denominated bank loans. The original discount on these contracts was
amortized over the life of the contract and served to reduce the effective
interest cost of these loans. In addition, the Company continues to enter into
forward contracts to cover the future obligations of
21
<PAGE> 24
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONCLUDED)
certain foreign subsidiaries for certain inventory purchases. Gains and losses
related to qualifying hedges of firm commitments are deferred and are matched to
inventory purchases and charged or credited to cost of sales as such inventory
is sold. Gains and losses related to anticipated transactions that do not
qualify as hedges are recognized as components of other income or expense as
they are incurred.
DEFERRED GRANTS. The Company has negotiated grants from the governments of
the Republic of Ireland, Northern Ireland and Germany. The grants are being used
for employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. Employee training
grants are recognized in income in the year in which the costs to which they
relate are incurred by the Company. Grants for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
property and equipment under operating leases are amortized to income as a
reduction of rents paid. Unamortized amounts netted against fixed assets under
these grants at December 31, 1995 and 1994 were $42,200,000 and $33,500,000,
respectively. At December 31, 1995 and 1994, the Company has a contingent
liability to repay, in whole or in part, grants received of approximately
$70,900,000 and $54,300,000, respectively, in the event that the Company does
not meet defined average employment levels or terminates operations in the
Republic of Ireland, Northern Ireland or Germany.
STOCK-BASED COMPENSATION. The Company typically grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company accounts for stock option
grants in accordance with APB No. 25, and, accordingly, typically recognizes no
compensation expense for these stock option grants.
INCOME TAXES. Effective January 1, 1993, the Company adopted Statement No.
109. Under Statement No. 109, the liability method is used in accounting for
income taxes.
PENSION PLANS. The Company maintains pension plans which cover
substantially all employees. The plans provide for benefits based on an
employee's years of service and compensation. The Company funds the minimum
contributions required by the Employee Retirement Income Security Act of 1974.
SPECIAL CHARGES
In the fourth quarter of 1995, management announced plans to close certain
manufacturing operations and to take other actions to reduce costs and
streamline operations. As a result, the Company recorded charges of
approximately $372,900,000 ($287,400,000 after tax) related to impairment
writedowns of goodwill, costs associated with the closing or realignment of
certain domestic manufacturing facilities and attendant personnel reductions and
charges related to inventory writedowns and valuations, foreign operations and
other corporate issues. These charges were taken in an effort to substantially
reduce the Company's cost structure, streamline operations and further improve
customer service.
During 1995, management reviewed the operations of Salem and Gitano and
decided to discontinue the use of the SALEM brand and redeployed the other
tangible assets relating to the Salem business to other brands within the
Company's licensed sports apparel business. In addition, the Company determined
that significant changes and investment would be necessary to restructure the
Gitano business and implemented a plan to improve Gitano's profitability. The
Company determined that the carrying value of the intangible assets related to
the Salem and Gitano businesses were not expected to be recovered by their
future undiscounted cash flows. Future cash flows were based on forecasted
trends for the particular businesses and assumed capital spending in line with
expected requirements. Accordingly, impairment writedowns of goodwill of
$158,500,000 reflect the write-off of all goodwill related to the Salem and
Gitano businesses. See "ACQUISITIONS."
22
<PAGE> 25
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONCLUDED)
During the fourth quarter of 1995, the Company recorded charges of
approximately $82,800,000 related to the closing or realignment of certain
domestic manufacturing operations, the closing of certain leased facilities, the
write-off of fixed assets related to these facilities and changes in estimates
of the cost of certain of the Company's insurance obligations. The Company
recorded charges of approximately $5,800,000 related to the cost of providing
severance and benefits to employees affected by the facility closings as well as
certain administrative headcount reductions. The Company recorded charges of
approximately $91,100,000 related to other asset writedowns, valuation reserves
and other reserves as a result of reductions in its product offerings, changes
in its operations and termination or modification of certain license and other
agreements. In addition, the Company recorded charges of approximately
$19,200,000 related to changes in estimates of certain retained liabilities in
connection with the prior sale of certain discontinued operations. Also, the
Company adopted a plan to realign certain of its corporate headquarters
functions and to terminate its relationship for management services with Farley
Industries, Inc. ("FII") and, accordingly, recorded charges of approximately
$15,500,000 related to lease termination, severance benefits and other costs.
See "RELATED PARTY TRANSACTIONS."
The above charges were recorded as $158,500,000 of impairment writedown of
goodwill, $146,700,000 of increases to cost of goods sold, $47,000,000 of
increases to selling general and administrative costs and $20,700,000 of
increases to other expense in the accompanying Consolidated Statement of
Operations. These charges were based on management's best estimates of the
potential costs related to the aforementioned actions. The amounts the Company
will ultimately incur are dependent on certain risks and uncertainties and could
differ materially from the amounts assumed in arriving at these charges. See
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- USE OF ESTIMATES."
ACQUISITIONS
In late January 1994 the Company acquired Artex for approximately
$45,000,000. In late March 1994 the Company acquired certain assets of Gitano
for approximately $91,400,000. In August 1994 the Company acquired Pro Player
for approximately $55,700,000, including approximately $14,200,000 of Pro Player
debt which was repaid by the Company. The principals of Pro Player, who are also
key employees of that business, may also be entitled to receive compensation
based in part on the attainment of certain levels of operating performance by
the acquired entity. In November 1993 the Company acquired Salem for
approximately $157,600,000, including approximately $23,900,000 of Salem debt
which was repaid by the Company. The aforementioned acquisitions (collectively,
the "Acquisitions") were accounted for using the purchase method of accounting.
Accordingly, the purchase prices were preliminarily allocated to assets and
liabilities based on their estimated fair values as of the date of the
Acquisitions. The cost in excess of the net assets acquired in the Acquisitions
was approximately $215,000,000 and was originally being amortized over periods
ranging from 15 to 20 years. In 1995, the Company wrote-off the remaining
balance of all goodwill related to the acquisitions of Salem and Gitano. See
"SPECIAL CHARGES." In 1994, the Company wrote-off the remaining intangibles
related to the Acquisition of Artex.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Short-term
investments (consisting primarily of certificates of deposit, overnight deposits
or Eurodollar deposits) totaling $2,700,000 and $4,100,000 were included in cash
and cash equivalents at December 31, 1995 and 1994, respectively. These
investments were carried at cost, which approximated quoted market value.
Included in short-term investments at December 31, 1995 and 1994 was
$1,500,000 of restricted cash collateralizing domestic subsidiaries' letters of
credit and insurance obligations.
23
<PAGE> 26
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
INTEREST RATE 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
Senior Secured
Capitalized lease obligations, maturing
1995-2017(1)....................................... 3.1 - 12.96% $ 110,300 116,900
---------- ----------
Total senior secured............................... 110,300 116,900
---------- ----------
Senior Unsecured
Foreign Facility Loans, maturing 1995................. Variable(2) -- 5,400
Fixed rate debt, maturing 1995-2008................... 6.97% 117,900 123,400
Foreign Credit Facilities, maturing 1997-1999......... Variable(3) 50,900 38,000
New Term Loan, maturing 1998.......................... Variable(4) 40,000 40,000
New Credit Agreement, maturing 1999................... Variable(5) 503,400 521,700
Fixed rate debt, maturing 1999(6)(7).................. 7.97% 249,300 249,100
Nonredeemable fixed rate debt, maturing 2003(7)(8).... 6.61 149,000 148,900
Fixed rate debt, maturing 2011(9)..................... 12.6 72,900 71,900
Nonredeemable fixed rate debt, maturing 2023(7)(10)... 7.49 148,100 148,000
---------- ----------
Total Senior Unsecured............................. 1,331,500 1,346,400
---------- ----------
Total................................................... 1,441,800 1,463,300
Less current maturities................................. (14,600) (23,100)
---------- ----------
Total long-term debt.................................... $1,427,200 $1,440,200
========== ==========
</TABLE>
- -------------------------
(1) Represents the present value of future rentals on capitalized leases. The
capitalized leases are secured by the related property under lease.
(2) Interest ranged from 2.1% to 3.7% during 1995 and from 1.89% to 3.6% during
1994. (These rates are net of discount amortization. The Company entered
into forward contracts that fixed the dollar amount of interest that had to
be paid.)
(3) Interest ranged from 4.43% to 11.54% during 1995 and from 5.68% to 7.1%
during 1994. The weighted average interest rate for borrowings outstanding
at December 31, 1995 was approximately 7.29%.
(4) Interest ranged from 6.44% to 7.13% during 1995 and from 4% to 6.86% during
1994. The weighted average interest rate for borrowings outstanding under
the New Term Loan at December 31, 1995 was approximately 6.77%.
(5) Interest ranged from 5.49% to 9% during 1995 and from 3.41% to 8.5% during
1994.
(6) Net of unamortized discount of $700 and $900 in 1995 and 1994, respectively
(nominal rate 7.875%).
(7) The obligations of the Company under the New Credit Agreement, the Canadian
Note (as hereinafter defined) and the Foreign Credit Facilities are
guaranteed by certain of the Company's subsidiaries and such debt
effectively ranks ahead of this fixed rate debt with respect to such
guarantees.
(8) Net of unamortized discount of $1,000 and $1,100 in 1995 and 1994,
respectively (nominal rate 6.5%).
(9) Net of unamortized discount of $52,100 and $53,100 in 1995 and 1994,
respectively (nominal rate 7%).
(10) Net of unamortized discount of $1,900 and $2,000 in 1995 and 1994,
respectively (nominal rate 7.375%).
In August 1993, the Company entered into the New Credit Agreement. Certain
indebtedness of the Company under pre-existing secured domestic bank agreements
(the "Credit Agreements") was refinanced with the proceeds of loans under the
New Credit Agreement and the Credit Agreements were terminated at
24
<PAGE> 27
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONCLUDED)
that time. The New Credit Agreement provides the Company with an $800,000,000
revolving line of credit which expires in June 1999 and includes a letter of
credit facility. At December 31, 1995 and 1994, approximately $73,000,000 of
letters of credit were issued under the New Credit Agreement to secure a bond
posted in connection with the appeal of the LMP Litigation. Borrowings under the
New Credit Agreement bear interest at a rate approximating the prime rate (8.5%
at December 31, 1995) or, at the election of the Company, at rates approximating
LIBOR (5.63% at December 31, 1995) plus 30 basis points. The Company also pays a
facility fee (the "Facility Fee") under the New Credit Agreement equal to 15
basis points on the aggregate commitments thereunder. Interest rates and the
Facility Fee are subject to increase or decrease based upon the Company's
unsecured debt rating. The weighted average interest rate for borrowings
outstanding under the New Credit Agreement at December 31, 1995 was
approximately 6.31%. Borrowings under the New Credit Agreement are guaranteed by
certain of the Company's subsidiaries.
The Company has $98,400,000 of standby letter of credit facilities from its
bank lenders. At December 31, 1995 and 1994, approximately $79,600,000 and
$83,300,000, respectively, of letters of credit were issued under this facility
to secure various insurance and other obligations reflected in the accompanying
Consolidated Balance Sheet. In addition, the Company has $110,000,000 of trade
letter of credit facilities. At December 31, 1995 and 1994, the Company had
$16,700,000 and $51,100,000, respectively, of documentary letters of credit
outstanding under these facilities to finance various trade activities.
In August 1993, the Company's wholly-owned subsidiary, Fruit of the Loom
Canada, Inc., issued an unsecured senior note due in installments through 2008
(the "Canadian Note") in a private placement transaction with certain insurance
companies. The Canadian Note is fully guaranteed by the Company and its
principal operating subsidiaries and ranks pari passu in right of payment with
the New Credit Agreement.
In 1993, the Company redeemed its 12 3/8% Notes. The Company recorded an
extraordinary charge in 1993 of approximately $8,700,000 ($.11 per share)
relating to the early extinguishment of debt, primarily in connection with the
refinancing of the Credit Agreements and the redemption of the 12 3/8% Notes.
The extraordinary charge consists principally of the non-cash write-off of the
related unamortized debt expense on the Credit Agreements, the 12 3/8% Notes and
other debt issues and the premiums paid in connection with the early redemption
of the 12 3/8% Notes, both net of income tax benefits.
The New Credit Agreement imposes certain limitations on, and requires
compliance with covenants from, the Company and its subsidiaries including,
among other things: (i) maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (ii) limitations on incurrence of
additional indebtedness and granting of certain liens and guarantees; and (iii)
restrictions on mergers, sale and leaseback transactions, asset sales and
investments. The New Credit Agreement also allows the Company to pay dividends
on its common stock so long as, among other things, the aggregate amount of such
dividends paid since January 1, 1996 does not exceed the sum of approximately
$80,000,000 and fifty percent of the Company's consolidated net earnings since
January 1, 1996.
The New Credit Agreement provides for the acceleration of amounts
outstanding thereunder should any person or entity other than William Farley, or
any person or entity controlled by William Farley, control more than 50% of the
voting stock or voting rights associated with such stock of the Company.
The aggregate amount of scheduled annual maturities of long-term debt for
each of the next five years is: $14,600,000 in 1996; $41,700,000 in 1997;
$63,500,000 in 1998; $783,100,000 in 1999; and $9,900,000 in 2000.
Cash payments of interest on debt were $114,600,000, $86,600,000 and
$67,100,000 in 1995, 1994 and 1993, respectively. These amounts exclude amounts
capitalized.
25
<PAGE> 28
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS
Prior to December 31, 1995, certain of the Company's foreign subsidiaries
had entered into forward exchange contracts to hedge currency exposure relative
to certain inventory purchases and principal and interest obligations of certain
foreign currency denominated bank loans. The Company primarily sold European
currencies and purchased United States dollars. At December 31, 1995 no foreign
currency forward exchange contracts were outstanding. As of December 31, 1994
the primary foreign currencies sold forward to hedge the foreign currency
exposure relative to inventory purchases expressed in United States dollar
equivalents were as follows: $1,800,000 Italian lira, $1,900,000 German marks,
$2,000,000 British pounds and $1,800,000 French francs. At December 31, 1994,
the Company had bought forward Greek drachma relative to its Greek drachma
denominated debt obligations, the value of which was the United States dollar
equivalent of $5,600,000. The original discount of the purchased forward
contracts served to reduce the effective interest cost of the drachma
denominated loans and effectively made these loans the equivalent of United
States dollar based loans. All of the aforementioned contracts matured in 1995.
The fair value of the Company's foreign exchange forward contracts was
estimated based on quoted market prices of comparable contracts. At December 31,
1994, the fair value for the Company's forward contracts approximated their face
value.
The fair values of financial guarantees and letters of credit approximate
the face value of the underlying instruments.
The fair values of the Company's non-publicly traded long-term debt were
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. Fair
values for publicly traded long-term debt were based on quoted market prices
when available. At December 31, 1995 and 1994, the fair value of the Company's
debt was approximately $1,505,000,000 and $1,369,000,000, respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counterparties to its off-balance sheet
financial instruments and does not anticipate nonperformance of the
counterparties. The Company does not require collateral from its counterparties
and management believes that the Company would not realize a material loss in
the event of nonperformance by the counterparties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to most major discount and mass merchandisers,
wholesale clubs and screen printers as well as many department, specialty, drug
and variety stores, national chains, supermarkets and sports specialty stores.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or other security to support customer receivables.
The Company's ten largest customers accounted for approximately 42.5% of net
sales in 1995 and approximately 26.2% of gross accounts receivable at December
31, 1995. The Company routinely assesses the financial strength of its customers
and, as a consequence, management believes that its trade receivable credit risk
exposure is limited.
CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities, such
as those under Superfund Legislation, in connection with the sale of certain
discontinued operations, some of which were significant generators of hazardous
waste. The Company and its subsidiaries have also retained certain liabilities
related to the sale of products in connection with the sale of certain
discontinued operations. The Company's retained liability reserves at December
31, 1995 related to discontinued operations consist primarily of certain
environmental and product liability reserves of approximately $85,800,000. The
Company has recorded receivables related to these environmental liabilities of
approximately $39,100,000 which management believes will be recovered from
insurance and
26
<PAGE> 29
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
other sources. Management and outside environmental consultants evaluate, on a
site-by-site or a claim-by-claim basis, the extent of environmental damage, the
type of remediation that will be required and the Company's proportionate share
of those costs as well as the Company's liability in each case. The Company's
retained liability reserves related to discontinued operations principally
pertain to 11 specifically identified environmental sites and the aforementioned
product liabilities. Four sites and the total product liabilities individually
represent more than 10% of the net reserve and in the aggregate represent
approximately 95% of the net reserve. Management believes they have adequately
estimated the impact of remediating identified sites, the expected contribution
from other potentially responsible parties and recurring costs for managing
sites as well as the ultimate resolution of the product liability claims.
Management currently estimates actual payments before recoveries to range from
approximately $5,600,000 to $28,300,000 annually between 1996 and 1999 and
$19,300,000 in total subsequent to 1999. Only the long-term monitoring costs of
approximately $11,300,000, primarily scheduled to be paid in 2000 and beyond,
have been discounted. The discount rate used was 10%. The undiscounted aggregate
long-term monitoring costs, to be paid over approximately the next 20 years, is
approximately $28,200,000. Management believes that adequate reserves have been
established to cover potential claims based on facts currently available and
current Superfund Legislation. The Company has provided the foregoing
information in accordance with Staff Accounting Bulletin 92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and Federal
regulatory agencies under Superfund Legislation and by private citizens under
Superfund Legislation and common law theories. Since 1982, the EPA has actively
sought compensation for response costs and remedial action at offsite disposal
locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during 1996 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal, to MagneTek. At the time of the sale there
was a suit pending against Universal and Northwest by LMP. The suit alleged that
Universal and Northwest fraudulently induced LMP to sell its business to
Universal and then suppressed the development of certain electronic lighting
ballasts in breach of the agreement of sale, which required Universal to pay to
LMP a percentage of the net profits from such business from 1982 through 1986.
Two additional plaintiffs, Stevens Luminoptics Partnership and Calmont
Technologies Inc., joined the litigation in 1986. In December 1989 and January
1990, a jury returned certain verdicts against Universal and also returned
verdicts in favor of Northwest and on certain issues in favor of Universal. A
judgment totalling $25,800,000, of which $7,500,000 represented punitive
damages, reflecting these verdicts was entered by the Alameda County, California
Superior Court in January 1990 against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the plaintiffs'
petition for review. The case was then remanded to the trial court.
Pursuant to the stock purchase agreement (the "Stock Purchase Agreement")
under which Universal was sold, the Company agreed to indemnify MagneTek for a
two-year period following the sale of Universal for certain contingent
liabilities. MagneTek brought suit against the Company for declaratory and other
relief in connection with the indemnification under the Stock Purchase
Agreement. In April 1992, the Los Angeles County, California Superior Court
found that the Company was obligated by the Stock Purchase Agreement to
indemnify MagneTek for any liability that may be assessed against MagneTek or
Universal in the LMP Litigation and to reimburse MagneTek for, among other
things, its costs and expenses in defending that case. The court entered a
judgment requiring the Company to reimburse and indemnify MagneTek in two
stages: currently, to reimburse MagneTek for costs of defense and related
expenses in the LMP Litigation, plus costs of litigating the indemnity case with
the Company; and at a later date, if and when any liability in the LMP
27
<PAGE> 30
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
Litigation is finally determined or a settlement is reached in that case, to
reimburse and/or indemnify MagneTek for that amount as well. In 1993 the Company
paid approximately $9,600,000 in settlement of its obligations to MagneTek
related to the litigation expenses incurred by MagneTek.
In October 1994, following a retrial of the LMP Litigation, a jury returned
a verdict of approximately $96,000,000 against Universal. The jury verdict
included breach of contract and fraud damages and approximately $6,000,000 in
punitive damages. The Company is obligated to indemnify Universal for damages
incurred in this case.
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on other
information currently available, management believes that the court committed
numerous errors during the trial and, accordingly, that the judgment will not
stand on appeal. The Company filed its opening brief in the LMP appeal on
September 27, 1995. The plaintiffs' responsive brief was filed in March 1996.
In March 1988, a class action suit entitled Endo, et al. v. Albertine, et
al. was filed in the District Court against the Company, its then directors,
certain of its then executive officers, its then underwriters and the Company's
current independent auditors in connection with the Company's initial public
offering of Class A Common Stock and certain debt securities in March 1987. The
suit alleges, among other things, violations of Federal and state securities
laws against all of the defendants, as well as breaches of fiduciary duties by
the director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In December
1990, a magistrate judge recommended that the District Court dismiss all of the
plaintiffs' claims with prejudice. In January 1993, the District Court adopted
in part and rejected in part the magistrate judge's recommendation for dismissal
of the complaint. As a result, the litigation will continue as to various
remaining counts of the complaint. Both the defendants and the plaintiffs filed
motions for summary judgment which were denied in all material respects.
Management and the Board of Directors believe that this suit is without merit
and intend to continue to vigorously defend against this litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust, and
I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934 and that
Mr. Farley and Mr. Holland also violated Section 20a of the Act. According to
the plaintiffs, beginning before June 1992 and continuing through early June
1993, the Company, with the knowledge and assistance of the individual
defendants, issued positive public statements about its expected sales increases
and growth through 1993 and afterwards. They also allege that beginning in
approximately mid-1992 and continuing afterwards, the Company's business was not
as strong and its growth prospects were not as certain as represented. The
plaintiffs further allege that during the end of 1992 and beginning of 1993,
certain of the individual defendants traded the stock of the Company while in
the possession of material, non-public information. The plaintiffs ask for
unspecified amounts as compensatory damages, pre-judgment and post-judgment
interest, attorneys' fees, expert witness fees and costs and ask the District
Court to impose a constructive trust on the proceeds of the individual
defendants' trades to satisfy any potential judgment. Management believes that
this suit is without merit and management and the Company intend to vigorously
defend against this litigation.
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned matters will not have a material
adverse effect on the financial condition or results of operations of the
Company, but the ultimate resolution of certain of these matters, if
unfavorable, could be material to the results of operations of a particular
future period.
28
<PAGE> 31
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
In August 1991, two creditors of a former subsidiary of Northwest, Lone
Star Steel Company, Inc. (a wholly owned subsidiary of Lone Star Technologies,
Inc., a publicly owned company) brought suit against the Company in the Superior
Court of the State of Delaware. In this suit, the creditors sought damages of
approximately $13,100,000, plus interest, against the Company for what they
alleged was the remaining liability under certain leases. In January 1993, the
Superior Court of Delaware issued an Opinion and Order finding that the leases
were in default, but made no findings as to the amount of damages. The Company
appealed the ruling and on June 4, 1993 the Supreme Court of Delaware entered an
order affirming the Opinion and Order of the Superior Court of Delaware issued
in January 1993. In December 1993, the Company paid the lessors approximately
$9,500,000 in settlement of this suit.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company receives an annual
fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "RELATED PARTY
TRANSACTIONS."
In connection with the Company's transaction with Acme Boot during 1993,
the Company guaranteed, on an unsecured basis, the repayment of debt incurred or
created by Acme Boot under Acme Boot's bank credit facility (the "Acme Boot
Credit Facility"). FI owns 100% of the common stock of Acme Boot. William
Farley, an executive officer and a director of the Company, holds 100% of the
common stock of FI. See "RELATED PARTY TRANSACTIONS." At December 31, 1995 the
Acme Boot Credit Facility provides for up to $30,000,000 of loans and letters of
credit. The Acme Boot Credit Facility is secured by first liens on substantially
all of the assets of Acme Boot and its subsidiaries. At December 31, 1995
approximately $21,000,000 in loans and letters of credit were outstanding under
the Acme Boot Credit Facility.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank lender (the "New Acme Credit Agreement"). The New Acme
Credit Agreement provides for up to $37,000,000 in borrowings and expires in
January 1997. In April 1995, Acme Boot used approximately $25,400,000 under this
facility to repurchase certain of its debt, preferred stock and common stock. In
November 1995, Acme Boot used approximately $11,300,000 under this facility to
repurchase substantially all of the remaining portions of its publicly held
debt, preferred stock and common stock issues. The New Acme Credit Agreement is
secured by a second lien on substantially all of the assets of Acme Boot and its
subsidiaries. In addition, the Company has guaranteed, on an unsecured basis,
repayment of debt incurred or created under the New Acme Credit Agreement. In
exchange for the additional guarantee, the Company received $6,000,000 of
initial liquidation preference of Acme Boot's Series C 10% Redeemable Junior
Preferred Stock (the "Junior Preferred Stock"). The Company has fully reserved
for the amount of the Junior Preferred Stock. The Acme Boot Credit Facility and
the New Acme Credit Agreement provide that no dividends may be paid in cash on
the Junior Preferred Stock subject to certain tests. The Junior Preferred Stock
carries voting rights representing 5% of the total voting power of Acme Boot so
long as any of Acme Boot's 12 1/2% Series B Preferred Stock (the "Acme 12 1/2%
Preferred Stock") is outstanding. The Acme 12 1/2% Preferred Stock currently
carries voting rights representing in the aggregate 25% of the total voting
power of Acme Boot. If none of the Acme 12 1/2% Preferred Stock is outstanding,
the Junior Preferred Stock will carry voting rights representing 25% of the
total voting power of Acme Boot.
29
<PAGE> 32
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONCLUDED)
Summarized unaudited financial information for Acme Boot follows (in
thousands of dollars):
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Current assets........................................ $ 52,100 $ 61,000
Noncurrent assets -- net.............................. 8,900 10,900
-------- --------
$ 61,000 $ 71,900
======== ========
Current liabilities................................... $ 35,500 $ 20,100
Noncurrent liabilities................................ 47,700 83,600
Preferred stock....................................... 2,500 22,300
Common stockholders' deficit.......................... (24,700) (54,100)
-------- --------
$ 61,000 $ 71,900
======== ========
</TABLE>
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales............................................. $133,600 $135,000
======== ========
Gross earnings........................................ $ 26,900 $ 36,600
======== ========
Operating (loss) earnings............................. $ (9,200) $ 3,600
======== ========
Extraordinary gain on early retirement of debt........ $ 26,700 $ --
======== ========
Net earnings (loss)................................... $ 9,200 $ (5,500)
======== ========
</TABLE>
LEASE COMMITMENTS
The Company and its subsidiaries lease certain manufacturing, warehousing
and other facilities and equipment. The leases generally provide for the lessee
to pay taxes, maintenance, insurance and certain other operating costs of the
leased property. The leases on most of the properties contain renewal
provisions.
In September 1994, the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the lease
is limited to $175,000,000. The total cost of assets under lease as of December
31, 1995 was approximately $132,000,000. The lease provides for a substantial
residual value guarantee by the Company at the end of the initial lease term and
includes purchase and renewal options at fair market values. The table of future
minimum operating lease payments which follows excludes any payment related to
the residual value guarantee which is due upon termination of the lease. The
Company has the right to exercise a purchase option with respect to the leased
equipment or the equipment can be sold to a third party. The Company expects the
fair market value of the leased equipment, subject to the purchase option or
sold to a third party, to substantially reduce or eliminate the Company's
payment under the residual value guarantee. The Company is obligated to pay the
difference between the maximum amount of the residual value guarantee and the
fair market value of the equipment at the termination of the lease. At December
31, 1995 the
30
<PAGE> 33
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS -- (CONCLUDED)
maximum amount of the residual value guarantee relative to the assets under the
lease at December 31, 1995 is approximately $88,400,000.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1996................................................. $ 16,800 $ 28,700
1997................................................. 24,200 25,000
1998................................................. 10,800 22,100
1999................................................. 7,700 19,100
2000................................................. 7,700 3,200
Years subsequent to 2000............................. 120,800 6,800
-------- --------
Total minimum lease payments........................... 188,000 $ 104,900
========
Imputed interest....................................... (77,700)
--------
Present value of minimum capitalized lease payments.... 110,300
Current portion........................................ (8,800)
--------
Long-term capitalized lease obligations................ $ 101,500
========
</TABLE>
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Land................................................... $ 10,200 $ 9,800
Buildings, structures and improvements................. 71,700 72,900
Machinery and equipment................................ 95,800 94,800
-------- --------
177,700 177,500
Accumulated depreciation............................... (85,700) (78,500)
-------- --------
$ 92,000 $ 99,000
======== ========
</TABLE>
Rental expense for operating leases amounted to $30,200,000, $20,200,000
and $11,600,000 in 1995, 1994 and 1993, respectively.
STOCK PLANS
In 1995, the Company's Board of Directors approved the repricing of certain
of the Company's stock options which had exercise prices higher than the then
market price of the Company's Class A Common Stock. The Company took this action
as a means of reestablishing the long-term incentive benefits for which the
stock option plans were originally designed. The Company exchanged previously
granted stock options for fewer new stock options at an exercise price equal to
the fair market value on the date of the exchange using a replacement formula
based on the modified Black-Scholes Option Pricing Model.
In 1995, the Company established the 1995 Executive Incentive Compensation
Plan (the "1995 EICP"). The 1995 EICP provides for the granting of non-qualified
stock options, stock appreciation rights, restricted
31
<PAGE> 34
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
stock, deferred stock, dividend equivalents, other stock related awards and
performance or annual incentive awards that may be settled in cash, stock or
other property. The 1995 EICP replaced the 1994 Plan, as hereinafter defined,
and no further grants are allowable under the 1994 Plan. The 1995 EICP is
administered by the Compensation Committee of the Board of Directors (the
"Compensation Committee") and provides for the granting of up to 2,000,000
shares plus any shares of Class A Common Stock which are or become available
under the 1994 Plan, the 1992 Plan (as hereinafter defined) and the 1987 Plan
(as hereinafter defined), plus 5% of the number of shares of Class A Common
Stock newly issued by the Company during the term of the 1995 EICP. Stock
options may be granted under the 1995 EICP to eligible employees of the Company,
its parent, its subsidiaries and certain entities who provide services to the
Company, at a price not less than the market price on the date of grant. Options
granted vest and may be exercised at such time as prescribed by the Compensation
Committee. The Compensation Committee may, in its discretion, accelerate the
exercisability, the lapsing of restrictions or the expiration of deferral or
vesting periods of any award under the 1995 EICP, and such accelerated
exercisability, lapse, expiration and vesting shall occur automatically in the
case of a change of control of the Company as defined in the 1995 EICP. The
Company granted 4,660,500 options in 1995, including 2,509,100 options which
were exchanged in the repricing in 1995, to eligible employees at prices ranging
from $17.75 to $26.13. The Company cancelled 2,051,400 options under the 1995
EICP during 1995. At December 31, 1995 approximately 6,580,500 shares, including
shares which became available under the 1994 Plan, the 1992 Plan and the 1987
Plan, were reserved for issuance and 967,500 shares were exercisable under the
1995 EICP at prices ranging from $17.75 to $26.13.
In 1995 the Company granted 56,000 shares of performance units under the
1995 EICP. These units confer upon the participants in the 1995 EICP the right
to receive one share of Class A Common Stock or the corresponding cash
equivalent or a combination thereof for each unit earned at the end of a
performance and service period.
At December 31, 1995 and 1994, approximately 707,400 and 1,494,700 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1987 Stock Option Plan (the "1987 Plan"). Under the terms of the Plan,
options were granted to eligible employees of the Company, its parent and its
subsidiaries at a price not less than the market price on the date of grant.
Option shares must be exercised within the period prescribed by the Compensation
Committee at the time of grant but not later than ten years and one day from the
date of grant. The 1987 Plan provides for the granting of qualified and
nonqualified stock options.
The following summarizes the activity of the 1987 Plan for 1995:
<TABLE>
<CAPTION>
OPTION PRICE SHARES
PER SHARE UNDER OPTION
---------------------- ------------
<S> <C> <C>
Outstanding at December 31, 1994.................. $ 6 3/8 to $47 5/8 1,434,300
Options exercised................................. $ 6 3/8 to $14 1/2 (50,900)
Options canceled.................................. $20 1/4 to $47 5/8 (676,000)
---------
Outstanding and exercisable at December 31,
1995............................................ $ 6 3/8 to $41 3/8 707,400
=========
</TABLE>
In 1994 the Company established the Executive Incentive Compensation Plan
(the "1994 Plan"). The 1994 Plan provided for the granting of non-qualified
stock options, incentive stock options, performance shares and annual incentive
awards. The 1994 Plan is administered by the Compensation Committee and
originally provided for the granting of up to 3,600,000 shares under the plan,
which shares were reserved and available for purchase under the provisions of
the plan. The 1994 Plan was replaced by the 1995 EICP. Stock options were
granted under the 1994 Plan to eligible employees of the Company, its parent,
its subsidiaries and certain entities who provide services to the Company at a
price not less than the market price on the date of grant.
32
<PAGE> 35
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
Options granted vested at such time as prescribed by the Compensation Committee,
but in no event was any option exercisable prior to six months following its
grant. No option granted was exercisable later than the tenth anniversary date
of its grant.
The following summarizes the activity of the 1994 Plan for 1995:
<TABLE>
<CAPTION>
OPTION PRICE SHARES
PER SHARE UNDER OPTION
------------ ------------
<S> <C> <C>
Outstanding at December 31, 1994................... $24 3/4 to $30 7/8 664,100
Options cancelled.................................. $24 3/4 to $30 7/8 (583,200)
---------
Outstanding and exercisable at December 31, 1995... $25 3/4 to $30 7/8 80,900
=========
</TABLE>
Performance shares were granted under the 1994 Plan to eligible employees
of the Company, its parent, its subsidiaries and certain entities who provide
services to the Company. Each performance share has a value equal to the market
price of the Company's Class A Common Stock on the date the performance share is
earned. The Compensation Committee sets performance goals to be achieved over
performance periods of not less than two years. The extent to which performance
goals based on total shareholder return over at least a two year period are met
will determine the number of performance shares earned by participants. Payment
of earned performance shares shall be made in either cash or shares of Class A
Common Stock within seventy five days following the close of the performance
period. In September of 1995, the performance period was extended by two years
to December 31, 1997. If the shares are not earned in 1996 under the original
performance schedule, higher performance goals will be effective for 1997.
In 1995 the Company's stockholders approved the Company's 1995 Non-Employee
Directors' Stock Plan (the "1995 Directors' Plan"). The 1995 Directors' Plan
provides for the issuance of up to 200,000 shares of the Company's Class A
Common Stock which shares are reserved and available for issuance under the
plan. Only directors who are not employees of the Company, any parent or
subsidiary of the Company or FII are eligible to participate in the 1995
Directors' Plan. The 1995 Directors' Plan provides for an initial grant to each
non-employee director of a right to receive 2,500 shares of the Company's Class
A Common Stock (each share representing one "Restricted Stock Unit"). In
addition, the 1995 Directors' Plan provides for automatic annual grants of 1,250
Restricted Stock Units in 1995 and 1,850 Restricted Stock Units thereafter to
each non-employee director at the close of business on the date 120 days after
the annual meeting of stockholders. The right to receive shares of the Company's
Class A Common Stock in settlement of a Restricted Stock Unit is subject to
forfeiture in the event the recipient ceases to serve as a director prior to the
second anniversary of the date of grant for any reason other than death,
disability, retirement or upon the occurrence of a change of control as defined
in the 1995 EICP. At December 31, 1995 22,500 Restricted Stock Units are
outstanding under the 1995 Directors' Plan.
In 1993, the Company's stockholders approved the Company's Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan provided for the
issuance of options to purchase up to 175,000 shares of Class A Common Stock,
which shares were reserved and available for purchase upon the exercise of
options granted under the Directors' Plan. As of December 31, 1995 no additional
shares can be granted under the Directors' Plan. Only directors who were not
employees of the Company, any parent or subsidiary of the Company or FII were
eligible to participate in the Directors' Plan. The Directors' Plan was
administered by the Company's Board of Directors. Under the Directors' Plan each
non-employee director was initially granted an option to purchase 7,500 shares
of Class A Common Stock. On the date of each annual meeting at which such person
was elected or after which the person continued as a non-employee director, such
non-employee director was granted an option to purchase 2,500 shares of Class A
Common Stock. The options were exercisable at a price per share equal to the
fair market value per share of the Class A Common Stock on the
33
<PAGE> 36
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONCLUDED)
date of grant. Option shares must be exercised not later than ten years from the
date of grant and do not become exercisable until the first anniversary of the
date of grant. At December 31, 1995, 72,500 options are outstanding and
exercisable at prices ranging from $30.88 to $42.
In 1992, the Company established the 1992 Executive Stock Option Plan (the
"1992 Plan"). The 1992 Plan provided for the issuance of options to purchase up
to 975,000 shares of Class A Common Stock, which shares are reserved and
available for purchase upon the exercise of stock options granted under the 1992
Plan. The 1992 Plan is administered by the Compensation Committee. In 1992,
options to purchase 975,000 shares of Class A Common Stock were granted under
the 1992 Plan to two directors of the Company who were also employees of the
Company. The options are exercisable at a price of $28.88 per share (which was
the closing price of the Class A Common Stock on the date of grant). Pursuant to
the terms of the grants, options for the shares vest (subject to acceleration
under certain circumstances) as follows: (i) one-third of the options granted
vested immediately upon grant; (ii) one-third of the options granted vest if the
closing price of the Class A Common Stock reaches or exceeds $45 per share for
90 consecutive days within six years from the date of grant; and (iii) the
remaining one-third of the options granted vest if the closing price of the
Class A Common Stock reaches or exceeds $60 per share for 90 consecutive days
within six years from the date of grant. All vested options expire ten years and
one day after the date of grant. Options which do not vest because the Company's
stock price has not reached the targeted price levels for vesting expire six
years after the date of grant. As of December 31, 1994, 325,000 of these options
were exercisable and none of these options had been exercised or canceled. These
325,000 options were cancelled and a total of 227,500 options were issued in
their place under the 1995 EICP in connection with the option repricing in 1995.
The remaining options under the 1992 Plan were not repriced. In January 1996,
150,000 of these remaining options were cancelled.
In July 1991, the Company granted an option to purchase 50,000 shares of
the Class A Common Stock to a director of the Company who is also an employee of
FII at a purchase price of $10.25 per share. The exercise period of the option
terminates ten years and one day from the date of grant. As of December 31,
1995, none of these options have been exercised or canceled.
At December 31, 1995 and 1994, approximately 181,300 and 238,800 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1989 Stock Grant Plan. Under the terms of this plan, eligible
employees of the Company, its parent and its subsidiaries are awarded shares,
subject to forfeitures or certain restrictions which generally expire three
years from the date of the grant. Shares are awarded in the name of the
employee, who has all the rights of a shareholder, subject to the above
mentioned restrictions. The Company canceled 5,300 previously issued shares
during 1995. The Company granted approximately 62,800 shares to eligible
employees during 1995.
At December 31, 1995 and 1994, approximately 298,600 shares of Class A
Common Stock were reserved for issuance under the Company's 1987 Long-Term Bonus
Plan. Under the terms of this plan, eligible employees of the Company's
operating subsidiary participate in cash and stock bonus pools for four year
plan periods. Awards under this plan are payable in a combination of cash and
stock. No new four year plan period began subsequent to December 31, 1990.
34
<PAGE> 37
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Shares
Balance, beginning of period................................ 75,851 75,724 75,554
Class A shares issued upon exercise of options.............. 51 52 106
Class A shares issued under stock grant plan-net............ 58 29 12
Class A shares issued under long-term bonus plan............ -- 46 52
-------- -------- --------
Balance, end of period...................................... 75,960 75,851 75,724
======== ======== ========
Common Stock and Capital in Excess of Par Value
Balance, beginning of period................................ $468,100 $464,000 $458,400
Class A shares issued upon exercise of options.............. 700 1,000 2,400
Class A shares issued under stock grant plan-net............ 1,200 2,000 700
Class A shares issued under long-term bonus plan............ -- 1,100 2,400
Other....................................................... -- -- 100
-------- -------- --------
Balance, end of period...................................... $470,000 $468,100 $464,000
======== ======== ========
Retained Earnings
Balance, beginning of period................................ $680,600 $620,300 $412,800
Net earnings (loss)......................................... (232,500) 60,300 207,500
-------- -------- --------
Balance, end of period...................................... $448,100 $680,600 $620,300
======== ======== ========
Currency Translation and Minimum Pension Liability Adjustments
Balance, beginning of period................................ $(22,900) $(37,300) $(16,200)
Translation adjustments-net................................. 1,000 14,400 (21,100)
Minimum pension liability adjustment........................ (600) -- --
-------- -------- --------
Balance, end of period...................................... $(22,500) $(22,900) $(37,300)
======== ======== ========
</TABLE>
Holders of Class A Common Stock are entitled to receive, on a cumulative
basis, the first dollar per share of dividends declared. Thereafter, holders of
Class A Common Stock and Class B Common Stock will share ratably in any
dividends declared. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes. The Class B
Common Stock is convertible into the Class A Common Stock on a share for share
basis.
In March 1996 the Company adopted a stockholder rights plan (the "Rights
Plan") by which preferred stock purchase rights were distributed for each
outstanding share of the Company's Class A Common Stock and Class B Common
Stock. The Rights Plan provides for Series A Rights and Series B Rights. Each
Series A Right entitles holders of the Company's common stock to buy one
one-hundredth of a share of a new series of preferred stock at an exercise price
of $90. The Series A Rights will be exercisable only if a person or entity
acquires 15% or more of the Company's common stock or announces a tender offer
upon consummation of which such person or entity would own 15% or more of the
common stock.
Generally, if any person or entity becomes the beneficial owner of 15% or
more of the Company's common stock, each Series A Right not owned by such a
person or entity will enable its holder both to (i) purchase Class A Common
Stock of the Company having a value of $180 for a purchase price of $90 and (ii)
receive a Series B Right. In addition, in such case, if the Company is
thereafter involved in a merger or other business combination transaction with
another entity or sells 50% or more of its assets or earning power to another
person or entity, each Series B Right and each Series A Right that has not
previously been exercised will entitle its holder to purchase, at $90 per Series
A and Series B Right, common shares of such other entity having a value of twice
that price.
35
<PAGE> 38
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY -- (CONCLUDED)
The Company generally will be entitled to amend the Rights Plan and redeem
the Series A Rights at $.01 per Series A Right at any time prior to the time a
person or group has acquired 15% of the Company's common stock. The Series B
Rights cannot be redeemed after the time they are issued. The foregoing
description of the Rights Plan does not purport to be complete and is qualified
in its entirety by reference to the Rights Plan.
Approximately 9.2% of the Company's common stock at December 31, 1995 is
held by FI and William Farley. Because these affiliates hold all of the Class B
Common Stock of the Company outstanding, which has five votes per share, they
control approximately 32.9% of all voting rights of the Company. All actions
submitted to a vote of stockholders are voted on by holders of Class A Common
Stock and Class B Common Stock voting together as a single class, except for the
election of directors. With respect to the election of directors, holders of the
Class A Common Stock vote as a separate class and are entitled to elect 25% of
the total number of directors constituting the entire Board of Directors and, if
not a whole number, then the holders of the Class A Common Stock are entitled to
elect the nearest higher whole number of directors that is at least 25% of the
total number of directors. If, at the record date for any stockholder meeting at
which directors are elected, the number of shares of Class B Common Stock
outstanding is less than 12.5% of the total number of shares of both classes of
common stock outstanding, then the holders of Class A Common Stock would vote
together with the holders of Class B Common Stock to elect the remaining
directors to be elected at such meeting, with the holders of Class A Common
Stock having one vote per share and the holders of Class B Common Stock having
five votes per share. At December 31, 1995 FI and William Farley's combined
ownership of Class B Common Stock is approximately 8.8% of the total common
stock of the Company outstanding. As a result, Mr. Farley does not have the sole
ability to elect those members of the Company's Board of Directors who are not
separately elected by the holders of the Company's Class A Common Stock.
BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION
The Company operates in only one business segment consisting of the
manufacturing and marketing of basic apparel. Sales to one customer amounted to
approximately 19.5%, 15.6% and 13.4% of consolidated net sales in 1995, 1994 and
1993, respectively. Additionally, sales to a second customer amounted to
approximately 10.8%, 11.8% and 12.3% of consolidated net sales in 1995, 1994 and
1993, respectively.
Sales, operating earnings and identifiable assets are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
Domestic................................................ $2,040,300 $1,972,000 $1,634,600
Foreign................................................. 362,800 325,800 249,800
---------- ---------- ----------
Total................................................... $2,403,100 $2,297,800 $1,884,400
========== ========== ==========
Operating Earnings (Loss)
Domestic................................................ $ (53,500) $ 234,500 $ 368,900
Foreign................................................. (19,000) 21,900 29,800
General corporate expenses.............................. (35,600) (21,400) (17,200)
---------- ---------- ----------
Total................................................... $ (108,100) $ 235,000 $ 381,500
========== ========== ==========
</TABLE>
36
<PAGE> 39
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION -- (CONCLUDED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable Assets
Domestic................................................ $2,431,000 $2,661,000 $2,390,700
Foreign................................................. 402,000 442,400 300,500
Corporate............................................... 86,500 60,100 42,800
---------- ---------- ----------
Total................................................... $2,919,500 $3,163,500 $2,734,000
========== ========== ==========
</TABLE>
The operating loss and identifiable assets for 1995 reflect the effect of
special charges recorded in the fourth quarter of 1995. See "SPECIAL CHARGES."
Corporate assets presented above consist primarily of cash and other short-term
investments, deferred financing costs and, in 1995 and 1994, a receivable
related to anticipated environmental recoveries. Corporate assets in all periods
also include Federal income taxes receivable.
PENSION PLANS
Pension expense was $12,200,000, $11,700,000 and $5,500,000 in 1995, 1994
and 1993, respectively. The net pension expense is comprised of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Components:
Service cost -- benefits earned during the period............ $ 12,800 $ 11,700 $ 7,700
Interest cost on projected benefit obligation................ 13,100 12,800 10,800
Return on assets:
Actual (gain) loss........................................ (27,900) 800 (5,900)
Deferred actuarial gains (losses)......................... 14,900 (13,500) (5,800)
Amortization of unrecognized net loss........................ 600 1,200 --
Amortization of prior service cost........................... 200 -- --
Amortization of unrecognized January 1, 1987 net transition
asset..................................................... (1,300) (1,300) (1,300)
Curtailment gain............................................. (200) -- --
------- ------- --------
Net periodic pension cost............................... $ 12,200 $ 11,700 $ 5,500
======= ======= ========
Assumptions:
Discount rate................................................ 8.25% 7.75% 9%
Rates of increase in compensation levels..................... 5-8% 5-8% 5-8%
Expected long-term rate of return on assets.................. 10% 10% 10%
</TABLE>
37
<PAGE> 40
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONCLUDED)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheet (in thousands of
dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits....................................................... $125,000 $106,400
Non-vested benefits................................................... 12,300 10,200
-------- --------
Accumulated benefit obligation..................................... 137,300 116,600
Effect of projected future salary increases........................... 53,400 52,400
-------- --------
Projected benefit obligation............................................ 190,700 169,000
Plan assets at fair value............................................... 140,900 118,200
-------- --------
Plan assets less than projected benefit obligation...................... (49,800) (50,800)
Unrecognized loss....................................................... 24,900 39,700
Unrecognized prior service cost......................................... 2,100 (200)
Unrecognized net transition asset at end of period...................... (5,900) (8,500)
Additional minimum liability............................................ (2,700) --
-------- --------
Unfunded accrued pension cost at end of period.......................... $(31,400) $(19,800)
======== ========
</TABLE>
The discount rate for purposes of determining the funded status of the
plans at December 31, 1995 and 1994 was 7.5% and 8.25%, respectively.
Plan assets for the Company's funded plans, which are primarily invested in
United States Government, international and domestic corporate debt securities,
equity securities, real estate and venture capital funds, are commingled in a
master trust which includes the assets of the pension plans of substantially all
affiliated companies controlled directly and indirectly by William Farley (the
"Master Trust"). Plan assets, except those that are specifically identified to a
particular plan, are shared by each of the plans in the Master Trust ("Allocated
Assets"). Any gains and losses associated with the Allocated Assets are spread
among each of the plans based on each plan's respective share of the Allocated
Assets market value. The Company's plan assets represent approximately 70.6% and
69.3% of the Master Trust Allocated Assets at December 31, 1995 and 1994,
respectively.
Included in the Master Trust Allocated Assets at December 31, 1995 and 1994
were 647,852 shares (with a cost of $5,100,000 and a market value of $15,800,000
and $17,500,000, respectively) of the Company's Class A Common Stock.
As of December 31, 1995 and 1994, the Master Trust holds 348,012 shares
(with a cost of $7,700,000 and a market value of $8,500,000 and $9,400,000,
respectively) of the Company's Class A Common Stock that is specifically
identified to the retirement plan of FI. Any change in market value associated
with these shares is allocated entirely to the FI plan and does not effect the
Master Trust Allocated Assets.
Statement of Financial Accounting Standards No. 87 "Employers' Accounting
For Pensions" ("Statement No. 87") requires recognition on the balance sheet of
a minimum liability at least equal to the excess of the accumulated benefit
obligation over plan assets. A corresponding amount is recognized as either an
intangible asset or a reduction of equity. Accordingly, the Company, at December
31, 1995, has recorded an intangible asset of $2,100,000, an additional
liability of $2,700,000 and a reduction in equity of $600,000 to reflect the
balance sheet provisions of Statement No. 87 relative to certain unfunded
nonqualified pension plans.
38
<PAGE> 41
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPRECIATION EXPENSE
Depreciation expense, including amortization of capital leases,
approximated $125,500,000, $107,600,000 and $84,300,000 in 1995, 1994 and 1993,
respectively.
ADVERTISING EXPENSE
Advertising, which is expensed as incurred, approximated $72,000,000,
$70,800,000 and $52,800,000 in 1995, 1994 and 1993, respectively.
INCOME TAXES
Income taxes are included in the Consolidated Statement of Operations as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Income tax (benefit) expense on earnings before extraordinary
item and cumulative effect of change in accounting
principles................................................... $(19,400) $73,200 $154,300
Extraordinary item............................................. -- -- (4,700)
Cumulative effect of change in accounting principles:
Pre-operating costs.......................................... (1,900) -- --
Income taxes................................................. -- -- (3,400)
------- -------- --------
Total income tax (benefit) expense............................. $(21,300) $73,200 $146,200
======= ======== ========
</TABLE>
Included in earnings (loss) before extraordinary items and cumulative
effect of change in accounting principles are foreign losses of $47,300,000 and
$15,500,000 in 1995 and 1994, respectively, and foreign earnings of $17,000,000
in 1993.
The components of income tax (benefit) expense related to earnings (loss)
before extraordinary item and cumulative effect of change in accounting
principles were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $ 17,000 $73,600 $111,100
State....................................... 15,200 6,100 10,100
Foreign..................................... (1,100) 1,100 2,900
------- -------- --------
Total current.......................... 31,100 80,800 124,100
------- -------- --------
Deferred:
Federal..................................... (38,800) (7,400) 28,500
State....................................... (11,200) (200) 1,800
Foreign..................................... (500) -- (100)
------- -------- --------
Total deferred......................... (50,500) (7,600) 30,200
------- -------- --------
Total.................................. $(19,400) $73,200 $154,300
======= ======== ========
</TABLE>
39
<PAGE> 42
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
The income tax rate on earnings (loss) before extraordinary item and
cumulative effect of change in accounting principles differed from the Federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................ (35.0)% 35.0% 35.0%
Impairment writedown of goodwill...................... 11.1 -- --
Foreign operating losses.............................. 6.1 4.1 --
Goodwill amortization................................. 4.4 7.9 2.5
Interest on prior years' taxes........................ 2.1 5.2 2.1
State income taxes, net of Federal tax benefit........ 1.1 2.9 2.1
Other-net............................................. 2.3 (.3) .3
---- ---- ----
Effective rate................................. (7.9)% 54.8% 42.0%
==== ==== ====
</TABLE>
Deferred income taxes are provided for temporary differences between income
tax and financial statement recognition of revenues and expenses. Deferred tax
liabilities (assets) are comprised of the following (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
Depreciation and amortization........................ $ 139,800 $ 120,600
Items includible in future tax years................. 51,500 39,700
-------- ---------
Gross deferred tax liabilities..................... 191,300 160,300
-------- ---------
Inventory valuation reserves......................... (29,600) (27,900)
Accrued employee benefit expenses.................... (32,500) (23,200)
Acquired tax benefits and basis differences.......... (51,700) (14,800)
Allowance for possible losses on receivables......... (6,300) (6,200)
Items deductible in future tax years................. (80,000) (44,800)
-------- ---------
Gross deferred tax assets.......................... (200,100) (116,900)
-------- ---------
Net deferred tax (asset) liability................. $ (8,800) $ 43,400
======== =========
</TABLE>
Effective January 1, 1993, the Company recorded the cumulative effect of a
change in accounting principle related to the initial adoption of Statement No.
109 resulting in a $3,400,000 ($.04 per share) benefit.
In 1993, the Company paid the IRS approximately $28,300,000 in settlement
of Federal income tax assessments for the tax periods ended December 31, 1984
and July 31, 1985 (the final predecessor tax periods). This amount included
approximately $14,800,000 of accrued interest. The Company had previously
established reserves for these matters and these payments did not have an impact
on the 1993 tax provision.
The IRS previously asserted income tax deficiencies, excluding statutory
interest which accrues from the date the tax was due until payment, for the
Company of approximately $93,000,000 for the years 1978-1980 and $15,400,000 for
the years 1981-1983. The Company had protested the IRS's asserted tax
deficiencies for these six years with respect to a number of issues and also had
raised certain affirmative tax issues that bear on these years. Settlement
agreements with respect to all the 1978-1980 and 1981-1983 protested and
affirmative issues resulted in the Company receiving a refund of approximately
$5,900,000, including interest, in January 1993.
In an unrelated matter, the IRS declined to seek United States Supreme
Court review of a decision by the United States Court of Appeals for the Third
Circuit which reversed a lower court ruling and directed the lower court to
order a refund to the Company of approximately $10,500,000 in Federal income
taxes collected from a predecessor of the Company, plus approximately
$49,400,000 in interest thereon applicable to the tax
40
<PAGE> 43
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONCLUDED)
years 1964-1968. The Company received the full refund of approximately
$60,000,000 in March 1992. However, in September 1992 the IRS issued a statutory
notice of deficiency in the amount of approximately $7,300,000 for the taxable
years from which the March 1992 refund arose, exclusive of interest which would
accrue from the date the IRS asserted the tax was due until payment, presently a
period of about 28 years. In October 1994, the United States Tax Court ruled in
favor of the Company in the above case. On January 5, 1996, the United States
Court of Appeals for the Seventh Circuit affirmed the decision of the United
States Tax Court. The IRS has a period of 90 days from the date of the decision
to petition for a review by the United States Supreme Court. The Company
believes, based on information currently available, that the IRS position is
without merit and that the Company will prevail should the IRS appeal and the
United States Supreme Court decide to hear the case.
Cash payments for income taxes were $32,700,000, $49,000,000 and
$137,500,000 in 1995, 1994 and 1993, respectively.
OTHER EXPENSE-NET
Other expense-net in 1995 includes $20,700,000 of charges to provide for
certain retained liabilities in connection with the prior sale of certain
discontinued operations and fees related to the modification of certain
agreements. See "SPECIAL CHARGES." Included in other expense-net in 1995, 1994
and 1993 was deferred debt fee amortization and bank fees of approximately
$5,700,000, $8,100,000 and $7,900,000, respectively. Other expense-net in 1995
includes $5,700,000 of gains as compared to $1,900,000 and $1,500,000 of expense
in 1994 and 1993, respectively, related to the settlement of certain foreign
currency denominated transactions. In addition, included in other expense-net in
1994 is $16,000,000 of service fee income from Gitano's operations which
represent Gitano's transition to a marketing service organization from a
traditional wholesaler base. These revenues did not recur after 1994 as Gitano
reverted to a traditional apparel wholesaler. In 1994, this service fee revenue
was partially offset by $12,500,000 of charges to provide for certain
obligations of and legal expenses pertaining to litigation related to retained
liabilities of former subsidiaries.
EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of
common shares and equivalents outstanding during the year.
RELATED PARTY TRANSACTIONS
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial management,
legal, tax, accounting, corporate development, human resource and personnel
advice; (ii) investment banking services in connection with the acquisition or
disposition of the assets or operations of a business or entity; (iii) financing
services in connection with the arrangement by FII of public or private debt
(including letter of credit facilities); and (iv) other financial, accounting,
legal and advisory services rendered outside the ordinary course of the
Company's business. FII is owned and controlled by Mr. Farley; its employees
provide services to companies owned or controlled by Mr. Farley, including the
Company. Certain of the executive officers of the Company are employed by, and
receive their compensation from, FII. These officers devote their time as needed
to those companies owned and controlled by Mr. Farley and, accordingly, do not
devote full time to any single company, including the Company.
In consideration for investment banking and financing services, the Company
pays FII fees established by FII and determined to be reasonable by FII in
relation to (i) the size and complexity of the transaction; and (ii) the fees
customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility.
41
<PAGE> 44
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
RELATED PARTY TRANSACTIONS -- (CONCLUDED)
Fees for investment banking and financing services are generally payable to FII
upon the closing of the subject transaction or agreement.
Effective January 1995, the Company entered into a new management agreement
(the "Management Agreement") with FII pursuant to which FII agreed to render
substantially similar services to the Company as under the prior management
agreements. Under the terms of the management agreement, the Company pays a fee
to FII based on FII's cost of providing management services. The Company paid
management fees to FII of approximately $8,100,000, $8,800,000 and $9,900,000 in
1995, 1994 and 1993, respectively. At December 31, 1994 approximately $600,000
was owed for management services related to 1994, which amount was paid in
February 1995. The Company also paid a financing fee to FII of approximately
$2,000,000 and $2,500,000 in 1995 and 1994, respectively, for financing services
related to 1994 and 1993, respectively, which costs were capitalized as deferred
financing costs in 1995 and 1994, respectively.
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green operations certain functions historically performed
by FII personnel. In connection with this effort, the Board of Directors
determined that the management agreement with FII should not be renewed for 1996
and that the general management functions previously performed by FII should be
assumed directly by the Company. Accordingly, effective January 1, 1996, the
Company severed its relationship with FII and by agreement with FII acquired
substantially all of the assets (exclusive of a cash balance at December 31,
1995 of approximately $1,500,000) used by FII in providing management services
to the Company and directly employed certain persons previously employed by FII
who provide such services.
Pursuant to a determination by the non-management members of the Board of
Directors, the Company agreed to pay $3,500,000 to FII in consideration of FII's
transfer to the Company of such assets and personnel and its release of
obligations to FII. The non-management members of the Board of Directors
determined that such payment was fair and reasonable to the Company, basing
their determination, in part, upon the anticipated cost savings to the Company
in 1996 and beyond from the integration of FII functions into the Company, the
cost of otherwise creating the workforce necessary to provide the management
services previously provided by FII and the assistance of FII in effecting the
transition of functions and personnel (including certain executive officers) to
the Company. The Company agreed to pay up to approximately $4,000,000 to FII in
1996, all of which relates to the severance of certain FII employees who were
not re-employed by the Company, including severance payments under certain
employment agreements that were guaranteed by the Company. The Company also
agreed to reimburse FII for any direct ordinary and reasonable costs and
expenses associated with the transition of management functions from FII into
the Company in 1996. The severance and asset purchase amounts were included in
the Company's special charge accrued in the fourth quarter of 1995. See "SPECIAL
CHARGES."
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company receives an annual
fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "CONTINGENT
LIABILITIES."
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated debentures
of the affiliate. In the fourth quarter of 1993, the Company received
approximately $72,900,000 from Acme Boot representing the entire unpaid
principal and liquidation preference (including accrued interest and dividends)
on its investment in the securities of the affiliate. The Company recorded a
pretax gain of approximately $67,300,000 in connection with the investment in
Acme Boot upon the receipt of the above mentioned proceeds. See "CONTINGENT
LIABILITIES."
42
<PAGE> 45
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
1995
Net sales............................... $528.2 $724.8 $641.3 $ 508.8 $2,403.1
Gross earnings (loss)................... 162.0 211.0 190.9 (46.5) 517.4
Operating earnings (loss)............... 59.7 102.6 81.9 (352.3) (108.1)
Earnings (loss) before cumulative effect
of change in accounting principle..... 16.5 39.7 24.5 (308.0)(2) (227.3)
Net earnings (loss)..................... 11.3(1) 39.7 24.5 (308.0) (232.5)
Earnings (loss) per common share before
cumulative effect of change in
accounting principle.................. .22 .52 .32 (4.05) (2.99)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
1994
Net sales............................... $438.2 $635.2 $640.4 $ 584.0 $2,297.8
Gross earnings.......................... 145.8 190.8 201.5 108.4 646.5
Operating earnings (loss)............... 66.7 91.5 98.4 (21.6)(3) 235.0
Net earnings (loss)..................... 25.1 38.7 40.2 (43.7) 60.3
Net earnings (loss) per common share.... .33 .51 .53 (.58) .79
</TABLE>
- -------------------------
(1) Effective January 1, 1995, the Company recorded the cumulative effect of a
change in accounting principle related to the Company's decision to adopt a
more conservative position as a result of changes in its business and to
expense pre-operating costs as incurred resulting in an after tax charge of
$5.2 ($.07 per share).
(2) Includes pretax charges of $372.9 ($287.4 after tax) related to impairment
writedowns of goodwill, costs associated with the closing or realignment of
certain domestic manufacturing facilities and attendant personnel reductions
and charges related to inventory writedowns and valuations, foreign
operations and other corporate issues.
(3) Includes pretax charges of approximately $40 to write inventories down to
net realizable value and a pretax charge of $18 related to the write-off of
Artex intangibles.
43
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
William Farley................ 53 Chairman of the Board and Chief Executive Officer
John B. Holland(1)............ 63 President and Chief Operating Officer
Richard C. Lappin(2).......... 51 Vice-Chairman of the Board
Richard M. Cion............... 52 Senior Executive Vice President -- Corporate Development
Larry K. Switzer.............. 52 Executive Vice President and Chief Financial Officer
Michael F. Bogacki............ 41 Vice President and Controller
Burgess D. Ridge.............. 51 Vice President -- Administration
Earl C. Shanks................ 39 Vice President and Treasurer
</TABLE>
- -------------------------
(1) Mr. Holland retired as President and Chief Operating Officer at the end of
January 1996.
(2) Mr. Lappin was appointed to the additional posts of President and Chief
Operating Officer at the end of January 1996.
Officers serve at the discretion of the Board of Directors. Messrs. Lappin,
Cion, Switzer, Bogacki, Ridge and Shanks were employed by FII, which provided
management services to companies owned or managed by Mr. Farley. Effective
January 1, 1996, the FII Management Agreement was terminated and the functions
previously performed by FII began to be performed directly by the Company. See
"ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Certain of the
executive officers, as noted below, are also executive officers of FI and were
executive officers of VBQ, Inc. ("VBQ"), formerly a defense contractor and an
affiliate of FI. Certain of the executive officers, as noted below, were also
executive officers of Valley Fashions Corp. (formerly West Point Acquisition
Corp. and currently West Point Stevens, Inc.). During 1992, FI and Valley
Fashions Corp. emerged from bankruptcy proceedings and VBQ became the subject of
a Chapter 7 liquidation.
WILLIAM FARLEY. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. Mr. Farley has also been
Chairman and a director of Acme Boot for more than the past five years. During
the past five years, Mr. Farley has also been Chairman and Chief Executive
Officer of FII. He has held substantially similar positions with FI since 1982,
VBQ from 1984 until January 1992, West Point-Pepperell, Inc. ("West Point") from
April 1989 until October 1992 and Valley Fashions Corp. from March 1989 until
October 1992.
JOHN B. HOLLAND. Mr. Holland has been a director of the Company since
November 1992 and President of the Company since May 1992. Mr. Holland has
served as Chief Operating Officer of the Company for more than the past five
years. Mr. Holland served as Vice Chairman of West Point from April 1989 until
September 1992 and as a director of West Point from April 1989 until September
1992. Mr. Holland is also a director of Dollar General Corp. and Camping World,
Inc.
RICHARD C. LAPPIN. Mr. Lappin has been a director of the Company since
December 1990 and Vice Chairman of the Company since October 1991. Mr. Lappin
has been Vice Chairman and Chief Executive Officer of Acme Boot since February
1991 and a director of Acme Boot since December 1993. Mr. Lappin has been
President and Chief Operating Officer of FII since February 1991.
44
<PAGE> 47
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- (CONCLUDED)
RICHARD M. CION. Mr. Cion has been Senior Executive Vice President of the
Company, FII and Acme Boot since before 1991 and of West Point from February
1990 until October 1992. Mr. Cion was also a director of West Point from April
1989 until October 1992. Mr. Cion served as a director of Valley Fashions Corp.
from April 1989 until June 1992. Mr. Cion was also Senior Executive Vice
President of Valley Fashions Corp. from March 1992 until October 1992.
LARRY K. SWITZER. Mr. Switzer has been Executive Vice President and Chief
Financial Officer of the Company, FII and FI since May 1994. From September 1992
to March 1993 Mr. Switzer was Executive Vice President and Chief Financial
Officer of Alco Standard Corporation, a distributor of paper products, office
equipment and supplies. Mr. Switzer was Senior Vice President and Chief
Financial Officer of S.C. Johnson & Son, Inc., a manufacturer and marketer of
consumer home care and commercial chemical products, from before 1991 to August
1992.
MICHAEL F. BOGACKI. Mr. Bogacki has served as Vice President and Corporate
Controller of the Company, FII and FI since before 1991 and as a Vice President
of Acme Boot since February 1991. In June 1991, Mr. Bogacki was appointed
Assistant Secretary of the Company. Mr. Bogacki was Corporate Controller of
Valley Fashions Corp. from March 1989 until November 1992. Mr. Bogacki was also
Vice President of Valley Fashions Corp. from June 1991 until November 1992.
BURGESS D. RIDGE. Mr. Ridge was Assistant Treasurer of the Company, FII and
FI from before 1991 until October 1991. Mr. Ridge was appointed Vice President
- -- Administration of FII and FI in August 1991 and of the Company in October
1991.
EARL C. SHANKS. Mr. Shanks served as Vice President -- Taxes and Assistant
Secretary of the Company, FII and FI from before 1991 until June 1991. In June
1991, Mr. Shanks became Treasurer of the Company, FII, Acme Boot and FI. Mr.
Shanks was Vice President and Assistant Secretary of West Point from April 1989
until November 1992. Mr. Shanks served as Vice President -- Taxes and Assistant
Secretary of Valley Fashions Corp. from March 1989 until June 1991. Mr. Shanks
was Vice President and Treasurer of Valley Fashions Corp. from June 1991 until
November 1992. During the past five years Mr. Shanks has been a Vice President
of Acme Boot. Mr. Shanks was Vice President -- Taxes of VBQ from before 1991 to
January 1992.
Information relating to the directors of the Company is set forth in the
Registrant's proxy statement for its Annual Meeting of Stockholders to be held
on May 14, 1996 (the "Proxy Statement") to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial owners
and management is set forth in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial management,
legal, tax, accounting, corporate development, human resource and personnel
advice; (ii) investment banking services in connection with the acquisition or
disposition of the assets or operations of any business or entity; (iii)
financing services in connection with the arrangement by
45
<PAGE> 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- (CONTINUED)
FII of public or private debt (including letter of credit facilities); and (iv)
other financial, accounting, legal and advisory services rendered outside the
ordinary course of the Company's business. FII is owned and controlled by Mr.
Farley; its employees provide services to companies owned or controlled by Mr.
Farley, including the Company. Certain of the executive officers of the Company
are employed by, and receive their compensation from, FII. These officers devote
their time as needed to those companies owned and controlled by Mr. Farley and,
accordingly, do not devote full time to any single company, including the
Company.
In consideration for investment banking and financing services, the Company
pays FII fees established by FII and determined to be reasonable by FII in
relation to (i) the size and complexity of the transaction; and (ii) the fees
customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility. Fees for investment banking and financing services are generally
payable to FII upon the closing of the subject transaction or agreement.
Effective January 1995, the Company entered into the Management Agreement
with FII pursuant to which FII agreed to render substantially similar services
to the Company as under the prior management agreements. Under the terms of a
management agreement, the Company pays a fee to FII based on FII's cost of
providing management services. The Company paid management fees to FII of
approximately $8,100,000, $8,800,000 and $9,900,000 in 1995, 1994 and 1993,
respectively. At December 31, 1994 approximately $600,000 was owed for
management services related to 1994, which amount was paid in 1995. The Company
also paid a financing fee to FII of approximately $2,000,000 and $2,500,000 in
1995 and 1994, respectively, for financing services related to 1994 and 1993,
respectively, which costs were capitalized as deferred financing costs in 1995
and 1994, respectively.
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green operations certain functions historically performed
by FII personnel. In connection with this effort, the Board of Directors
determined that the management agreement with FII should not be renewed for 1996
and that the general management functions previously performed by FII should be
assumed directly by the Company. Accordingly, effective January 1, 1996, the
Company severed its relationship with FII and by agreement with FII acquired
substantially all of the assets (exclusive of a cash balance at December 31,
1995 of approximately $1,500,000) used by FII in providing management services
to the Company and directly employed certain persons previously employed by FII
who provide such services.
Pursuant to a determination by the non-management members of the Board of
Directors, the Company agreed to pay $3,500,000 to FII in consideration of FII's
transfer to the Company of such assets and personnel and its release of
obligations to FII. The non-management members of the Board of Directors
determined that such payment was fair and reasonable to the Company, basing
their determination, in part, upon the anticipated cost savings to the Company
in 1996 and beyond from the integration of FII functions into the Company, the
cost of otherwise creating the workforce necessary to provide the management
services previously provided by FII and the assistance of FII in effecting the
transition of functions and personnel (including certain executive officers) to
the Company. The Company has agreed to pay up to approximately $4,000,000 to FII
in 1996, all of which relates to the severance of certain FII employees who were
not re-employed by the Company, including severance payments under certain
employment agreements that were guaranteed by the Company. The Company also
agreed to reimburse FII for any direct ordinary and reasonable costs and
expenses associated with the transition of management functions from FII into
the Company in 1996. The severance and asset purchase amounts were included in
the Company's special charge accrued in the fourth quarter of 1995.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee, the Company receives an annual
fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second
46
<PAGE> 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- (CONCLUDED)
lien on certain shares of the Company held by the bank for other loans made to
Mr. Farley. See "CONTINGENT LIABILITIES" in the Notes to Consolidated Financial
Statements.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated debentures
of the affiliate. In the fourth quarter of 1993, the Company received
approximately $72,900,000 from Acme Boot representing the entire unpaid
principal and liquidation preference (including accrued interest and dividends)
on its investment in the securities of the affiliate. The Company recorded a
pretax gain of approximately $67,300,000 in connection with the investment in
Acme Boot upon the receipt of the above mentioned proceeds. See "CONTINGENT
LIABILITIES" in the Notes to Consolidated Financial Statements.
Information relating to certain relationships and related transactions is
set forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and is hereby incorporated by reference.
47
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedule and exhibits
1. Financial Statements
The financial statements listed in the Index to Financial Statements and
Supplementary Data on page 16 are filed as part of this Annual Report.
2. Financial Statement Schedule
The schedule listed in the Index to Financial Statements and Supplementary
Data on page 16 is filed as part of this Annual Report.
3. Exhibits
The exhibits listed in the Index to Exhibits on pages 51 and 52 are filed
as part of this Annual Report.
(b) Reports on Form 8-K
In December 1995 the Company filed a Current Report on Form 8-K dated
December 20, 1995 reporting the announcement of fourth quarter charges to
operations.
48
<PAGE> 51
ALTERNATE
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 the City of
Chicago, State of Illinois, on March 28, 1996.
FRUIT OF THE LOOM, INC.
By: LARRY K. SWITZER
--------------------------------------
(Larry K. Switzer
Executive Vice President and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 28, 1996.
<TABLE>
<CAPTION>
NAME CAPACITY
- ------------------------------------------ ----------------------------------------------
<C> <S>
/s/ WILLIAM FARLEY Chairman of the Board and Chief Executive
- ------------------------------------------ Officer (Principal Executive Officer) and
(William Farley) Director
/s/ LARRY K. SWITZER Executive Vice President and Chief Financial
- ------------------------------------------ Officer (Principal Financial Officer)
(Larry K. Switzer)
/s/ MICHAEL F. BOGACKI Vice President and Controller (Principal
- ------------------------------------------ Accounting Officer)
(Michael F. Bogacki)
/s/ OMAR Z. AL ASKARI Director
- ------------------------------------------
(Omar Z. Al Askari)
/s/ DENNIS S. BOOKSHESTER Director
- ------------------------------------------
(Dennis S. Bookshester)
/s/ JOHN B. HOLLAND Director
- ------------------------------------------
(John B. Holland)
/s/ LEE W. JENNINGS Director
- ------------------------------------------
(Lee W. Jennings)
/s/ HENRY A. JOHNSON Director
- ------------------------------------------
(Henry A. Johnson)
/s/ RICHARD C. LAPPIN Director
- ------------------------------------------
(Richard C. Lappin)
/s/ A. LORNE WEIL Director
- ------------------------------------------
(A. Lorne Weil)
/s/ SIR BRIAN G. WOLFSON Director
- ------------------------------------------
(Sir Brian G. Wolfson)
</TABLE>
<PAGE> 52
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------------------- BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
DESCRIPTION: OF PERIOD COSTS AND EXPENSE OTHER ACCOUNTS(1) DEDUCTIONS(2) OF PERIOD
- ----------------------------- ---------- ------------------ ----------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Reserves deducted from assets
to which they apply:
Accounts receivable
allowances:
Doubtful accounts.......... $ 12,000 $ 13,200 $ 2,700 $12,700 $ 15,200
Sales discounts, returns,
and allowances.......... 8,700 38,200 -- 35,500 11,400
------- ------- ------ ------- -------
$ 20,700 $ 51,400 $ 2,700 $48,200 $ 26,600
======= ======= ====== ======= =======
YEAR ENDED DECEMBER 31, 1994:
Reserves deducted from assets
to which they apply:
Accounts receivable
allowances:
Doubtful accounts.......... $ 12,500 $ 6,000 $ 1,100 $ 7,600 $ 12,000
Sales discounts, returns,
and allowances.......... 3,600 20,300 600 15,800 8,700
------- ------- ------ ------- -------
$ 16,100 $ 26,300 $ 1,700 $23,400 $ 20,700
======= ======= ====== ======= =======
YEAR ENDED DECEMBER 31, 1993:
Reserves deducted from assets
to which they apply:
Accounts receivable
allowances:
Doubtful accounts.......... $ 10,800 $ 4,100 $ 2,800 $ 5,200 $ 12,500
Sales discounts, returns,
and allowances.......... 3,500 3,600 -- 3,500 3,600
------- ------- ------ ------- -------
$ 14,300 $ 7,700 $ 2,800 $ 8,700 $ 16,100
======= ======= ====== ======= =======
</TABLE>
- -------------------------
(1) Recoveries of bad debts and, in 1994 and 1993, the effect of the
Acquisitions.
(2) Bad debts written off and allowances and discounts taken by customers.
50
<PAGE> 53
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(ITEM 14(A)(3) AND 14(C))
<TABLE>
<CAPTION>
DESCRIPTION
----------------------------------------------------------------------------------
<S> <C>
3(a)* -- Restated Certificate of Incorporation of the Company and Certificate of Amendment
of the Restated Certificate of Incorporation of the Company (incorporated herein
by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
3(b)* -- By-Laws of the Company (incorporated herein by reference to Exhibit 4(b) to the
Company's Registration Statement on Form S-2, Reg. No. 33-8303 (the "S-2")).
4(a)* -- $800,000,000 Credit Agreement dated as of August 16, 1993, among the several banks
and other financial institutions from time to time parties thereto (the
"Lenders"), Bankers Trust Company, a New York banking corporation, as
administrative agent for the Lenders thereunder, Chemical Bank, NationsBank N.A.
(Carolinas), The Bank of New York and the Bank of Nova Scotia, as co-agents
(incorporated herein by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3, Reg. No. 33-50567 (the "1993 S-3")).
4(b)* -- Subsidiary Guarantee Agreements dated as of August 16, 1993 by each of the
guarantors signatory thereto in favor of the beneficiaries referred to therein
(incorporated herein by reference to Exhibit 4.4 to the 1993 S-3).
4(c) -- Rights Agreement, dated as of March 8, 1996 between Fruit of the Loom, Inc. and
Chemical Mellon Shareholder Services, L.L.C., Rights Agent.
10(a)* -- Fruit of the Loom 1989 Stock Grant Plan dated January 1, 1989 (incorporated herein
by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988).
10(b)* -- Fruit of the Loom 1987 Stock Option Plan (incorporated herein by reference to
Exhibit 10(b) to the S-2).
10(c)* -- Fruit of the Loom Stock Option Agreement for Richard C. Lappin (incorporated
herein by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991).
10(d)* -- Fruit of the Loom 1992 Executive Stock Option Plan (incorporated herein by
reference to the Company's Registration Statement on Form S-8, Reg. No. 33-57472).
10(e)* -- Fruit of the Loom, Inc. Directors' Stock Option Plan (incorporated herein by
reference to the Company's Registration Statement on Form S-8, Reg. No. 33-50499).
10(f)* -- Fruit of the Loom, Inc. 1995 Non-Employee Directors' Stock Plan (incorporated by
reference to Exhibit B to the Company's Proxy Statement for its annual meeting on
May 16, 1995 (the "1995 Proxy Statement").
10(g)* -- Fruit of the Loom, Inc. 1995 Executive Incentive Compensation Plan (incorporated
herein by reference to Exhibit A to the 1995 Proxy Statement).
10(h)* -- Fruit of the Loom, Inc. Executive Incentive Compensation Plan (incorporated herein
by reference to Exhibit A to the Company's Proxy Statement for its annual meeting
on May 17, 1994).
10(i)* -- Guarantee of Payment dated as of June 27, 1994 by Fruit of the Loom, Inc. and
NationsBank of Florida N.A. (incorporated herein by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
(the "10-Q")).
10(j) -- Guarantee of Corporation dated as of January 15, 1996 by Fruit of the Loom, Inc.
and NationsBank N.A. (South), formerly known as NationsBank of Georgia, N.A.
10(k)* -- Stock Pledge Agreement dated as of June 27, 1994 between William F. Farley and
Fruit of the Loom, Inc. (incorporated herein by reference to Exhibit 10(b) to the
10-Q).
10(l) -- Asset purchase and transitional services agreement between Farley Industries, Inc.
and Fruit of the Loom, Inc.
</TABLE>
- -------------------------
See footnote on following page.
51
<PAGE> 54
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS -- (CONCLUDED)
(ITEM 14(A)(3) AND 14(C))
<TABLE>
<CAPTION>
DESCRIPTION
----------------------------------------------------------------------------------
<S> <C>
10(m)* -- Employment Agreement between Fruit of the Loom, Inc. and William Farley
(incorporated herein by reference to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (the "1994 10-K")).
10(n)* -- Employment Agreement between Fruit of the Loom, Inc. and John B. Holland
(incorporated herein by reference to Exhibit 10(k) to the Company's 1994 Form
10-K.
10(o)* -- Employment Agreement between Farley Industries, Inc., Fruit of the Loom, Inc. and
Richard C. Lappin (incorporated herein by reference to Exhibit 10(l) to the
Company's 1994 Form 10-K.
10(p)* -- Employment Agreement between Farley Industries, Inc., Fruit of the Loom, Inc. and
Richard M. Cion (incorporated herein by reference to Exhibit 10(m) to the
Company's 1994 10-K.
10(q)* -- Employment Agreement between Farley Industries, Inc., Fruit of the Loom, Inc. and
Larry K. Switzer (incorporated herein by reference to Exhibit 10(o) to the
Company's 1994 10-K.
10(r) -- Credit Agreement among Acme Boot Company, Inc., as borrower, Fruit of the Loom,
Inc., Acme Boot Retail Co., Inc. and Acme Footwear Company, Inc., as guarantors,
the Lenders identified herein and NationsBank, N.A., (Carolinas), as agent, dated
as of April 19, 1995.
11 -- Computation of Earnings Per Common Share.
22 -- Subsidiaries of the Company.
24 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule.
</TABLE>
- -------------------------
* Document is available at the Public Reference Section of the Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 (Commission file #1-8941).
The Registrant has not listed or filed as Exhibits to this Annual Report
certain instruments with respect to long-term debt representing indebtedness of
the Company and its subsidiaries which do not individually exceed 10% of the
total assets of the Registrant and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to
furnish such instruments to the Securities and Exchange Commission upon request.
52
<PAGE> 1
EXHIBIT 4(C)
- -------------------------------------------------------------------------------
FRUIT OF THE LOOM, INC.
and
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
Rights Agreement
Dated as of March 8, 1996
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Issuance of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Transfer, Split-Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . 10
Section 8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 9. Availability of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . . . . . . . . . . . . . 14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . 21
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . . . . 22
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . . 27
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 29. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 30. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 31. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 32. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 33. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C> <C>
Exhibit A - Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of FRUIT OF THE LOOM, INC. . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Form of Series A Rights Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Form of Series B Rights Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Summary of Rights to Purchase Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of March 8, 1996, between FRUIT OF THE LOOM, INC.,
a Delaware corporation (the "Company"), and CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C., a New York limited liability company (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Series A Right") for each
Common Share (as hereinafter defined) of the Company outstanding on March 22,
1996 (the "Record Date"), each Series A Right representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Series A Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined). The Series A Rights and the
terms hereof obligate the Company to issue Series B Rights (as hereinafter
defined) and other securities to holders of valid Series A Rights under certain
circumstances.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the Common Shares of the
Company then outstanding, but shall not include (i) the Company, (ii)
any Subsidiary (as such term is hereinafter defined) of the Company,
(iii) any employee benefit plan of the Company or any Subsidiary of
the Company, (iv) any entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan, or (v) any
"Farley Affiliate" (which shall have the same meaning in this
Agreement as provided in the Company's Restated Certificate of
Incorporation). Notwithstanding the foregoing, no Person shall become
an "Acquiring Person" as the result of (a) an acquisition of Common
Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the
Company then outstanding or (b) the acquisition by such Person of
newly issued Common Shares directly from the Company (it being
understood that a purchase from an underwriter or other intermediary
is not directly from the Company); provided, however, that if a Person
shall become the Beneficial Owner of 15% or more of the Common Shares
of the Company then outstanding by reason of share purchases by the
Company or the receipt of newly-issued Common Shares directly from the
Company and shall, after such share purchases or direct issuance by
the Company, become the Beneficial Owner of any additional Common
Shares of the Company, then
<PAGE> 5
such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be
an "Acquiring Person", as defined pursuant to the foregoing provisions
of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as
defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be an "Acquiring Person" for
any purposes of this Agreement. The term "Incumbent Board of
Directors" shall mean those individuals who, as of the date hereof,
constitute the Board.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has (A) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group
members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, (x) securities
tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, (y) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering
Event or (z) securities issuable upon exercise of Rights from
and after the occurrence of a Triggering Event which Rights
were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or
pursuant to Section 3(a) or Section 22 hereof (the "Original
Rights") or, with respect to Series B Rights, pursuant to the
exercise or exchange of valid Series A Rights under Section
11(a)(ii) or Section 24(b) hereof; or (B) the sole or shared
right to vote or dispose pursuant to any agreement,
arrangement or understanding; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement
or understanding to vote such security (1) arises solely from
a revocable proxy or consent given to such Person in response
to a public proxy or consent solicitation
2
<PAGE> 6
made pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange
Act (or any comparable or successor report); or (C) has
"beneficial ownership" of (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Exchange
Act); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding, whether written or oral (other than customary
agreements with and between underwriters and selling group
members with respect to a bona fide public offering of
securities), for the purpose of acquiring, holding, voting
(except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used
with reference to a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
own beneficially hereunder.
(d) "Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in Illinois
are authorized or obligated by law or executive order to close.
(e) "Class A Shares" when used with reference to the
Company, shall mean shares of Class A Common Stock, $.01 par value, of
the Company, but when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) of such
other Person with the greatest voting power, or the equity securities
or other equity interest having power to control or direct the
management of such Person.
(f) "Class B Shares" shall mean shares of Class B Common
Stock, $.01 par value, of the Company.
(g) "Close of Business" on any given date shall mean 5:00
P.M., Chicago, Illinois time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5:00 P.M., Chicago,
Illinois time, on the next succeeding Business Day.
(h) "Common Shares" when used with reference to the
Company shall mean the Class A Shares and Class B Shares, taken
together. "Common Shares" when used with reference to any Person
other than the Company shall mean the capital stock (or equity
interest) of such other Person with the greatest voting power, or the
equity
3
<PAGE> 7
securities or other equity interest having power to control or direct
the management of such Person.
(i) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of
the Board, who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or a representative of an Acquiring
Person or of any such Affiliate or Associate, and was a member of the
Board prior to the date of this Agreement, or (ii) any Person who
subsequently becomes a member of the Board, while such Person is a
member of the Board, who is not an Acquiring Person, or an Affiliate
or Associate of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, if such
Person's nomination for election or election to the Board is
recommended or approved by a majority of the Continuing Directors.
(j) "Distribution Date" shall have the meaning set forth
in Section 3 hereof.
(k) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(l) "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.
(m) "Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or
otherwise) of such entity.
(n) "Preferred Shares" shall mean shares of Series A
Junior Participating Preferred Stock, par value $.01 per share, of the
Company having the rights and preferences set forth in the Form of
Certificate of Designations attached to this Agreement as Exhibit A.
(o) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(p) "Rights," unless otherwise expressly provided, shall
mean both the Series A Rights and Series B Rights.
(q) "Section 11(a)(ii) Event" shall mean an event
described in Section 11(a)(ii) hereof.
(r) "Series B Rights" shall mean the Rights evidenced by a
Certificate in the form of Exhibit B attached hereto which the Company
is obligated to issue upon the occurrence of a Section 11(a)(ii) Event
or any of the events described in Section 24(a) hereof.
4
<PAGE> 8
(s) "Shares Acquisition Date" shall mean the first date of
public announcement (which for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d)
under the Exchange Act, by the Company or an Acquiring Person that an
Acquiring Person has become such.
(t) "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
(u) "Triggering Event" shall mean a Section 11(a)(ii)
Event or an event described in Section 13(a) hereof.
Whenever a determination of the percentage of outstanding shares held
by a Person or any other fact or circumstance is required for purposes of
deciding whether a Person or entity is or is not one of the items defined in
this Section 1, the decision of the Company's Board of Directors regarding such
fact or circumstance shall be final and binding upon the Company, the Rights
Agent, and all other Persons. The Company reserves the right to require, or
cause the Rights Agent to require, that Persons prove that Rights held by them
remain valid.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, with respect to the Series A Rights, in accordance with
Section 3 hereof, shall prior to the Distribution Date, also be the holders of
the Common Shares) in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such appointment. The Company may from time to
time appoint such co-Rights Agents as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the Close of Business on the
tenth day after the Shares Acquisition Date or (ii) the Close of
Business on the tenth Business Day (or such later date as may be
determined by action of the Board of Directors prior to such time as
any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, a Farley
Affiliate, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company or any person or
entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company, a
Farley Affiliate, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company or any person
or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan) to commence, a tender or
exchange offer the consummation of which would result in any Person
becoming the Beneficial Owner of Common Shares aggregating 15% or more
of the then outstanding Common Shares (including any such date which
is after the date of this Agreement and prior to the issuance of the
Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Series A
5
<PAGE> 9
Rights will be evidenced (subject to the provisions of Section 3(b)
hereof) by the Certificates for Common Shares registered in the names
of the holders thereof (which Certificates shall also be deemed to be
Series A Rights Certificates) and not by separate Series A Rights
Certificates, (y) the right to receive Series A Rights Certificates
will be transferable only in connection with the transfer of Common
Shares and (z) each transfer of Common Shares (including a transfer to
the Company) shall constitute a transfer of the Series A Rights
associated with such Common Shares. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares
as of the Close of Business on the Distribution Date, at the address
of such holder shown on the records of the Company, a Series A Rights
Certificate, in substantially the form of Exhibit B hereto (a "Series
A Rights Certificate"), evidencing one Series A Right for each Common
Share so held. As of the Distribution Date, the Series A Rights will
be evidenced solely by such Series A Rights Certificates. Under the
circumstances described in Sections 11(a)(ii) and 24 hereof, the
holders of valid Series A Rights certificates will be entitled to
receive Series B Rights Certificates from the Company, and
accordingly, in that sense, so long as the Series A Rights
Certificates are evidenced by certificates for Common Shares of the
Company, the Series B Rights will be evidenced by Certificates
evidencing ownership of Common Shares (including a transfer to the
Company) and shall be transferred with, and transferable only by, a
transfer of Common Shares (including a transfer to the Company). As
soon as practicable after (x) an exercise of Series A Rights after the
occurrence of a Section 11(a)(ii) Event or (y) an event described in
Section 24 hereof, the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares
as of the Close of Business on the Distribution Date, at the address
of such holder shown on the records of the Company, a Series B Rights
Certificate, in substantially the form of Exhibit C hereto (a "Series
B Rights Certificate"), evidencing Series B Rights issuable under such
circumstances as provided herein. As of such date, the Series B
Rights will be evidenced solely by such Series B Rights Certificate.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to
Purchase Preferred Shares, in substantially the form of Exhibit D
hereto (the "Summary of Rights"), by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such Certificates registered in the
names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the
Record Date, with or without a copy of the Summary of Rights
6
<PAGE> 10
attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common Shares
referred to in the last sentence of this paragraph (c)) after the
Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following
legend:
This Certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
FRUIT OF THE LOOM, INC. and CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C. dated as of March 8, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal
executive offices of FRUIT OF THE LOOM, INC. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate Certificates and will no
longer be evidenced by this Certificate. FRUIT OF THE LOOM,
INC. will mail to the holder of this Certificate a copy of the
Rights Agreement without charge after receipt of a written
request therefor. As described in the Rights Agreement,
Rights issued to any Person who becomes an Acquiring Person or
any Associate or Affiliate thereof (all as defined in the
Rights Agreement) shall become null and void.
With respect to such Certificates containing the foregoing legend,
until the Distribution Date, the Series A Rights associated with the
Common Shares represented by such Certificates shall be evidenced by
such Certificates alone, and the surrender for transfer of any such
Certificate shall also constitute the transfer of the Series A Rights
associated with the Common Shares represented thereby. In the event
that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed cancelled and retired so that
the Company shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Series A Rights Certificates and Series B Rights
Certificates (collectively the "Rights Certificates"), and the forms
of election to purchase and of assignment to be printed on the reverse
thereof, shall be substantially the same as Exhibit B and Exhibit C
hereto, respectively, and may have such marks of identification or
designation and such legends, summaries or endorsements printed
thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may
7
<PAGE> 11
be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or
to conform to usage. Subject to the terms, provisions and
restrictions elsewhere herein, the Rights Certificates shall entitle
the holders thereof to purchase such number of one one-hundredths of a
Preferred Share as shall be set forth therein at the price per one
one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a)
or Section 22 hereof that represents Rights beneficially owned by:
(i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or
understanding, whether written or oral, regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company
has determined in good faith is part of a plan, arrangement or
understanding, whether written or oral, which has as a primary purpose
or effect avoidance of the second paragraph of Section 11(a)(ii)
hereof, and any Rights Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment
of any other Rights Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Rights Certificate and the Rights represented hereby may
become null and void in the circumstances specified in Section
11(a)(ii) of such Agreement.
The provisions of the second paragraph of Section 11(a)(ii) shall
apply whether or not any rights Certificate actually contains the foregoing
Legend.
Section 5. Countersignature and Registration. The Rights
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
8
<PAGE> 12
facsimile signature. The Rights Certificates shall be manually countersigned
by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights
Agent and issued and delivered by the Company with the same force and effect as
though the Person who signed such Rights Certificates had not ceased to be such
officer of the Company; and any Rights Certificate may be signed on behalf of
the Company by any Person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office, books for registration and transfer of the
Rights Certificates of each series issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates and
the date of each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 4(b), 14 and 24
hereof, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the earlier of the
Redemption Date or the Final Expiration Date, any Rights Certificate
or Rights Certificates (other than Series A Rights Certificates
representing Series A Rights that have become void pursuant to Section
11(a)(ii) hereof or that have been exchanged pursuant to Section 24
hereof) may be transferred, split-up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a
Preferred Share (or Class A Shares, other securities or property, as
the case may be) as the Rights Certificate or Rights Certificates
surrendered then entitle such holder to purchase. Any registered
holder desiring to transfer, split-up, combine or exchange any Rights
Certificate or Rights Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split-up,
combined or exchanged at the principal office of the Rights Agent.
Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the registered holder shall have
completed and signed the Certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon
the Rights Agent shall, subject to Sections 4 and 11(a)(ii) hereof,
countersign and deliver to the Person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to
cover any tax or
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<PAGE> 13
governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Rights Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate, if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Rights Certificate so
lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 11(a)(ii) hereof, the registered
holder of any valid Series A Rights Certificate may exercise the
Series A Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisability set
forth in Section 9(c) hereof) in whole or in part at any time after
the Distribution Date upon surrender of the Series A Rights
Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal office of
the Rights Agent, together with payment of the Purchase Price (as
defined below) for each one one-hundredth of a Preferred Share (or
Class A Shares, other securities, cash or other assets, as the case
may be) as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on March 21, 2006 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24
hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share to be issued upon exercise of a Right shall initially
be $90, shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (d) below.
(c) At any time after Series B Rights are purchased by or
distributed to holders of valid Series A Rights Certificates, a holder
of any valid Series B Rights Certificate may exercise the Series B
Rights evidenced thereby (except as otherwise provided herein) in
whole or in part upon surrender of the Series B Rights Certificate,
with the form of election to purchase on the reverse side thereof duly
executed, to the Rights Agent at the principal offices of the Rights
Agent, together with payment of the Purchase Price which is then in
effect for the Series A Rights (and if no Series A Rights remain
outstanding, the Purchase Price which would have been in effect had
the Series A Rights remained outstanding and all of the applicable
adjustments to the Purchase Price had been made) and shall receive
upon such exercise the number of one one-hundredths of Preferred
Shares (or Class A Shares, other securities, cash or other assets, as
the case may be)
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<PAGE> 14
which such exercising holder would have received had such holder
exercised Series A Rights at the time of exercise.
(d) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate on the reverse side of the Rights Certificate duly
executed, accompanied by payment of the Purchase Price for the shares
(or other securities or property, as the case may be) to be purchased
and an amount equal to any applicable transfer tax required to be paid
by the holder of such Rights Certificate in accordance with Section 9
hereof by wire transfer, certified check, cashier's check or money
order payable to the order of the Company, or such other payment
method reasonably required by the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares (or make available if the Rights Agent is the
transfer agent of the Preferred Shares) certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests or (B)
requisition from the depositary agent depositary receipts as provided
in Section 14(b) hereof, representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such
receipts shall be deposited by the transfer agent with the depositary
agent and the Company hereby directs the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company
or such other entity the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to
be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of
such Rights Certificate. In the event that the Company elects or is
obligated to issue other securities (including Class A Shares) of the
Company, pay cash and/or distribute other property pursuant to Section
11(a)(iii) hereof, the Company will make all arrangements necessary so
that such other securities, cash and/or property are available for
distribution by the Rights Agent, if and when appropriate.
(e) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby,
a new Rights Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Rights Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated
to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall have (i) except as set forth in
Section 7(h) below completed and signed the certificate contained in
the form of election to purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise, and
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<PAGE> 15
(ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
(g) Notwithstanding any statement to the contrary
contained in this Agreement or in any Rights Certificate, if the
Distribution Date or the Shares Acquisition Date shall occur prior to
the Record Date, the provisions of this Agreement, including (without
limitation) Sections 3 and 11(a)(ii), shall be applicable to the
Rights upon their issuance to the same extent such provisions would
have been applicable if the Record Date were the date of this
Agreement.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise, transfer,
split-up, combination or exchange shall, if surrendered to the Company or to
any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Rights Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Rights Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Rights Certificates to the
Company, or shall, at the written request of the Company, destroy such
cancelled Rights Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
Section 9. Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to
be reserved and kept available out of its authorized and unissued
Preferred Shares (and, following the occurrence of a Distribution
Date, out of its authorized and unissued Class A Shares and/or other
securities or out of its authorized and issued shares held in its
treasury), the number of Preferred Shares (or Class A Shares and/or
other securities, as the case may be) that will be sufficient to
permit the exercise in full of all outstanding Rights as provided in
this Agreement.
(b) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares
(or Class A Shares and/or other securities, as the case may be)
delivered upon exercise of Rights shall be, at the time of delivery of
the Certificates for such Preferred Shares (or Class A Shares and/or
other securities, as the case may be) (subject to any necessary
payment of the Purchase Price), duly and validly authorized and issued
and fully paid and nonassessable shares.
(c) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes
and charges which may be payable in respect of the issuance or
delivery of the Rights Certificates or of any Preferred Shares (or
Class A Shares and/or other securities, as the case may be) upon the
exercise of
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<PAGE> 16
Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the
Preferred Shares (or Class A Shares and/or other securities, as the
case may be) in a name other than that of, the registered holder of
the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for
Preferred Shares (or Class A Shares and/or other securities, as the
case may be) upon the exercise of any Rights until any such tax shall
have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such tax
is due.
(d) So long as the shares of Preferred Stock (and,
following the occurrence of a Distribution Date, Class A Shares and/or
other securities, as the case may be) issuable and deliverable upon
the exercise of the Rights may be listed on any inter-dealer quotation
system or national securities exchange, the Company shall use its best
efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.
(e) The Company shall use its best efforts to (i) file on
the appropriate form, as soon as practicable following the earliest
date after the first occurrence of a Section 11(a)(ii) Event on which
the consideration to be delivered by the Company upon exercise of the
Rights has been determined hereunder, a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to
the securities purchasable upon exercise of the Rights, (ii) cause
such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which
the Rights are no longer exercisable for such securities, and (B) the
Final Expiration Date. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days after the date set forth
in clause (i) of the first sentence of this Section 9(e), the
exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no
longer in effect. In addition, if the Company shall determine that a
registration statement is required following the Distribution Date,
the Company may temporarily suspend the exercisability of the Rights
until such time as a registration statement has been declared
effective. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall
not have been obtained, the exercise thereof shall not be permitted
under applicable law or a registration statement shall not have been
declared effective.
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Section 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares (or Class A Shares and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares (or Class A Shares and/or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon
which the Rights certificate evidencing such Rights was duly surrendered and
payment of the applicable Purchase Price (and any applicable transfer taxes)
was made (or Rights were duly surrendered in exchange for Class A Shares
pursuant to Section 24 hereof); provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares (or Class A
Shares and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares (or Class A Shares and/or
other securities, as the case may be) transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of Preferred Shares
(or Class A Shares and/or other securities, as the case may be) for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by and obtainable upon exercise of each Right, and the number of Rights
outstanding, are subject to adjustment from time to time as provided in
Sections 11 and 13 of this Agreement.
(a) (i) In the event the Company shall at
any time after the date of this Agreement (A) declare a
dividend on the Preferred Shares payable in Preferred Shares,
(B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of
Preferred Shares or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any
such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section
11(a), the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number
and kind of shares of capital stock issuable on such date,
shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive
the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to
such date and at a time when the Preferred Shares transfer
books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the
Company issuable upon exercise of
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<PAGE> 18
one Right. If an event occurs which would require adjustment
under both Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this
Agreement, in the event any Person shall become an Acquiring
Person, each holder of a valid Series A Right shall thereafter
have a right to receive, upon exercise thereof at a price
equal to the then current Purchase Price multiplied by the
number of one one-hundredths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of
this Agreement, and in lieu of Preferred Shares, (1) such
number of Class A Shares of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share
for which, a Right is then exercisable and dividing that
product by (y) 50% of the then current per share market price
of the Company's Class A Shares (determined pursuant to
Section 11(d) hereof) on the date of the occurrence of the
event described above, and (2) one Series B Right for each
valid Series A Right surrendered. In the event that any
Person shall become an Acquiring Person and the Rights shall
then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be
afforded by the Rights.
From and after the time when a Person becomes an
Acquiring Person (a "Section 11(a)(ii) Event") any Rights that
are or were acquired or beneficially owned by (i) any
Acquiring Person (or any Associate or Affiliate of such
Acquiring Person), (ii) a transferee of such Acquiring Person
(or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person became an Acquiring
Person or (iii) a transferee of such Acquiring Person (or of
any such Associate or Affiliate) who becomes a transferee
prior to or concurrently with the Acquiring Person's becoming
an Acquiring Person and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from
the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring
Person has any continuing agreement, arrangement or
understanding, whether written or oral, regarding the
transferred Rights or (B) a transfer which the Board of
Directors has determined in good faith is part of a plan,
arrangement or understanding, whether written or oral, which
has as a primary purpose or effect the avoidance of this
Section 11(a)(ii), shall each be void and any holder of such
Rights shall thereafter have no exercise or any other rights
whatsoever with respect to such Rights under any provision of
this Agreement or otherwise. No Rights Certificate shall be
issued pursuant to Section 3, this Section 11(a)(ii) or
Section 24 that represents Rights beneficially owned by an
Acquiring Person or any Associate or Affiliate thereof whose
Rights would be void pursuant to the preceding sentence; no
Rights Certificate shall be issued at any time upon the
transfer of any Rights
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<PAGE> 19
to an Acquiring Person or any Associate or Affiliate thereof
whose Rights would be void pursuant to the preceding sentence
or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Rights Certificate delivered to the Rights
Agent for transfer to an Acquiring Person, Associate or
Affiliate thereof whose Rights would be void pursuant to the
preceding sentence shall be cancelled.
(iii) In lieu of issuing Class A Shares of
the Company in accordance with Section 11(a)(ii) hereof, the
Company may, in the sole discretion of the Board of Directors,
elect to (and, in the event that the Board of Directors has
not exercised the exchange right contained in Section 24
hereof and there are not sufficient issued but not outstanding
and authorized but unissued Class A Shares to permit the
exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Company shall) take all such
action as may be necessary to authorize, issue or pay, upon
the exercise of the Rights, cash (including by way of a
reduction of the Purchase Price), property, other securities
or any combination thereof having an aggregate value equal to
the value of the Class A Shares of the Company which otherwise
would have been issuable pursuant to Section 11(a)(ii), which
aggregate value shall be determined by a majority of the Board
of Directors. For purposes of the preceding sentence, the
value of the Class A Shares shall be determined pursuant to
Section 11(d) hereof and the value of any equity securities
which a majority of the Board of Directors determines to be a
"common stock equivalent" (including the Preferred Shares, in
such ratio as the Board of Directors shall determine) shall be
deemed to have the same value as the Class A Shares. Any such
election by the Board of Directors must be made and publicly
announced within 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred. Following
the occurrence of the event described in Section 11(a)(ii), a
majority of the Board of Directors then in office may suspend
the exercisability of the Rights for a period of up to 60 days
following the date on which the event described in Section
11(a)(ii) shall have occurred to the extent that such
directors have not determined whether to exercise the
Company's right of election under this Section 11(a)(iii). In
the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the
Rights has been temporarily suspended.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares
(or shares having the same rights, privileges and preferences as the
Preferred Shares ("equivalent preferred shares")) or securities
convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a
conversion price per share, if a security convertible into Preferred
Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section
11(d)) on such record date,
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<PAGE> 20
the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall
be the number of Preferred Shares outstanding on such record date plus
the number of Preferred Shares which could be purchased at the current
per share market price for the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) and the denominator of which
shall be the number of Preferred Shares outstanding on such record
date plus the number of additional Preferred Shares and/or equivalent
preferred shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price
may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent. Preferred Shares owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights,
options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Shares
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation) of evidences of indebtedness or assets (other
than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Shares on such record date, less the
fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current per share market price of
the Preferred Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
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<PAGE> 21
(d) (i) For the purpose of any computation hereunder,
the "current per share market price" of any security (a "Security" for
the purpose of this Section 11(d)(i)) on any date shall be deemed to
be the average of the daily closing prices (determined as provided in
the next sentence) per share of such Security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior
to such date, and for the purpose of any computation under Section
11(a)(iii) hereof, the "current per share market price" of a Security
on any date shall be deemed to be the average of the daily closing
prices per share of such Security for the 30 consecutive Trading Days
immediately following such date; provided, however, that in the event
that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share
market price shall be appropriately adjusted to reflect the current
market price per share equivalent of such Security as if such
dividend, distribution, combination or reclassification has not been
declared. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the Nasdaq
National Market or, if the Security is listed or admitted for trading
on a national exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Security is listed
or admitted to trading, or, if the Security is not listed on the
Nasdaq National Market or listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by any other system then in use,
or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. The term
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is
not listed or admitted to trading on any national securities exchange,
a Business Day.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section
11(d)(i). If the Preferred Shares are not publicly traded, the
"current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the
Class A Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof), multiplied by
one hundred. If neither the Class A Shares nor the Preferred Shares
are publicly held or so listed or traded,
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<PAGE> 22
"current per share market price" shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall
be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security,
as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be
made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the date of the
expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to
Section 11(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Sections 11(a), 11(b) and 11(c), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of
one one-hundredths of a Preferred Share purchasable from time to time
hereunder upon exercise of the Rights all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and
11(c), each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
substitution for any adjustment in the number of one one-hundredths of
a Preferred Share purchasable upon the exercise of a
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<PAGE> 23
Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior
to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment
of the purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the
number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record
of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights
Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified
in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a Preferred
Share issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express
the Purchase Price and the number of one one-hundredths of a Preferred
Share which were expressed in the initial Rights Certificates issued
hereunder, without prejudice to the validity of such Rights
Certificate(s) or the application of the provisions hereof.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the
then par value, if any, of the Preferred Shares issuable upon exercise
of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Preferred
Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer
until the occurrence of such event the issuing to the holder of any
Right exercised after such record date of the Preferred Shares and
other capital stock or securities of the Company, if any, issuable
upon such exercise over and above the
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<PAGE> 24
Preferred Shares and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Shares, issuance wholly
for cash of any Preferred Shares at less than the current market
price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred
Shares or issuance of rights, options or warrants referred to in
Section 11(b), hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Shares Acquisition Date, the Company shall
(i) declare or pay any dividend on the Common Shares payable in Common
Shares or (ii) effect a subdivision, combination or consolidation of
the Common Shares (by reclassification or otherwise than by payment of
dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (i) the number of one one-hundredths of
a Preferred Share purchasable after such event upon proper exercise of
each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior
to such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding
immediately after such event, and (ii) each Common Share outstanding
immediately after such event shall have issued with respect to it that
number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided
for in this Section 11 shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or
consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Rights Certificate in accordance with
Section 25 hereof.
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<PAGE> 25
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) If, after the Shares Acquisition Date, directly or
indirectly, (w) the Company shall consolidate with, or merge with and
into, any other Person, (x) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be
the continuing or surviving corporation of such merger and, in
connection with such merger or consolidation all or part of the
outstanding Common Shares are changed into or exchanged for stock or
other securities of any other Person (or the Company) or cash or any
other property, or (y) the Company shall sell, mortgage or otherwise
transfer (or one or more of its Subsidiaries shall sell, mortgage or
otherwise transfer), in one or more transactions, assets or earning
power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person other
than the Company or one or more of its wholly-owned Subsidiaries,
then, and in each such case, (i) each holder of a Series A Right or
Series B Right (except as otherwise provided herein) shall thereafter
have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then
exercisable in accordance with the terms of this Agreement, and in
lieu of Preferred Shares, such number of validly authorized and
issued, fully paid, non-assessable and freely tradeable Class A Shares
of the Principal Party (as hereinafter defined) not subject to any
liens, encumbrances, rights of first refusal or other adverse claims,
as shall equal the result obtained by (A) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product
by (B) 50% of the then current per share market price of the Class A
Shares of the Principal Party (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger,
sale or transfer; (ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger, sale
or transfer all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to
refer to such Principal Party; and (iv) such Principal Party shall
take such steps (including, but not limited to, the reservation of a
sufficient number of its Class A Shares in accordance with Section 9
hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to the Class A Shares
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) In the case of any transaction described in
(w) or (x) of the first sentence of Section 13(a), the Person
that is the issuer of any securities into which Common Shares
of the Company are converted in such merger or consolidation,
and if no securities are so issued, the Person that is the
surviving entity of such merger or consolidation (including
the Company if applicable); and
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<PAGE> 26
(ii) in the case of any transaction described in
(y) of the first sentence in Section 13(a), the Person that is
the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case described in clauses (b)(i)
and (b)(ii): (1) if the Class A Shares of such Person are not at such
time and have not been continuously over the preceding 12-month period
registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary of another Person the Common Shares of
which is and has been so registered, "Principal Party" shall refer to
such other Person; (2) in case such Person is a Subsidiary, directly
or indirectly, or more than one person, the Common Shares of two or
more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Shares
having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or indirectly, by the
same person, the rules set forth in (1) and (2) above shall apply to
each of the chains of ownership having an interest in such joint
venture as if such party were a "Subsidiary" of both or all of such
joint venturers and the Principal Parties in each such chain shall
bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of
such interests.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party
shall have sufficient Class A Shares authorized to permit the full
exercise of the Rights and prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent
a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that,
as soon as practicable after the date of any consolidation, merger,
sale or transfer mentioned in paragraph (a) of this Section 13, the
Principal Party will:
(i) prepare and file a registration statement
under the Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate
form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all
times meeting the requirements of the Act) until the Final
Expiration Date;
(ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements
for registration on Form 10 under the Exchange Act; and
(iii) take such actions as may be necessary or
appropriate under the blue sky laws of the various states.
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<PAGE> 27
The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction
there are any rights, warrants, instruments or securities outstanding
or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The
provisions of this Section 13 shall similarly apply to successive
mergers, consolidations, sales or transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions
of Rights or to distribute Rights Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be
paid to the registered holders of the Rights Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount
in cash equal to the same fraction of the current market value of a
whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the principal national
securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by Nasdaq or such other system
then in use, or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the
Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions
of Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share) upon exercise of the Rights
or to distribute certificates which evidence fractional Preferred
Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are
not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Rights Certificates at
the time such Rights are exercised as
24
<PAGE> 28
herein provided an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For the purposes of this
Section 14(b), the current market value of a Preferred Share shall be
the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Distribution Date, the
Company shall not be required to issue fractions of Class A Shares
upon exercise of the Rights or to distribute Certificates which
evidence fractional shares of Common Stock. In lieu of fractional
Class A Shares, the Company may pay to the registered holders of
Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current
market value of one Class A Share. For purposes of this Section
14(c), the current market value of one Class A Share shall be the
closing price of one Class A Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Shares), may, in
his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Series A Rights
(and accordingly, any right to receive Series B Rights) will be
transferable only in connection with the transfer of the Common
Shares;
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<PAGE> 29
(b) after the Distribution Date with respect to the Series
A Rights, and after issuance with respect to the Series B Rights, the
Rights Certificates will be transferable only on the registry books of
the Rights Agent if surrendered at the principal office of the Rights
Agent, duly endorsed or accompanied by a proper instrument of transfer
and with appropriate forms and certificates fully executed;
(c) the Company and the Rights Agent may deem and treat
the Person in whose name the Rights Certificate (or, prior to the
Distribution Date, the associated Certificate for Common Shares) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Certificate for Common Shares
made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent
shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or any other Person as a result of
its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or
any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise
restraining performance of such obligation.
Section 17. Rights Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this
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<PAGE> 30
Agreement, including the costs and expenses of defending against any claim of
liability arising, directly or indirectly, therefrom.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Rights
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete
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<PAGE> 31
authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
Certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company and delivered to the Rights Agent; and
such Certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such Certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or
willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Rights Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements
and recitals are and shall be deemed to have been made by the Company
only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent)
or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof); nor shall it be responsible for
any breach by the Company of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor shall it be
responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11, 13,
23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual
notice that such change or adjustment is required); nor shall it by
any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any Preferred Shares (or Common
Shares and/or other securities, as the case may be) to be issued
pursuant to this agreement or any Rights Certificate or as to whether
any Preferred Shares (or Common Shares and/or other securities, as the
case may be) will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
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<PAGE> 32
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept, prior to the Shares Acquisition Date, instructions with
respect to the performance of its duties hereunder from any one of the
Chairman of the Board, the Chief Executive Officer, the President, any
Vice President, the Secretary or the Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any
such officer or for any delay in acting while waiting for those
instructions.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any
of the Rights or other securities of the Company, or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise
act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and thereafter be discharged from its duties
under this Agreement upon 30 days' notice in writing mailed to the Company and
to each transfer agent of the Common Shares or Preferred Shares by registered
or certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Rights
Certificate (who shall, with such notice, submit his Rights Certificate for
inspection by the Company), then the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent (other than the
Right Agent appointed hereunder), whether appointed by the Company or by such a
court, shall be a corporation organized and doing
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<PAGE> 33
business under the laws of the United States or any state of the United States
so long as such corporation is authorized to do business as a banking
institution and is authorized to exercise corporate trust or stock transfer
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Series A Rights (and accordingly the right to
receive Series B Rights) may be redeemed by action of the Board of
Directors pursuant to paragraph (b) of this Section 23 and shall not
be redeemed in any other manner. The Series B Rights when and if
issued shall not be redeemable in any manner at any time.
(b) The Board of Directors of the Company may, at its
option, at any time prior to such time as any Person becomes an
Acquiring Person, redeem all, but not less than all, of the then
outstanding Series A Rights at a redemption price of $.01 per Series A
Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption
Price");provided, however, if the Board of Directors of the Company
authorizes redemption of the Series A Rights on or after the date of a
change (resulting from a proxy or consent solicitation) in a majority
of the directors in office at the commencement of such solicitation if
any Person who is a participant in such solicitation has stated (or,
if upon the commencement of such solicitation, a majority of the Board
of Directors of the Company has determined in good faith) that such
Person (or any of its Affiliates or Associates) intends to take, or
may consider taking, any action which would result in such Person
becoming an Acquiring Person or which would cause the occurrence of a
Triggering Event, then for a period of 180 days following such date,
30
<PAGE> 34
there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such
Continuing Directors unless, concurrent with such solicitation, such
Person (or one or more of its Affiliates or Associates) is making a
cash tender offer pursuant to Schedule 14D-1 (or any successor form)
filed with the Securities and Exchange Commission for all outstanding
Common Shares not beneficially owned by such Person (or by its
Affiliates or Associates). The redemption of the Series A Rights by
the Board of Directors may be made effective at such time on such
basis and with such conditions as the Board of Directors in its sole
discretion may establish. If redemption of the Rights is to be
effective as of a future date, the Rights shall continue to be
exercisable, subject to Section 11(a)(ii) hereof, until the effective
date of the redemption, provided that nothing contained herein shall
preclude the Board of Directors from subsequently causing the Rights
to be redeemed at a date earlier than the previously scheduled
effective date of the redemption. The Company may, at its option, pay
the Redemption Price in cash, Common Shares (based on the current per
share market price of the Common Shares at the time of redemption) or
any other form of consideration deemed appropriate by the Board of
Directors.
(c) Immediately upon the action of the Board of Directors
of the Company ordering the redemption of the Series A Rights pursuant
to paragraph (b) of this Section 23 (or at the effective time of such
redemption established by the Board of Directors of the Company
pursuant to paragraph (b) of this Section 23), and without any further
action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall
be to receive the Redemption Price. The Company shall promptly give
public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect
the validity of such redemption. Within 10 days after such action of
the Board of Directors ordering the redemption of the Series A Rights
pursuant to paragraph (b) of this Section 23 or if later, the
effectiveness of the redemption of the rights pursuant to the last
sentence of paragraph (b), the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made.
The Company may, at its option, discharge all of its obligations with
respect to the Rights by (i) issuing a press release announcing the
manner of redemption of the Rights, (ii) depositing with a bank or
trust company having a capital and surplus of at least $100 million,
funds necessary for such redemption, in trust, to be applied to the
redemption of the Rights so called for redemption and (iii) arranging
for the mailing of the Redemption Price to the registered holders of
the Rights; then, and upon such action, all outstanding Rights
Certificates shall be null and void without further action by the
Company. Neither the Company nor any of its Affiliates or Associates
may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23
or in Section 24 hereof,
31
<PAGE> 35
and other than in connection with the purchase of Common Shares prior
to the Shares Acquisition Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Series A
Rights (which shall not include Series A Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for both (1)
Class A Shares at an exchange ratio of one Class A Share per Series A
Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof and
(2) Series B Rights at an exchange ratio of one Series B Right for
each Series A Right. Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time
after any Person (other than the Company, a Farley Affiliate, any
Subsidiary of the Company, any employee benefit plan of the Company or
any such Subsidiary, or any entity holding Common Shares for or
pursuant to the terms of any such plan), together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Series A Rights pursuant
to subsection (a) of this Section 24 and without any further action
and without any notice, the right to exercise such Series A Rights
shall terminate and the only right thereafter of a holder of such
Series A Rights shall be to receive (1) that number of Class A Shares
equal to the number of valid Series A Rights held by such holder, and
(2) that number of valid Series B Rights equal to the number of valid
Series A Rights held by such holder. The Company shall promptly give
public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their
last addresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each
such notice of exchange will state the method by which the exchange of
the Common Shares and Series B Rights for Series A Rights will be
effected and, in the event of any partial exchange, the number of
Series A Rights which will be exchanged. Any partial exchange shall
be effected pro rata based on the number of Series A Rights (other
than Series A Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Series A Rights.
(c) In any exchange pursuant to this Section 24, the
Company, at its option, may substitute Preferred Shares (or equivalent
preferred shares, as such term is defined in Section 11(b) hereof) for
Class A Shares exchangeable for Rights, at the initial rate of one
one-hundredth of a Preferred Share (or equivalent preferred share) for
each Class
32
<PAGE> 36
A Share, as appropriately adjusted to reflect adjustments in the
voting rights of the Preferred Shares pursuant to the terms thereof,
so that the fraction of a Preferred Share delivered in lieu of each
Class A Share shall have the same voting rights as one Class A Share.
(d) In the event that there shall not be sufficient Class
A Shares or Preferred Shares issued but not outstanding or authorized
but unissued to permit any exchange of Series A Rights as contemplated
in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Class A Shares or
Preferred Shares for issuance upon exchange of the Series A Rights.
(e) The Company shall not be required to issue fractions
of Common Shares or to distribute Certificates which evidence
fractional Common Shares. In lieu of such fractional Common Shares,
the Company shall pay to the registered holders of the Rights
Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of
the current market value of a whole Common Share. For the purposes of
this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant
to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any
dividend payable in stock of any class to the holders of its Preferred
Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii)
to offer to the holders of its Preferred Shares rights or warrants to
subscribe for or to purchase any additional Preferred Shares or shares
of stock of any class or any other securities, rights or options,
(iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or
more of its Subsidiaries to effect any sale or other transfer), in one
or more transactions, of 50% or more of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to, any other
Person, (v) to effect the liquidation, dissolution or winding up of
the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification
or otherwise), then, in each such case, the Company shall give to each
holder of a Rights Certificate, in accordance with Section 26 hereof,
a notice of such proposed action, which shall specify the record date
for such event, and the date of participation therein by the holders
of the Common Shares and/or Preferred Shares, if any such date is to
be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at
least 10 days prior
33
<PAGE> 37
to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, in
accordance with Section 26 hereof, a notice of the occurrence of such
event, which notice shall describe such event and the consequences of
such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
FRUIT OF THE LOOM, INC.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Thomas Watt
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time
to time supplement or amend this Agreement without the approval of any holders
of Rights Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with respect to the
Rights which the Company may deem necessary or desirable, any such supplement
or amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes
an
34
<PAGE> 38
Acquiring Person, this Agreement may only be amended in a manner which would
not adversely affect the interests of the holders of Rights (except the
interests of any Acquiring Person and its Affiliates and Associates), which
amendment shall be effective only if there are Continuing Directors and shall
require the concurrence of a majority of such Continuing Directors.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person or corporation other than the Company,
the Rights Agent and the registered holders of valid Rights Certificates (and,
prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of valid Rights Certificates (and, prior to the Distribution
Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
35
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
FRUIT OF THE LOOM, INC.
Attest:
<TABLE>
<S> <C>
By: /s/ Orrin Edidin By: /s/ Larry K. Switzer
------------------------------ --------------------------------------
Title: Assistance Secretary Title: Senior Executive Vice President
& Chief Financial Officer
</TABLE>
CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C.
Attest:
<TABLE>
<S> <C>
By: /s/ Thomas R. Watt By: /s/ Michael A. Nespoli
------------------------------ --------------------------------------
Title: Assistant Vice Title: Vice President
President
</TABLE>
36
<PAGE> 40
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
FRUIT OF THE LOOM, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
_____________________________________
FRUIT OF THE LOOM, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was adopted by the
Board of Directors of the Company as required by Section 151 of the General
Corporation Law at a meeting duly called and held on February 22, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of the Restated Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall initially be 1,500,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities or rights
issued by the Company convertible into Series A Preferred Stock and further
provided that the Board of Directors shall increase the number of shares
A-1
<PAGE> 41
constituting the Series A Preferred Stock to the extent necessary for the
Company to have available sufficient shares of such Series A Preferred Stock
available to fulfill all of the Company's obligations to holders of securities
and Rights of the Company.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to
the holders of Class A Common Stock, and Class B Common Stock, par
value $.01 per share of the Company (the "Class A Common Stock" and
"Class B Common Stock" respectively, collectively, the "Common
Stock"), and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds
legally available for the purpose, dividends payable when and as
dividends are declared on the Company's Common Stock in an amount,
subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, declared on the Company's
Common Stock (except as provided in the next sentence). In the event
the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on
the Common Stock.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of
the holders of Class A Common Stock of the Company, voting together
with the holders Class A Common Stock as a class.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Class A Common Stock and
any other capital stock of the Company having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
A-2
<PAGE> 42
(C) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Company in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth herein,
in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of Class A
Common Stock. In the event the Company shall at any time declare or pay any
dividend on the Class A Common Stock payable in shares of Class A Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Class A Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Class A Common Stock, then in each such case the aggregate
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Class A Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Class A Common Stock is changed or
exchanged. In the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Preferred Stock shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after
A-3
<PAGE> 43
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 8. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Company's Preferred Stock.
Section 9. Amendment. The Restated Certificate of Incorporation
of the Company shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Series A Preferred
Stock, voting together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its Chairman of the Board on this ____ day of
________________, 199__.
--------------------------
Chairman of the Board
A-4
<PAGE> 44
EXHIBIT B
Form of Series A Rights Certificate
Certificate No. A ____ _____ Series A Rights
NOT EXERCISABLE AFTER _______________, 200__ OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT, AND ARE VOIDABLE AND SUBJECT TO EXCHANGE ON THE TERMS SET FORTH
IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN THE SECOND
PARAGRAPH OF SECTION 11(A)(II) OF SUCH AGREEMENT.]*
Series A Rights Certificate
FRUIT OF THE LOOM, INC.
This certifies that ____________________, or registered assigns, is
the registered owner of the number of Series A Rights set forth above, each of
which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of _______________, 199__ (the
"Rights Agreement") between FRUIT OF THE LOOM, INC., a Delaware corporation
(the "Company"), and CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 p.m.,
Chicago, Illinois time on ________________, 200__ at the principal office of
the Rights Agent, or at the office of its successor as Rights Agent, one
one-hundredths of a fully paid nonassessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $90 per one one-hundredths of
a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Series A Rights Certificate with the Form of Election to Purchase duly
executed. The number of Series A Rights evidenced by this Series A Rights
Certificate (and the number of one one-hundredths of a Preferred Share which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth
__________________________________
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
B-1
<PAGE> 45
above, are the number and Purchase Price as of ________________, 199__, based
on the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-hundredths of a
Preferred Share which may be purchased upon the exercise of the Series A Rights
evidenced by this Series A Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Series A Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned offices of the Rights
Agent.
This Series A Rights Certificate, with or without other Series A
Rights Certificates, upon surrender at the principal office of the Rights
Agent, may be exchanged for another Series A Rights Certificate or Series A
Rights Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate number of Preferred Shares as the Series A
Rights evidenced by the Series A Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Series A
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Series A Rights Certificate or Series A
Rights Certificates for the number of whole Series A Rights not exercised.
Subject to the provisions of the Rights Agreement, the Series A Rights
evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for both (A) Preferred Shares or shares of the Company's Class A Common Stock,
par value $.01 per share, and (B) Series B Rights, on the terms set forth in
the Rights Agreement.
No fractional Preferred Shares will be issued upon the exercise of any
Series A Right or Series A Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredths of a Preferred Share, which may,
at the election of the Company, be evidenced by depositary receipts), but in
lieu thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Series A Rights Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Series A Rights evidenced by this Series A
Rights Certificate shall have been exercised as provided in the Rights
Agreement.
B-2
<PAGE> 46
This Series A Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _________________, 19__.
ATTEST: FRUIT OF THE LOOM, INC.
<TABLE>
<S> <C>
By:
- ------------------------------ -----------------------------
Countersigned:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By:
----------------------------------------
Authorized Signature
</TABLE>
B-3
<PAGE> 47
[FORM OF REVERSE SIDE OF SERIES A RIGHTS CERTIFICATE]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Series A Rights Certificate.)
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers unto ____________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
(Please print social security or other identifying number of transferee)
this Series A Rights Certificate, together with all interest therein, and does
hereby irrevocably constitute and appoint ___________________ Attorney, to
transfer the within Series A Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________________, 19__
___________________________________
Signature
Signature Guaranteed: _________________________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-4
<PAGE> 48
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as
such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of any such
Person.
Dated: _________________________, 19__
______________________________________
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change
whatsoever.
The signature must be guaranteed by an Eligible Guarantor
Institution as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-5
<PAGE> 49
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Series A Rights Certificate.)
To: FRUIT OF THE LOOM, INC.
The undersigned hereby irrevocably elects to exercise _____________
Series A Rights represented by this Series A Rights Certificate to purchase the
Preferred Shares issuable upon the exercise of such Series A Rights (or such
other securities of the Company or of any other person which may be issuable
upon the exercise of the Rights) and requests that certificates for such
Preferred Shares be issued in the name of:
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security or other identifying number)
If such number of Series A Rights shall not be all the Series A Rights
evidenced by this Series A Rights Certificate, a new Series A Rights
Certificate for the balance remaining of such Series A Rights shall be
registered in the name of and delivered to:
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security or other identifying number)
Dated: _________________________, 19__
___________________________________
Signature
Signature Guaranteed: __________________________________________________________
Signatures must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-6
<PAGE> 50
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ]
are [ ] are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of any such
Person (as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of any such
Person.
Dated: _________________________, 19__
___________________________________
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
The signature must be guaranteed by an Eligible Guarantor
Institution as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad 15).
B-7
<PAGE> 51
NOTICE
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Series A Rights evidenced by this Series A Rights Certificate to be an
Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement) and such Assignment or Election to Purchase will not be honored.
B-8
<PAGE> 52
EXHIBIT C
Form of Series B Rights Certificate
Certificate No. B ____ ______ Series B Rights
NOT EXERCISABLE AFTER _______________, 200__. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN THE SECOND PARAGRAPH OF SECTION 11(A)(II) OF SUCH
AGREEMENT.]*
Series B Rights Certificate
FRUIT OF THE LOOM, INC.
This certifies that ____________________, or registered assigns, is
the registered owner of the number of Series B Rights set forth above, each of
which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of _________, 199__ (the "Rights
Agreement") between FRUIT OF THE LOOM, INC., a Delaware corporation (the
"Company"), and CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. (the "Rights
Agent"), to purchase from the Company at any time after issuance and prior to
5:00 p.m., Chicago, Illinois time on ________________, 200__ at the principal
office of the Rights Agent, or at the office of its successor as Rights Agent,
one one-hundredths of a fully paid nonassessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $90 per one one-hundredths of
a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Series B Rights Certificate with the Form of Election to Purchase duly
executed. The number of Series B Rights evidenced by this Series B Rights
Certificate (and the number of one one-hundredths of a Preferred Share which
may be purchased upon exercise hereof) set forth above, and the Purchase Price
set forth above, are the number and Purchase Price as of _______________,
199__, based on the Preferred Shares as constituted at such date. As provided
in the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
the Series B Rights evidenced by this Series B Rights Certificate are subject
to modification and adjustment upon the happening of certain events.
__________________________________
*The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
C-1
<PAGE> 53
This Series B Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Series B
Rights Certificates. Copies of the Rights Agreement are on file at the
principal executive offices of the Company and the above-mentioned offices of
the Rights Agent.
This Series B Rights Certificate, with or without other Series B
Rights Certificates, upon surrender at the principal office of the Rights
Agent, may be exchanged for another Series B Rights Certificate or Series B
Rights Certificates of like tenor and date evidencing Series B Rights entitling
the holder to purchase a like aggregate number of Preferred Shares as the
Series B Rights evidenced by the Series B Rights Certificate or Series B Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Series B Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Series B Rights Certificate
or Series B Rights Certificates for the number of whole Series B Rights not
exercised.
The Rights Agreement provides that the Series B Rights evidenced by
this Certificate, when and if issued, may not be redeemed by the Company.
No fractional Preferred Shares will be issued upon the exercise of any
Series B Right or Series B Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredths of a Preferred Share, which may,
at the election of the Company, be evidenced by depositary receipts), but in
lieu thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Series B Rights Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Series B Right or Series B Rights evidenced by
this Series B Rights Certificate shall have been exercised as provided in the
Rights Agreement.
This Series B Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
C-2
<PAGE> 54
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _________________, 19__.
ATTEST: FRUIT OF THE LOOM, INC.
<TABLE>
<S> <C>
By:
- ------------------------------ -----------------------------
Countersigned:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By:
---------------------------------------
Authorized Signature
</TABLE>
C-3
<PAGE> 55
[FORM OF REVERSE SIDE OF SERIES B RIGHTS CERTIFICATE]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Series B Rights Certificate.)
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers unto _____________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
(Please print social security or other identifying number of transferee)
this Series B Rights Certificate, together with all interest therein, and does
hereby irrevocably constitute and appoint ______________________ Attorney, to
transfer the within Series B Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________________, 19__
___________________________________
Signature
Signature Guaranteed: __________________________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
C-4
<PAGE> 56
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as
such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of any such
Person.
Dated: _________________________, 19__
__________________________________
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change
whatsoever.
The signature must be guaranteed by an Eligible Guarantor
Institution as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
C-5
<PAGE> 57
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Series B Rights Certificate.)
To: FRUIT OF THE LOOM, INC.
The undersigned hereby irrevocably elects to exercise _____________
Series B Rights represented by this Series B Rights Certificate to purchase the
Preferred Shares issuable upon the exercise of such Series B Rights (or such
other securities of the Company or of any other person which may be issuable
upon the exercise of the Rights) and requests that certificates for such
Preferred Shares be issued in the name of:
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security or other identifying number)
If such number of Series B Rights shall not be all the Series B Rights
evidenced by this Series B Rights Certificate, a new Series B Rights
Certificate for the balance remaining of such Series B Rights shall be
registered in the name of and delivered to:
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security or other identifying number)
Dated: _________________________, 19__
_____________________________________
Signature
Signature Guaranteed: __________________________________________________________
Signatures must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
C-6
<PAGE> 58
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ]
are [ ] are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of any such
Person (as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by
this Rights Certificate from any Person who is, was or subsequently
became an Acquiring Person or an Affiliate or Associate of any such
Person.
Dated: _________________________, 19__
___________________________________
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
The signature must be guaranteed by an Eligible Guarantor
Institution as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
C-7
<PAGE> 59
NOTICE
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Series B Rights evidenced by this Series B Rights Certificate to be an
Acquiring Person or an Affiliate, Associate or Group Member thereof (as defined
in the Rights Agreement) and such Assignment or Election to Purchase will not
be honored.
C-8
<PAGE> 60
EXHIBIT D
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES UNDER PLAN ADOPTED BY
FRUIT OF THE LOOM, INC.
On February 22, 1996, the Board of Directors of FRUIT OF THE LOOM,
INC. (the "Company") declared a dividend of one Series A Right (a "Series A
Right") for each outstanding share of its common stock (Class A and Class B),
par value $.01 per share (the "Common Shares"), of the Company. The dividend
is payable on March 22, 1996 (the "Record Date") to the shareholders of record
on that date. Each Series A Right entitles the registered holder to purchase
from the Company one one-hundredths of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Preferred Shares"), of the
Company at a price of $90 per one one-hundredths of a Preferred Share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Series A Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., as Rights
Agent (the "Rights Agent").
Until the earlier of (i) the close of business on the tenth day after
the first public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 15% or more of the
outstanding Common Shares (an "Acquiring Person"), or (ii) the close of
business on the tenth day (or such later date as may be determined by action of
the Board of Directors prior to such time as any Person becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership of such person or group of 15% or more of such outstanding
Common Shares (the earlier of such dates being called the "Distribution Date"),
the Series A Rights will be evidenced by the Common Share certificates, will be
transferable only by the transfer of the Common Shares associated with such
Rights and any transfer of the Common Shares (including a transfer to the
Company) will constitute a transfer of the Series A Rights. As described
below, after a person or group becomes an Acquiring Person, the Series A Rights
may not be redeemed may only be amended in limited circumstances.
Until the Distribution Date (or earlier redemption or expiration of
the Series A Rights), new Common Share certificates issued after the Record
Date, upon transfer or new issuance of Common Shares, will contain a legend
incorporating the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of the Series A Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record
Date, even without such notation or a copy of this Summary of Rights being
attached, will also constitute the transfer of the Series A Rights associated
with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Series A
Rights ("Series A Rights Certificates") will be mailed to holders of record of
the Common Shares as of the close of business on the Distribution Date and such
separate Series A Rights Certificates alone will evidence the Series A Rights.
D-1
<PAGE> 61
The Series A Rights are not exercisable until a person, entity or
group becomes an Acquiring Person. The Series A Rights will expire on March
21, 2006 (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Series A Rights are redeemed earlier by the Company, in
each case, as described below.
If a person or group of affiliated or associated persons becomes an
"Acquiring Person" by obtaining beneficial ownership of more than 15% of the
then outstanding Common Shares, each holder of a Series A Right (other than
those described in the next sentence) will thereafter have the right to
receive, upon exercise, both (1) Class A Common Shares (or, in certain
circumstances, cash, property or other securities of the Company) having a
value equal to two times the Purchase Price of the Series A Right, and (2) a
Series B Right. All Series A Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be void. The Series B Rights are very much like the Series A
Rights.
At any time after the first date of public announcement by the Company
or an Acquiring Person than an Acquiring Person has become such (a "Shares
Acquisition Date"), if (i) the Company is the surviving corporation in a merger
with any other company or entity, (ii) the Company is acquired in a merger or
other business combination transaction, or (iii) 50% or more of the Company's
consolidated assets or earning power are sold, each holder of a Series A Right
or a Series B Right (other than those whose rights have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Series A or Series B Right, that number of shares
of common stock of the surviving or acquiring company which at the time of such
transaction will have a market value of two times the exercise price of such
Right.
At any time after a person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
the Series A Rights (other than Series A Rights owned by such person or group
which have become void), in whole or in part, without any additional payment,
for both (1) Class A Common Shares at an exchange ratio of one Class A Common
Share (or of a share of a class or series of the Company's preferred shares
having equivalent rights, preferences and privileges), per Series A Right
(subject to adjustment), and (2) Series B Rights at an exchange ratio of one
Series B Right per Series A Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredths of a Preferred
share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the Shares Acquisition Date, the Board of
Directors of the Company may redeem all, but not less than all, of the Series A
Rights at a price of $.01 per Series A Right (the "Redemption Price"). Under
certain circumstances set forth in the Rights Agreement, the decision to redeem
shall require the concurrence of a majority of the Continuing Directors. The
redemption of the Series A Rights may be made effective at such time, on such
basis and
D-2
<PAGE> 62
with such conditions as the Board of Directors in its sole discretion may
establish. The Series B Rights, if an when issued, are not redeemable.
Immediately upon any redemption of the Series A Rights, the right to
exercise the Series A Rights will terminate and the only right of the holders
of Series A Rights will be to receive the Redemption Price.
The term "Continuing Director" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of the
Rights Agreement, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors, but shall not include an Acquiring Person, or an affiliate or
associate of an Acquiring Person, or any representative of the foregoing
entities.
Other than those provisions relating to the principal economic terms
of the Series A Rights and the Series B Rights, any of the provisions of the
Series A Rights and, prior to their issuance, the Series B Rights, may be
amended by the Board of Directors of the Company prior to the Shares
Acquisition Date. After the Shares Acquisition Date, the provisions of the
Rights Agreement may be amended by the Board to make changes which do not
adversely affect the interests of holders of Series A Rights or Series B Rights
(excluding the interests of any Acquiring Person) which amendment shall require
the concurrence of a majority of the Continuing Directors. Series B Rights, if
and when issued, may not thereafter be amended.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
March 11, 1996. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Series A and Series B Rights
does not purport to be complete and is qualified in its entirety by reference
to the Rights Agreement, which is hereby incorporated herein by reference.
D-3
<PAGE> 1
EXHIBIT 10j
GUARANTY OF CORPORATION
FOR VALUE RECEIVED and in consideration of any loan or advance now or
hereafter made to ACME BOOT COMPANY, INC. or to ACME BOOT RETAIL CO., INC.
(collectively, together with their successors and assigns, "Borrower") by
NATIONSBANK, N.A. (SOUTH), formerly known as NationsBank of Georgia, N.A.
("NationsBank") under the Financing Agreement dated December 28, 1993 and under
the Inventory Financing Agreement, dated April 24, 1995 (as amended,
collectively, the "Financing Agreement"), which loans and advances will be to
the direct interest and advantage of the undersigned, and to induce NationsBank
from time to time to make loans to Borrower and enter into an extension of the
term of the Financing Agreement, the undersigned and NationsBank agree as
follows:
1. CHARACTER OF OBLIGATION. The undersigned hereby unconditionally guarantees
the full payment and performance by Borrower of all loans and advances under
the Financing Agreement, all obligations for letters of credit or agreements
with respect thereto, any drafts or any obligations for acceptances or
agreements with respect thereto, including all interest and other charges
relating thereto, however and whenever incurred or evidenced, whether direct or
indirect, absolute or contingent, or due or to become due (hereafter the
"Obligations"). The obligation of the undersigned hereunder is primary and
unconditional and shall be enforceable before, concurrently or after any claim
or demand is made or suit is filed against Borrower or any other guarantor or
surety, and before, concurrently or after any proceeding by NationsBank against
any security, and shall be effective regardless of the solvency or insolvency
of Borrower at any time, the extension or modification of the Obligations by
operation of law, or the subsequent reorganization, merger or consolidation of
Borrower, or any other change in its composition, nature, personnel or
location. The obligation hereunder may be considered by NationsBank either as
a guaranty or agreement of surety. Payment of any sum or sums due to
NationsBank hereunder will be made by the undersigned immediately upon demand
by NationsBank. If claim is ever made upon NationsBank for repayment or
recovery of any amount or amounts received by NationsBank in payment of any of
the Obligations and NationsBank repays all or part of said amount by reason of
(a) any judgment, decree or order of any court or administrative body having
jurisdiction over NationsBank or any of its property, or (b) any settlement or
compromise of any such claim effected by NationsBank with any such claimant
(including Borrower), then in such event the undersigned agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon the
undersigned, notwithstanding any revocation hereof or the cancellation of any
note or other instrument evidencing any of the Obligations, and the undersigned
shall be and remain obligated to NationsBank hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally
<PAGE> 2
been received by NationsBank. The undersigned agrees that the books and
records of NationsBank showing the account between NationsBank and Borrower
shall be admissible in evidence in any action or proceeding, shall be binding
upon the undersigned for the purpose of establishing the items therein set
forth, and shall constitute prima facie proof thereof, except that the monthly
statements rendered to Borrower by NationsBank shall, to the extent to which no
objection is made within thirty (30) days after date thereof, constitute an
account stated between NationsBank and Borrower binding upon the undersigned.
The undersigned agrees to pay all costs of NationsBank of collection of any sum
or sums due hereunder, and, if collected by or through an attorney, the lesser
of actual attorney's fees or reasonable attorneys' fees together with all other
legal and court expenses. The undersigned agrees that its obligation hereunder
shall not be discharged or impaired in any respect by reason of any failure by
NationsBank to perfect, or continue perfection of, any lien or security
interest in any security or any delay by NationsBank in perfecting any such
lien or security interest. The undersigned represents and warrants that it
will receive a direct benefit from NationsBank's loans to Borrower.
2. CONSENT AND WAIVER. The undersigned waives notice of acceptance hereof,
creation of any of the Obligations, or nonpayment or default by Borrower under
any of the Obligations or any agreement now or hereafter existing between
Borrower and NationsBank, presentment, demand, notice of dishonor, protest and
any other notices whatever. The undersigned waives the provisions of O.C.G.A.
Section 10-7-24. The undersigned, without affecting its liability hereunder,
consents to and waives notice of all changes of terms of the Obligations, the
withdrawal or extension of credit or time to pay, the release of the whole or
any part of the Obligations, renewal, indulgence, settlement, compromise or
failure to exercise due diligence in collection, the acceptance or release of
security, extension of the time to pay for any period or periods whether or not
longer than the original period, or any surrender, substitution or release of
any other person directly or indirectly liable for any of the Obligations or
any collateral security given by Borrower. The undersigned agrees that it
shall have no right of subrogation, reimbursement or indemnity whatsoever and
no right of recourse to or with respect to any assets or property of Borrower
or to any collateral for the Obligations, even upon payment in full of the
Obligations. The undersigned also consents to and waives notice of any
arrangements or settlements made in or out of court in the event of
receivership, liquidation, readjustment, any proceeding under Title 11 of the
United States Code (entitled "Bankruptcy") as amended, or assignment for the
benefit of creditors of Borrower, and anything whatever whether or not herein
specified which may be done or waived by or between NationsBank and Borrower,
or Borrower and any other person whose claim against Borrower has been or shall
be assigned or transferred to NationsBank. The undersigned agrees that if any
notification of intended disposition of collateral or of any other act by
NationsBank is required by law and a specific time period is not stated
therein, such notification, if mailed by first class mail at least five (5)
banking days before such disposition or act, postage prepaid, addressed to the
undersigned either at the address shown below or at any other address of the
undersigned appearing on the records of NationsBank, shall be deemed reasonably
and properly given. NationsBank may, subject to the provisions of the
Financing Agreement without notice of any kind, sell, assign or transfer any or
all of the Obligations and in such event each and every immediate and
successive assignee, transferee
- 2 -
<PAGE> 3
or holder of any of the Obligations shall have the right to enforce this
Guaranty, by suit or otherwise for the benefit of such assignee, transferee or
holder, as fully as if such assignee, transferee or holder were herein by name
specifically given such rights, powers and benefits; NationsBank shall have an
unimpaired right prior and superior to that of any such assignee, transferee or
holder to enforce this Guaranty for the benefit of NationsBank as to such of
the Obligations as is not sold, assigned or transferred. THE UNDERSIGNED
HEREBY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED HEREON.
3. CONSTRUCTION. This Guaranty shall be governed by and construed and enforced
in accordance with the laws of the State of Georgia. Wherever possible, each
provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under applicable law, said provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guaranty. This Guaranty does not supersede any other guaranty or other
agreement executed by the undersigned, or any other guaranty in favor of
NationsBank; provided, however, this Guaranty does replace and supersede that
certain Guaranty of Corporation executed and delivered by the undersigned on
December 28, 1993.
4. BENEFIT. This Guaranty shall bind the undersigned, its successors and
assigns, and the rights and privileges of NationsBank hereunder shall inure to
the benefit of its successors and assigns, and this Guaranty shall be effective
with respect to loans or advances made by NationsBank's successors and assigns
to Borrower.
5. DURATION. This Guaranty shall continue in full force and effect until
terminated by the actual receipt by NationsBank by registered or certified mail
of written notice of termination from the undersigned. Such termination shall
be applicable only to transactions having their inception thereafter, and
rights and obligations arising out of transactions having their inception prior
to such termination shall not be affected.
6. MISCELLANEOUS. THE UNDERSIGNED HEREBY AGREES THAT (a) IF AN EVENT OF
DEFAULT OCCURS (AND HAS NOT BEEN WAIVED OR AMENDED) UNDER THAT CERTAIN
$800,000,000.00 CREDIT AGREEMENT, DATED AUGUST 16, 1993, AS AMENDED, BETWEEN
THE UNDERSIGNED AND ITS LENDERS, OR (b) IF THE UNDERSIGNED'S STANDARD & POOR'S
RATING FALLS BELOW BB+, NATIONSBANK SHALL BE ENTITLED TO ENFORCE ITS RIGHTS
UNDER THIS GUARANTY, INCLUDING, WITHOUT LIMITATION, DEMANDING PAYMENT OF THE
OBLIGATIONS. THE RIGHTS PROVIDED TO NATIONSBANK BY THIS PARAGRAPH 6 ARE IN
ADDITION TO ALL OTHER RIGHTS OF NATIONSBANK UNDER THIS GUARANTY.
- 3 -
<PAGE> 4
Wherefore the undersigned has caused this Guaranty to be executed by its duly
authorized officers and its seal affixed this 15th day of January, 1996, at
_______________________.
FRUIT OF THE LOOM, INC.
By:_______________________________________
(Title)
Attest:
______________________________________
(Secretary)
[Corporate Seal]
ACCEPTANCE
The foregoing Guaranty is accepted in Atlanta, Georgia this _____ day of
January, 1996.
NATIONSBANK, N.A. (SOUTH),
formerly known as NationsBank of
Georgia, N.A.
By: ______________________________________
(Title)
- 4 -
<PAGE> 1
Exhibit 10(l)
This Asset Purchase and Transitional Services Agreement ("Agreement")
is entered into as January 1, 1996 by and between Farley Industries, Inc., an
Illinois corporation ("FII"), and Fruit of the Loom, Inc., a Delaware
corporation (the "Company"), for itself and on behalf of each of the Company's
subsidiaries.
R E C I T A L S
A. The Company has retained FII since 1985 to provide the Company
with legal, financial, accounting, corporate development and other management
advisory services pursuant to certain management agreements entered into
between FII and the Company, including that certain Management Agreement
between FII and the Company dated as of January 1, 1995 (the "Management
Agreement") (capitalized terms not otherwise defined herein shall have the same
meanings set forth in the Management Agreement).
B. In order to provide the Management Services required by the
Company, FII has incurred significant costs to recruit and maintain its work
force and in the event the management relationship with FOL were to be
terminated, FII would incur significant severance and related costs with
respect to reduction or elimination of its work force.
C. In connection with a general restructuring of its operations,
the Company has determined that it is in its best interest to internalize the
provision of the Management Services currently provided by FII and that the
most economical and efficient means of internalizing such services would be to
acquire the assets used by FII in providing such services, specifically
including FII's work force in place. To this end, the Company desires to
purchase from FII, and FII has agreed to sell to the Company, all of the assets
used by FII in the performance of Management Services for the Company on the
terms and subject to the conditions set forth in this Agreement.
D. FII has agreed to cooperate and assist in the transition of
such Management Services functions and work force to the Company and to release
the Company from any claims arising out of the performance of Management
Services for the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE OF ASSETS AND WORK FORCE IN PLACE; ASSUMPTION OF LIABILITIES.
1.1 On the Closing Date (as defined below), the Company shall
purchase from FII and FII shall sell to the Company all of the assets of FII
used by FII in the performance of
<PAGE> 2
Management Services for the Company, including such assets reflected on the
balance sheet of FII dated as of December 31, 1995 and/or reflected on FII's
corresponding tax records and schedules (except for any such assets which have
been transferred or disposed of in the ordinary course of business)
(collectively the "Assets"). In addition, on or prior to the Transition Date
(as hereafter defined), FII shall transfer to the Company payroll for
employment by the Company all FII employees currently involved in the provision
of Management Services for the Company, other than those employees designated
by the Company to be excluded (the "Work Force"). Notwithstanding the
foregoing, this sale shall not include the cash or cash equivalents reflected
on the December 31, 1995 balance sheet, the consideration delivered to FII
pursuant to this Agreement, FII's corporate, accounting or financial records
nor those assets not used in the performance of Management Services for the
Company. FII shall sell, transfer and deliver the Assets to the Company on the
Closing Date free and clear of any and all liens, mortgages, charges or
encumbrances of every kind, nature and description.
1.2 On the Closing Date, the Company shall assume only the
liabilities and obligations of FII associated with the performance of
Management Services for the Company, including such liabilities reflected on
FII's balance sheet dated December 31, 1995 and FII's obligations under the
contracts and agreements listed on Schedule A hereto (such liabilities and
obligations hereinafter collectively referred to as the "Assumed Liabilities").
Notwithstanding the foregoing, except as expressly provided for elsewhere in
this Agreement, the Company does not: (i) undertake to employ any employees of
FII other than the Work Force; (ii) assume any obligation with respect to
federal, state or local income or payroll tax or workmen's compensation
liabilities of FII with respect to any FII employees other than the Work Force;
(iii) assume any liability with respect to environmental matters, which shall,
as used in this Agreement, mean any matters relating to ground, air and water
(including groundwater) pollution, toxic substances, occupational health
practices, handling and disposal of hazardous wastes or hazardous substances;
(iv) assume any liability, obligation, debt or claim respecting any employee
benefit plan nor does the Company assume or adopt any such employee benefit
plan with respect to any FII employees other than the Work Force; or (v) assume
any liability related to any unauthorized contractual or other obligation
purported to be entered into on behalf of the Company by any current officer,
employee or agent of FII.
2. TERMINATION OF MANAGEMENT RELATIONSHIP.
2.1 The Company and FII hereby mutually agree to terminate their
management relationship as of the Transition Date. From and after the
Transition Date, unless otherwise agreed to in writing between the parties, FII
shall no longer provide the Company with Management Services, whether pursuant
to the Management Agreement or any other agreement or contract, written or
oral. Except as expressly provided herein, the Company shall not have any
obligation to FII for the payment of any Management Fee nor any fees with
respect to the rendering of Investment Banking Services, Financing Services or
otherwise at any time prior to the Transition Date. Except as may otherwise be
agreed to in
2
<PAGE> 3
writing between FII and the Company, after the Transition Date the Company
shall have no obligation to retain FII or any of its personnel to provide
Management Services or any similar function for the Company. Except as
expressly provided herein, FII shall not have any further obligation to the
Company with respect to the payment of any funds or the provision of any
services.
3. CONSIDERATION.
In consideration of the sale of the Assets and the Work Force by FII
to the Company on the Closing Date, the termination of the management
relationship between the Company and FII on the Transition Date, and the
release and waiver by FII of any unclaimed fees earned by FII under the
Management Agreement or any predecessor agreement, and the cooperation of FII
in the transactions contemplated by this Agreement, the Company shall pay to
FII the amount of $3,500,000.
4. REPRESENTATIONS AND WARRANTIES OF FII.
4.1 FII hereby represents and warrants to the Company as follows:
(a) Organization. FII is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Illinois.
(b) Authority. FII has full power, right and authority
to enter into and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement by FII has been
duly and properly authorized by proper corporate action in accordance
with applicable law and with the Articles of Incorporation and By-laws
of FII and this Agreement constitutes a valid and binding obligation
of FII, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or similar laws
affecting the rights of creditors and by general equity principles.
(c) FII's Title. FII holds good, title to all of the
Assets free and clear of any liens, mortgages, charges and
encumbrances of every kind, nature and description.
(d) Transaction Not a Breach. Neither the execution and
delivery of this Agreement nor its performance will conflict with or
result in a breach of the terms, conditions or provisions of the
Articles of Incorporation or By-laws of FII or any material contract,
agreement, mortgage, trust, deed, note, bond, indenture or other
instrument or obligation of any nature to which FII is a party or by
which FII is bound or by which FII or the Assets may be affected; and
neither the execution nor performance of this Agreement will
contravene or violate any statute, injunction, judgment or decree in
existence on the Closing Date or require the approval, consent
3
<PAGE> 4
or permission of any governmental or regulatory body or authority and
FII has received no notice which is inconsistent with the foregoing.
(e) Assets Include All Assets Used in Business. The
Assets and the Work Force comprise all of the assets necessary to or
used in the performance of Management Services.
(f) Properties. The equipment of FII used in or
necessary for the performance of Management Services are in good
operating condition and repair, subject only to ordinary wear and tear
which is not such as to affect adversely the performance of Management
Services and are substantially fit for the purposes for which they are
being utilized.
(g) Subsidiaries. FII has no subsidiaries or any
ownership interest in any other corporation, trust, partnership or
other entity.
5. COMPANY'S REPRESENTATIONS AND WARRANTIES.
5.1 The Company hereby represents and warrants to FII as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has full power, right and authority to purchase the Assets, hire
the Work Force and assume the Assumed Liabilities in accordance with
this Agreement. The execution, delivery, and performance of this
Agreement by the Company and the Company have been duly and properly
authorized in accordance with applicable law and with the Certificate
of Incorporation and By-laws of the Company, and this Agreement is the
valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency or similar law affecting the rights of creditors and by
general equity principles.
(b) Neither the execution and delivery of this Agreement
nor its performance will conflict with or result in a breach of the
terms, conditions or provisions of the Certificate of Incorporation
any By-laws of the Company or any contract, agreement, mortgage or
other instrument or obligation of any nature to which the Company is a
party or by which the Company is bound; and neither the execution and
delivery of this Agreement nor its performance will contravene or
violate any statute or any judicial or governmental regulation, order,
injunction, judgment or decree or require the approval, consent or
permission of any governmental or regulatory body or authority; and
the Company has received no notice which is inconsistent with the
foregoing.
4
<PAGE> 5
6. CLOSING DATE; TRANSITION.
6.1 The transaction which is the subject of this Agreement shall
be closed on or before February 29, 1996, or on or before such other date as
the parties shall mutually agree upon in writing (the "Closing Date"). On the
Closing Date, FII will deliver to the Company or have available at FII's
offices, against payment of the consideration provided for herein, such bills
of sale, assignments and other good and sufficient instruments of conveyance as
shall be effective to vest the Company with good marketable title to the Assets
and to transfer the Work Force onto the employment rolls of the Company on or
prior to the Transition Date. The Company will deliver to FII, simultaneously
with delivery of such items a bank wire transfer in the amount provided for in
paragraph 3 hereof and an instrument evidencing the Company's assumption of the
Assumed Liabilities.
6.2 From the date hereof until the date upon which the transition
contemplated hereunder is completed (provided that in no event shall such
completion date be later than December 31, 1996) (the "Transition Date"), FII
shall continue to perform Management Services on behalf of the Company and to
render such other assistance to the Company as may be reasonable or appropriate
in order to accommodate the transition of the Management Services functions to
the Company. In consideration of the performance of such Management Services
and such transitional assistance, the Company shall reimburse FII for FII's
direct ordinary and reasonable costs and expenses incurred in connection with
the rendering of such Management Services and transitional assistance. Such
reimbursement shall be paid to FII from time to time as incurred but in any
event no later than sixty (60) days after the Transition Date, provided,
however, that such expenses shall be appropriately documented, corroborated and
approved by the Audit Committee or the Board of Directors of the Company.
7. SEVERANCE EXPENSE.
7.1 The Company shall reimburse FII for any direct ordinary and
reasonable costs and expenses associated with the termination of FII employees
who have or will be terminated pursuant to the Company's operational
restructuring and the transition contemplated hereunder but who are not
included in the Work Force, and any amounts paid by FII as severance benefits
to such individuals; provided, however, that without the prior written consent
of the Audit Committee or the Board of Directors of the Company (i) such
severance payments shall not exceed $4,000,000 in the aggregate, and (ii) no
individual shall receive materially greater severance benefits than as provided
under any applicable employment agreement or severance policy.
8. RELEASE OF CLAIMS.
8.1 For and in consideration of the amounts paid to FII by the
Company hereunder, FII, for and on behalf of its shareholder, director,
employees and agents, hereby releases the Company and its shareholders,
directors, employees and agents from and against
5
<PAGE> 6
any and all claims, demands, actions or causes of action, known or unknown,
which it now has or may have against the Company under the Management Agreement
or any prior contract or agreement relating to the performance of Management
Services or the like, except for any claims with respect to the Company's
obligations hereunder and except with respect to the Company's obligations
under Section 7.3 (regarding confidentiality) and 7.6 (regarding
indemnification of FII against claims relating to or arising out of FII's
performance Management Services for the Company) of the Management Agreement,
both of which provisions survive the termination of the Management Agreement.
9. LITIGATION ASSISTANCE AND COOPERATION.
9.1 FII, for and on behalf of its shareholder, director, employees
and agents, agrees that it shall not voluntarily assist any other person in
bringing and/or pursuing a legal claim against the Company. FII shall not
provide testimony or give assistance on behalf of any other person in any
proceeding against the Company unless it is in response to valid subpoena or
court order issued by a state or federal court of competent jurisdiction. In
the event FII receives a valid subpoena or court order compelling its testimony
in a proceeding against the Company, FII will immediately notify the Company so
that the Company will have the opportunity to intervene to assert any rights it
may have in the non-disclosure prior FII's response to the subpoena or court
order.
9.2 FII shall fully cooperate with the Company with any and all
Company investigations or legal actions arising out of matters in which FII was
involved or of which FII has direct knowledge, or which occurred during the
term of the Management Agreement or any previous management contract or
agreement.
10. MISCELLANEOUS.
10.1 This Agreement shall be governed by and construed under the
laws of the State of Illinois.
10.2 This Agreement may be executed in one or more counterparts,
each of which will be deemed an original and which together shall constitute
one and the same instrument.
10.3 This Agreement sets forth the entire understanding of the
parties with respect to the subject hereof. Neither this Agreement nor any
provision hereof may be modified, waived, terminated or amended other than by
the express written agreement of FII and the Company.
10.4 This Agreement may not be assigned by either party without the
consent of the other but shall be binding upon and inure to the benefits of the
parties and their respective successor and assigns upon any assignment so
permitted.
6
<PAGE> 7
10.5 In the event that any provision of this Agreement shall be
held to be, in whole or in part, void or unenforceable, the remaining
provisions of this Agreement, and the remaining portion of any provision held
void or unenforceable in part, shall continue in full force and effect.
10.6 Except as otherwise specifically provided herein, notices
required hereunder shall be deemed given when delivered personally, or when
deposited with a bonded overnight courier or five (5) days after being
deposited as registered or certified United States mail, postage prepaid, in
each case to the address of the party for whom intended at the principal
executive offices of such party set forth below, or at such other address as
such party may hereafter specify by written notice to the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their proper officers as of the date first written above.
<TABLE>
<S> <C>
FRUIT OF THE LOOM, INC. FARLEY INDUSTRIES, INC.
One Fruit of the Loom Drive 5000 Sears Tower
Bowling Green, Kentucky 42102 Chicago, Illinois 60606
By: By:
-------------------------------- ----------------------------------
Larry K. Switzer William Farley
Senior Executive Vice President President
</TABLE>
7
<PAGE> 8
SCHEDULE A
ASSUMED LIABILITIES
1) Eastman Kodak copiers - (4 units) 60 mo. 9/1/94 - 9/1/99 monthly
charge $1,773.00 plus approximate $1,000/mo maintenance and
usage
2) Bloomberg Financial Markets Quotations - (2 units) 24 mo. 2/9/94 -
2/9/97 renewed automatically unless cancelled 60 days prior to
renewal date monthly charge $2,110.00
3) Pitney Bowes Mailing Machine - (1 unit) 51 mo. 10/10/94 - 1/10/99
monthly charge $554.00 plus $100.00 meter rental
4) Lanier fax machines
<TABLE>
<CAPTION>
Serial # Monthly Charge # of Months Term
-------- -------------- ----------- ----
<S> <C> <C> <C> <C>
a) SN3100557 $185.15 60 1/1/95-1/1/00
b) SN54100279 185.15 60 1/1/95-1/1/00
c) SN345207 199.19 57 7/1/92-4/1/97
d) SN345246 199.19 57 7/1/92-4/1/97
e) SN476173 155.80 60 6/1/93-6/1/98
d) SN16243339 106.45 60 2/1/95-2/1/00
e) 115.00 59 4/15/95-3/15/00
</TABLE>
5) Automobiles
a) 1994 Lincoln Town Car (Switzer) - lease with Wheelco through 6/99
6) Miscellaneous
a) Italian Court - Plants - monthly charge $750.00
Flowers - monthly charge $1,000.00
b) Computer Maintenance - $4,900 annual (up 6/30/96 to $6,000)
c) Air conditioning agreement (telephone room, teleconference room)
Therm Flo $1,700 annual
d) Graphidyne (telephone consultant) $350.00 per month
f) GBC office equipment maintenance - $395.00 annual
<PAGE> 9
ASSUMPTION OF ASSUMED LIABILITIES
WHEREAS, Farley Industries, Inc., an Illinois corporation ("Seller"),
has entered into as Asset Purchase and Transitional Services Agreement with
Fruit of the Loom, Inc., a Delaware corporation ("Buyer"), dated as of January
1, 1996 (the "Agreement"), the terms and provisions of which are incorporated
by reference herein, pursuant to which the Seller has agreed to sell, assign,
convey, transfer and deliver to the Buyer certain assets of the Seller
described in Section 1.1 of the Agreement (the "Assets"); and
WHEREAS, as part of the consideration for the transfer of the Assets
by the Seller to the Buyer, the Buyer has, under the terms and conditions of
the Agreement, agreed to assume certain liabilities and obligations of the
Seller described in Section 1.2 of the Agreement ( the "Assumed Liabilities");
NOW, THEREFORE, in consideration of the mutual promises contained
herein and in the Agreement, and for other good and valuable consideration, the
Buyer hereby assumes and agrees to pay and otherwise satisfy as they fall due,
the Assumed Liabilities.
This assumption instrument shall be governed by the laws of the State
of Illinois, shall inure to the benefit of the Seller and its successors and
assigns and shall be binding upon and enforceable against the Buyer and its
respective successors and assigns.
Dated: February ____, 1996
FRUIT OF THE LOOM, INC.
By: ________________________________________________
Larry K. Switzer
Senior Executive Vice President
<PAGE> 10
BILL OF SALE
Farley Industries, Inc., an Illinois corporation ("Seller"), for the
purchase price and upon the terms and conditions set forth in the Asset
Purchase and Transitional Services Agreement dated as of January 1, 1996 (the
"Agreement"), by and between Seller and Fruit of the Loom, Inc., a Delaware
corporation ("Buyer"), hereby sells, grants, transfers and conveys to Buyer
certain assets of Seller as more specifically set forth and described in the
Agreement (the "Assets").
Seller covenants and agrees that it is the lawful owner of the Assets;
that they are free from all liens, charges or encumbrances of any kind; that it
has the right and authority to sell the Assets in accordance with the
Agreement; and that it will warrant and defend the same against the lawful
claims and demands of all persons.
Executed on this ____________ day of February, 1996.
FARLEY INDUSTRIES, INC.
By: ______________________________________________
Title: _____________________________________________
<PAGE> 1
EXHIBIT 10(R)
CREDIT AGREEMENT
among
ACME BOOT COMPANY, INC.,
as Borrower,
FRUIT OF THE LOOM, INC.,
ACME BOOT RETAIL CO., INC.
and
ACME FOOTWEAR COMPANY, INC.
as Guarantors,
THE LENDERS IDENTIFIED HEREIN,
and
NATIONSBANK, N.A. (CAROLINAS)
as Agent
DATED AS OF APRIL 19, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Method of Borrowing for Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Interest Rate on Loans Subsequent to the Conversion Date . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Funding of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Minimum Amounts of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Reductions of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Payment in full at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5 Place and Manner of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4. ADDITIONAL PROVISIONS REGARDING LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Eurodollar Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Conditions to Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Representations and Warranties of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Representations and Warranties of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1 Affirmative Covenants of Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Affirmative Covenants of Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1 Negative Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Negative Covenants of Fruit Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 9. GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1 Guaranty of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.2 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<TABLE>
<S> <C> <C>
9.5 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.7 Limitation of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 10. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Acceleration; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 11. AGENCY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 Reliance on Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.6 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.2 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.4 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.5 Payment of Expenses, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.6 Amendments, Waivers and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.9 Defaulting Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.11 Governing Law; Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.13 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.14 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.15 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.16 Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
SCHEDULES
- ---------
Schedule 1.1 Commitment Percentages
Schedule 12.1 Notices
EXHIBITS
- --------
Exhibit 2.2 Form of Notice of Borrowing
Exhibit 2.3 Form of Interest Rate Request
Exhibit 2.7 Form of Note
Exhibit 5.1(c) Form of Legal Opinion
Exhibit 12.3 Form of Assignment Agreement
ii
<PAGE> 4
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Credit Agreement"), is entered into as
of April 19, 1995 among ACME BOOT COMPANY, INC., a Delaware corporation (the
"Borrower"), FRUIT OF THE LOOM, INC., a Delaware corporation, Acme Boot Retail
Co., Inc., a Kentucky corporation and Acme Footwear Company, Inc., a Delaware
corporation (collectively, the "Guarantors"), the Lenders (as defined herein)
and NATIONSBANK, N.A., (CAROLINAS) as agent for the Lenders (in such capacity,
the "Agent").
RECITALS
WHEREAS, the Borrower has requested that the Lenders provide a credit
facility to the Borrower in order that the Borrower may repurchase certain of
its outstanding Senior Notes (as defined herein) and its outstanding Senior
Preferred Stock (as defined herein);
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth,
including the unconditional guaranty by the Guarantors of all of the
obligations of the Borrower hereunder; and
WHEREAS, the Guarantors have agreed to guaranty the obligations of the
Borrower and believe that each of them will benefit, directly or indirectly,
from its guaranty of the credit facility provided to Borrower.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1.
DEFINITIONS AND ACCOUNTING
1.1 Definitions. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires. Defined
terms herein shall include in the singular number the plural and in the plural
the singular:
"Acme Boot Financing Agreement" means that certain Financing
Agreement, dated as of December 28, 1993, between the Borrower and
NationsBank of Georgia, N.A., as amended from time to time (including
any increase in the amounts of the obligations thereunder).
"Acme Retail Financing Agreement" means that certain Financing
Agreement, dated as of April 21, 1995, between Acme
<PAGE> 5
Boot Retail Co., Inc. and NationsBank of Georgia, N.A., as amended
from time to time.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus
.75%.
"Agent" means NationsBank, N.A. (Carolinas) and any
successors and assigns in such capacity.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited
to all directors and officers of such Person), controlled by or under
direct or indirect common control with such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power (i) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such
corporation or (ii) to direct or cause direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Asset Disposition" means the disposition of all or any
material part of the assets of the Borrower whether by sale, lease,
transfer or otherwise, other than transfers of assets as permitted by
Section 8.1(b).
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Base Rate" means, for any day, a simple rate per annum equal
to the greater of (a) the Prime Rate for such day or (b) the sum of
1/2% plus the Federal Funds Rate for such day.
"Base Rate Loan" means a Loan which bears interest based on
the Base Rate.
"Borrower" means Acme Boot Company, Inc., a Delaware
corporation.
"Business Day" means any day other than a Saturday, a Sunday,
a legal holiday or a day on which banking institutions are authorized
or required by law or other governmental action to close in Charlotte,
North Carolina; provided that in the case of Eurodollar Loans, such
day is also a day on which dealings between banks are carried on in
U.S. dollar deposits in the London interbank market.
"Change of Control" means the failure of William Farley to
own, directly or indirectly, more than 50% of the voting control of
the Borrower.
"Closing Date" means the date hereof.
2
<PAGE> 6
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" has the meaning set forth in the Security
Agreements.
"Commitment" means Forty Million Dollars ($40,000,000) as such
amount may be otherwise reduced in accordance with Section 2.6 hereof.
"Commitment Percentage" means, for each Lender, the percentage
identified as its Commitment Percentage opposite such Lender's name on
Schedule 1.1 attached hereto, as such percentage may be modified by
assignment in accordance with the terms of this Agreement.
"Conversion Amount" has the meaning set forth in Section
2.1(b) hereof.
"Conversion Date" means August 19, 1995.
"Credit Documents" means this Credit Agreement, the Notes, the
Security Agreements and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or
thereto.
"Credit Parties" means the Borrower and the Guarantors and
"Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, all of
the obligations of the Borrower and the Guarantors to the Lenders and
the Agent, whenever arising, under this Credit Agreement, the Notes,
the Security Agreements or any of the other Credit Documents to which
the Borrower or any Guarantor is a party.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at
such time (a) has failed to make a Loan required pursuant to the term
of this Credit Agreement, (b) has failed to pay to the Agent or any
Lender an amount owed by such Lender pursuant to the terms of this
Credit Agreement or (c) has been deemed insolvent or has become
subject to a bankruptcy or insolvency proceeding or to a receiver,
trustee or similar official.
"Eligible Assignee" means any Lender or Affiliate or
subsidiary of a Lender, and any other commercial bank, financial
institution or "accredited investor" (as defined in Regulation D of
the Securities and Exchange Commission) reasonably acceptable to the
Agent, the Borrower and the Guarantors.
3
<PAGE> 7
"Equity Transaction" means (a) an issuance by the Borrower of
new shares of its capital stock, (b) an issuance by the Borrower of
any shares of its capital stock pursuant to the exercise of options or
warrants or (c) an issuance by the Borrower of any shares of its
capital stock pursuant to the conversion of any debt securities to
equity.
"Eurodollar Loan" means a Loan which bears interest based on
the Adjusted Eurodollar Rate.
"Eurodollar Rate" means with respect to any Eurodollar Loan,
for the Interest Period applicable thereto, a rate per annum
determined pursuant to the following formula:
"Eurodollar Rate" = Interbank Offered Rate
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not the applicable Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve
requirements without benefits of credits for proration, exceptions or
offsets that may be available from time to time to a Lender. The
Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default" has the meaning specified in Section 10.1.
"Fee Letter" means that certain letter agreement, dated as of
April 10, 1995, between the Agent and the Borrower, as amended,
modified, supplemented or replaced from time to time.
"Federal Funds Rate" means for any day the rate per annum
(rounded upward to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day; provided that (a)
if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business
Day and (b) if no such rate is so published on such next
4
<PAGE> 8
succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to the Agent on such day on such
transactions as determined by the Agent.
"Fruit of the Loom Financing Agreement" means that certain
Credit Agreement, dated as of August 16, 1993, among Fruit of the
Loom, Inc., the lenders party thereto, Bankers Trust Company, as
Administrative Agent, and Chemical Bank, NationsBank of North
Carolina, N.A., The Bank of New York and The Bank of Nova Scotia as
Co-Agents, as amended from time to time.
"Fruit Guarantor" means Fruit of the Loom, Inc., a Delaware
corporation.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time and subject to the terms
of Section 1.2 hereof.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantors" means the Fruit Guarantor, Acme Boot Retail Co.,
Inc. a Kentucky corporation and Acme Footwear Company, Inc., a
Delaware corporation.
"Interbank Offered Rate" means, with respect to any Eurodollar
Loan for the Interest Period applicable thereto, the average (rounded
upward to the nearest one-sixteenth (1/16) of one percent) per annum
rate of interest determined by the office of the Agent (each such
determination to be conclusive and binding) as of two Business Days
prior to the first day of such Interest Period, as the effective rate
at which deposits in immediately available funds in U.S. dollars are
being, have been, or would be offered or quoted by the Agent to major
banks in the applicable interbank market for Eurodollar deposits at
any time during the Business Day which is the second Business Day
immediately preceding the first day of such Interest Period, for a
term comparable to such Interest Period and in the amount of the
requested Eurodollar Loan. If no such offers or quotes are generally
available for such amount, then the Agent shall be entitled to
determine the Eurodollar Rate by estimating in its reasonable judgment
the per annum rate (as described above) that would be applicable if
such quote or offers were generally available.
"Interest Payment Date" means (i) as to Base Rate Loans, the
last day of each fiscal quarter of the Borrower and on the Maturity
Date and (ii) as to Eurodollar Loans, on the last day of each
applicable Interest Period and on the Maturity Date, and in addition
where the applicable Interest Period for a Eurodollar Loan is greater
than three months, then also on the last day of each fiscal quarter of
the Borrower during such Interest Period. If an Interest Payment Date
falls on a date
5
<PAGE> 9
which is not a Business Day, such Interest Payment Date shall
be deemed to be the next succeeding Business Day, except that in the
case of Eurodollar Loans where the next succeeding Business Day falls
in the next succeeding calendar month, then on the next preceding day.
"Interest Period" means, as to Eurodollar Loans, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (A) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(B) no Interest Period shall extend beyond the Maturity Date and (C)
where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month.
"Interest Rate Request" means the request by the Borrower to
choose an interest rate option for all or a portion of the Conversion
Amount, in the form of Exhibit 2.3 attached hereto.
"Lenders" means those banks and other financial institutions
identified as such on the signature pages hereto and such other
institutions that may become Lenders pursuant to Section 12.3 hereof.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory
or otherwise), preference, priority or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any financing or similar statement or
notice filed under the Uniform Commercial Code as adopted and in
effect in the relevant jurisdiction or other similar recording or
notice statute, and any lease in the nature thereof).
"Loan" or "Loans" means the loans made by Lenders pursuant to
Section 2.1 hereof.
"Material Adverse Effect" means a material adverse effect,
after taking into account applicable insurance, if any, on (i) the
operations, financial condition, business or prospects of the
Borrower, (ii) the ability of the Borrower or a Guarantor to perform
their respective obligations under this Credit Agreement or (iii) the
validity or enforceability of this Credit Agreement, any of the other
Credit Documents, or the rights and remedies of the Lenders hereunder
or thereunder.
6
<PAGE> 10
"Maturity Date" means January 15, 1996; provided that the
Borrower shall have the option to extend the Maturity Date to January
15, 1997 upon satisfaction of each of the following conditions: (a)
the Agent receives written notice of the extension from the Borrower
at least 30 days and not more than 60 days prior to January 15, 1996,
(b) no Default or Event of Default exists on January 15, 1996 and (c)
the Guarantors consent in writing, in form and substance acceptable to
the Agent, to the extension of the Maturity Date to January 15, 1997.
"Notes" means the promissory notes of the Borrower in favor of
each Lender evidencing the Loans and substantially in the form of
Exhibit 2.7 hereto, as such promissory notes may be amended, modified,
supplemented or replaced from time to time.
"Notice of Borrowing" means a request by the Borrower for a
Loan (or any continuation or conversion thereof) in the form of
Exhibit 2.2 attached hereto.
"Other Taxes" has the meaning set forth in Section 4.4(b)
hereof.
"Person" means any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise (whether or
not incorporated), or any government or political subdivision or any
agency, department or instrumentality thereof.
"Prime Rate" means the per annum rate of interest established
from time to time by the Agent at its principal office in Charlotte,
North Carolina as its Prime Rate. Any change in the interest rate
resulting from a change in the Prime Rate shall become effective as of
12:01 a.m. of the Business Day on which each change in the Prime Rate
is announced by the Agent. The Prime Rate is a reference rate used by
the Agent in determining interest rates on certain loans and is not
intended to be the lowest rate of interest charged on any extension of
credit to any debtor.
"Regulation D, G, U, or X" means Regulation D, G, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Required Lenders" means Lenders whose aggregate Credit
Exposure (as hereinafter defined) constitutes more than 50% of the
aggregate Credit Exposure of all Lenders at such time; provided,
however, that if any Lender shall be a Defaulting Lender at such time
then there shall be excluded from the determination of Required
Lenders the aggregate principal amount of Credit Exposure of such
Lender at such time. For purposes of the preceding sentence, the term
"Credit Exposure" as applied to each Lender shall mean (i) at any time
prior to
7
<PAGE> 11
the termination of the Commitment, the Commitment Percentage of
such Lender multiplied times the Commitment and (ii) at any time after
the termination of the Commitment, the outstanding principal amount of
Loans owed to such Lender.
"Security Agreements" means those certain Security Agreements,
dated as of the date hereof, executed and delivered by the Borrower
and certain of the Guarantors in favor of the Agent, for the benefit
of the Lenders, to secure their obligations under the Credit
Documents, as amended, modified, extended, renewed or replaced from
time to time.
"Senior Notes" means the Borrower's 11 1/2% Senior Notes Due
2000.
"Senior Preferred Stock" means the Borrower's 12 1/2% Series A
Cumulative Redeemable Exchangeable Senior Voting Preferred Stock.
"Subsidiary" means, as to any Person, (a) any corporation more
than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time, any
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time
owned by such Person directly or indirectly through Subsidiaries, and
(b) any partnership, association, joint venture or other entity in
which such person directly or indirectly through Subsidiaries has more
than 50% equity interest at any time.
"Taxes" has the meaning set forth in Section 4.4(a) hereof.
"Unused Fees" means the fees payable to the Agent, for the
benefit of the Lenders, pursuant to Section 3.4 hereof.
"Unused Commitment" means, for any period, the amount by which
(a) the then applicable Commitment exceeds (b) the daily average sum
for such period of the outstanding aggregate principal amount of all
Loans; provided, however, that subsequent to the Conversion Date, the
Unused Commitment shall equal zero.
Section 1.2 Accounting Terms. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered to the Lenders hereunder shall be prepared, in
accordance with GAAP as in effect from time to time. Furthermore, all
calculations made for the purposes of determining compliance with this
Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP as in effect from time to time; provided, however, if (a)
the Borrower shall have objected to determining
8
<PAGE> 12
such compliance on such basis at the time of delivery of such financial
statements due to any change in GAAP or the rules promulgated with respect
thereto or (b) the Agent or the Required Lenders shall so object in writing
within 30 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which no such objection
shall have been made (which, if objection is made in respect of the first
financial statements delivered under Section 7.01 hereof, shall mean the
audited financial statements dated December 31, 1994).
The Borrower shall deliver to the Lenders at the same time as
the delivery of any annual or quarterly financial statement under Section 7.01
hereof (1) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the most recent preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the
paragraph above and (2) reasonable estimates of the difference between such
statements arising as a consequence thereof.
SECTION 2.
LOANS
2.1 Loan Commitment.
(a) Loans. Subject to the terms and conditions set forth herein,
each Lender severally agrees to make loans to the Borrower in U.S. dollars, at
any time and from time to time, during the period from and including the
Closing Date to but not including the Conversion Date (each a "Loan" and
collectively the "Loans"); provided, however, that (i) the sum of the aggregate
amount of Loans outstanding shall not exceed the Commitment and (ii) with
respect to each individual Lender, the Lender's pro rata share of outstanding
Loans shall not exceed such Lender's Commitment Percentage of the Commitment.
Subject to the terms of this Credit Agreement, including the restriction that
no Loans may be made after the Conversion Date, the Borrower may borrow, repay
and reborrow the amount of the Commitment.
(b) Conversion to Term Loans. All Loans outstanding on the
Conversion Date shall be converted to term loans (the principal amount of Loans
outstanding on the Conversion Date is referred to herein as the "Conversion
Amount"), and the Borrower may no longer request, and the Lenders are no longer
obligated to make, Loans.
2.2 Method of Borrowing for Loans.
(a) Base Rate Loans. By no later than 11:00 a.m. on the date of
the request for the borrowing (or for the conversion of Eurodollar Loans to
Base Rate Loans), the Borrower shall submit a
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Notice of Borrowing to the Agent setting forth (i) the amount requested, (ii)
the desire to have such Loans accrue interest at the Base Rate and (iii)
complying in all respects with Section 5.2 hereof.
(b) Eurodollar Loans. By no later than 11:00 a.m. three Business
Days prior to the date of the request for the borrowing (or for the conversion
of Base Rate Loans to Eurodollar Loans or the continuation of existing
Eurodollar Loans), the Borrower shall submit a Notice of Borrowing to the Agent
setting forth (i) the amount requested, (ii) the desire to have such Loans
accrue interest at the Adjusted Eurodollar Rate, (iii) the Interest Period
applicable thereto and (iv) a representation from an authorized officer of the
Borrower as to compliance in all respects with Section 5.2 hereof.
(c) Continuation and Conversion. The Borrower shall have the
option, on any Business Day, to continue existing Eurodollar Loans for a
subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or
to convert Eurodollar Loans into Base Rate Loans; provided, however, that (i)
except as provided in Section 4.1, Eurodollar Loans may be converted to Base
Rate Loans only on the last day of an Interest Period applicable thereto; (ii)
Eurodollar Loans may be continued and Base Rate Loans may be converted to
Eurodollar Loans only if no Default or Event of Default is in existence on the
date of extension or conversion; (iii) any continuation or conversion must
comply with all requirements of this Credit Agreement including timely delivery
of a properly completed Notice of Borrowing; and (iv) failure by the Borrower
to properly continue Eurodollar Loans at the end of an Interest Period shall be
deemed a conversion to Base Rate Loans.
2.3 Interest Rate on Loans Subsequent to the Conversion Date.
(a) Accrual of Interest Subsequent to the Conversion Date. All
Base Rate Loans existing as of the Conversion Date shall continue to accrue
interest at the Base Rate until the Borrower submits an Interest Rate Request
to the contrary in conformance with Section 2.3(b) below. All Eurodollar Loans
existing as of the Conversion Date shall accrue interest at the Adjusted
Eurodollar Rate applicable to such Eurodollar Loan until the end of the
Interest Period with respect to such Eurodollar Loan, and thereafter, at such
interest rate as requested by the Borrower in conformance with Section 2.3(b)
below.
(b) Interest Rate Requests. Subject to Section 2.3(a) above,
subsequent to the Conversion Date, the Borrower shall choose the interest rate
to accrue on all or a portion of the outstanding Conversion Amount as follows:
(i) Base Rate. By no later than 11:00 a.m. on
the date of the request, the Borrower shall provide to the Agent an
Interest Rate Request setting forth the amount of the Conversion
Amount that it wishes to have accrue interest at
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the Base Rate. From that date forward, interest shall accrue on
that portion of the Conversion Amount as set forth in the Interest
Rate Request until requested otherwise by the Borrower.
(ii) Adjusted Eurodollar Rate. By no later than
11:00 a.m. three Business Days prior to the date on which the Borrower
wishes to have all or a portion of the Conversion Amount accrue
interest at the Adjusted Eurodollar Rate, the Borrower shall provide
to the Agent an Interest Rate Request setting forth the amount of the
Conversion Amount it wishes to have accrue interest at the Adjusted
Eurodollar Rate and the Interest Period for which such rate shall be
applicable; provided, however, that the Borrower may not request all
or part of the Conversion Amount to accrue interest at the Adjusted
Eurodollar Rate during the existence and continuation of a Default or
Event of Default.
(iii) Failure to Submit an Interest Rate Request.
If the Borrower fails to timely submit an Interest Rate Request
stating a desire to have all or a portion of the Conversion Amount
accrue interest at the Adjusted Eurodollar Rate or if the Borrower
submits an improper Interest Rate Request, then the Conversion Amount
shall accrue interest at the Base Rate until the Agent receives a
proper request from the Borrower.
2.4 Funding of Loans. Upon receipt of a Notice of Borrowing, the
Agent shall promptly inform the Lenders as to the terms thereof. Each Lender
will make its pro rata share of the Loans available to the Agent by 1:00 p.m.
on the date specified in the Notice of Borrowing by deposit (in U.S. dollars)
of immediately available funds at the offices of the Agent at its principal
office in Charlotte, North Carolina, or at such other address as the Agent may
designate in writing. All Loans shall be made by the Lenders pro rata on the
basis of each Lender's Commitment Percentage.
No Lender shall be responsible for the failure or delay by any other
Lender in its obligation to make Loans hereunder; provided, however, that the
failure of any Lender to fulfill its obligations hereunder shall not relieve
any other Lender of its obligations hereunder. Unless the Agent shall have
been notified by any Lender prior to the date of any such Loan that such Lender
does not intend to make available to the Agent its portion of the Loans to be
made on such date, the Agent may assume that such Lender has made such amount
available to the Agent on the date of such Loans, and the Agent in reliance
upon such assumption, may (in its sole discretion without any obligation to do
so) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent, the Agent
shall be able to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent will promptly notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Agent. The Agent shall also
be entitled to recover from the Lender
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or the Borrower, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the Agent to the Borrower to the date such corresponding amount is recovered
by the Agent at a per annum rate equal to (a) from the Borrower at the
applicable rate for such Loan pursuant to the Notice of Borrowing and (b) from
a Lender at the Federal Funds Rate.
2.5 Minimum Amounts of Loans. Each request for Loans shall be in
an aggregate principal amount that is not less than the lesser of (a)
$1,000,000, (b) the exact amount needed to repurchase any Senior Notes or
Senior Preferred Stock or (c) the remaining amount available to be borrowed.
2.6 Reductions of Commitments. Upon at least three Business Days'
notice, the Borrower shall have the right, without premium or penalty, to
permanently terminate or reduce the aggregate unused amount of the Commitment
at any time or from time to time; provided that (a) each partial reduction
shall be in an aggregate amount at least equal to $1,000,000 and in integral
multiples of $1,000,000 above such amount and (b) no reduction shall be made
which would reduce the Commitment to an amount less than the then outstanding
Loans. Any reduction in (or termination of) the Commitment shall be permanent
and may not be reinstated.
2.7 Notes. The Loans made by the Lenders shall be evidenced by a
promissory note of the Borrower payable to each Lender in substantially the
form of Exhibit 2.7 hereto (the "Notes"), in a principal amount equal to the
amount of such Lender's Commitment Percentage of the Commitment as originally
in effect.
The date, amount, type, interest rate and duration of Interest Period
(if applicable) of each Loan made by each Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books; provided that the failure of such Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under such Note in
respect of the Loans to be evidenced by such Note, and each such recordation or
endorsement shall be conclusive and binding absent manifest error.
SECTION 3.
PAYMENTS
3.1 Interest.
(a) Interest Rate.
(i) All Base Rate Loans shall accrue interest at the
Base Rate.
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(ii) All Eurodollar Loans shall accrue interest at
the Adjusted Eurodollar Rate applicable to such Eurodollar Loan.
(b) Default Rate of Interest. Upon the occurrence, and during the
continuance, of an Event of Default, the principal of and, to the extent
permitted by law, interest on the Loans and any other amounts owing hereunder
or under the other Loan Documents shall bear interest, payable on demand, at a
per annum rate equal to 2% plus the rate which would otherwise be applicable.
(c) Interest Payments. Interest on Loans shall be due and payable
in arrears on each Interest Payment Date.
3.2 Prepayments
(a) Voluntary Prepayments. The Borrower shall have the right to
prepay Loans in whole or in part from time to time without premium or penalty;
provided, however, that (i) Eurodollar Loans may only be prepaid on three
Business Days' prior written notice to the Agent and any prepayment of
Eurodollar Loans will be subject to Section 4.3 hereof and (ii) each such
partial prepayment of Loans shall be in the minimum principal amount of
$1,000,000. Amounts prepaid hereunder shall be applied first to Base Rate
Loans and then to Eurodollar Loans in direct order of Interest Period
maturities.
(b) Mandatory Prepayments.
(i) Loan Overadvance. If at any time the amount
of Loans outstanding exceeds the Commitment, the Borrower shall
immediately make a principal payment to the Agent in the manner and in
an amount necessary to be in compliance with Section 2.1 hereof. Any
payments made under this Section 3.2(b)(i) shall be subject to Section
4.3 hereof and shall be applied first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period maturities.
(ii) Equity Issuance/Debt Issuance. Promptly upon
the receipt by the Borrower of proceeds from (A) an Equity Transaction
(other than a transaction the sole purpose of which is an exchange for
Senior Notes or Senior Preferred Stock) or (B) the incurrence of debt
by the Borrower for borrowed money (other than Indebtedness permitted
by Section 8.1(a) hereof), the Borrower shall forward such proceeds to
the Lenders as a prepayment of the Loans (to be applied as set forth
in Section 3.2(c) below).
(iii) Asset Sales. Immediately upon receipt by the
Borrower of proceeds from any Asset Disposition, the Borrower shall,
subject to the rights of NationsBank of Georgia, N.A. under the Acme
Boot Financing Agreement and the Acme Retail Financing Agreement,
forward the proceeds of such Asset
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Disposition to the Lenders as a prepayment of the Loans (to be applied
as set forth in Section 3.2(c) below).
(iv) Preferred Stock. If the Borrower uses
proceeds of the Loans to repurchase its Senior Preferred Stock and the
average price paid by the Borrower for all such Senior Preferred Stock
(on the Conversion Date) is in excess of 25% of the par value of such
repurchased Senior Preferred Stock, then, on the Conversion Date, the
Borrower shall forward to the Lenders as a prepayment of the Loans (to
be applied as set forth in Section 3.2(c) below) an amount that would
reduce the proceeds of Loans used to purchase such Senior Preferred
Stock to an aggregate average price of 25% of its par value (i.e. if
between the Closing Date and the Conversion Date the Borrower uses $6
million of Loans to repurchase Senior Preferred Stock having an
aggregate par value of $20 million, then the Borrower shall be
required to make a prepayment of the Loans, on the Conversion Date, of
$1 million so that the aggregate average price paid from proceeds of
Loans is only 25% of par value).
(v) Senior Notes. If the Borrower uses proceeds
of the Loans to repurchase its Senior Notes and the average price paid
by the Borrower for all such Senior Notes (on the Conversion Date) is
in excess of 55% of the par value of such repurchased Senior Notes,
then, on the Conversion Date, the Borrower shall forward to the
Lenders as a prepayment of the Loans (to be applied as set forth
in Section 3.2(c) below) an amount that would reduce the proceeds
of the Loans used to purchase such Senior Notes to an average price
of 55% of its par value (i.e. if between the Closing Date and the
Conversion Date the Borrower uses $14 million of Loans to repurchase
Senior Notes having an aggregate par value of $20 million, then the
Borrower shall be required to make a prepayment of the Loans, on the
Conversion Date, of $3 million so that the aggregate average price
paid from proceeds of Loans is only 55% of par value).
(c) Application of Certain Prepayments. All amounts required to be
paid pursuant to Section 3.2(b)(ii), (iii), (iv) and (v) above shall be subject
to Section 4.3 hereof and shall be applied first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period maturities and, if prior to
the Conversion Date, the Commitment shall be reduced by the amount of such
prepayment.
3.3 Payment in full at Maturity. On the Maturity Date, the entire
outstanding principal balance of all Loans, together with accrued but unpaid
interest and all other sums owing under this Credit Agreement, shall be due and
payable in full, unless accelerated sooner pursuant to Section 10 hereof.
3.4 Fees. In consideration of the Commitment being made available
by the Lenders hereunder, the Borrower agrees to pay to
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the Agent, for the pro rata benefit of each Lender, a fee equal to .25% per
annum on the Unused Commitment (the "Unused Fees"). The accrued Unused Fees
shall be due and payable in arrears on the last Business Day of each fiscal
quarter of the Borrower (as well as on the Conversion Date) for the immediately
preceding fiscal quarter (or portion thereof), beginning with the first of such
dates to occur after the Closing Date.
3.5 Place and Manner of Payments. All payments of principal,
interest, fees, expenses and other amounts to be made by the Borrower under
this Agreement shall be received not later than 2:00 p.m. on the date when due
in U.S. dollars and in immediately available funds by the Agent at its offices
at NationsBank Corporate Center, Charlotte, North Carolina. The Borrower
shall, at the time it makes any payment under this Agreement, specify to the
Agent, the Loans, fees or other amounts payable by the Borrower hereunder to
which such payment is to be applied (and in the event that it fails to specify,
or if such application would be inconsistent with the terms hereof, the Agent
shall distribute such payment to the Lenders in such a manner as it reasonably
determines in its sole discretion).
3.6 Pro Rata Treatment. Except to the extent otherwise provided
herein, all Loans, each payment or prepayment of principal of any Loan, each
payment of interest on the Loans, each payment of Unused Fees, each reduction
of the Commitment, and each conversion or continuation of any Loans, shall be
allocated pro rata among the Lenders in accordance with the respective
Commitment Percentages.
3.7 Computations of Interest and Fees.
(a) Except for Base Rate Loans, in which interest shall be
computed on the basis of a 365 or 366 day year as the case may be, all
computations of interest and fees hereunder shall be made on the basis of the
actual number of days elapsed over a year of 360 days.
(b) It is the intent of the Lenders and the Credit Parties to
conform to and contract in strict compliance with applicable usury law from
time to time in effect. All agreements between the Lenders and the Borrower
are hereby limited by the provisions of this paragraph which shall override and
control all such agreements, whether now existing or hereafter arising and
whether written or oral. In no way, nor in any event or contingency (including
but not limited to prepayment or acceleration of the maturity of any
obligation), shall the interest taken, reserved, contracted for, charged, or
received under this Credit Agreement, under the Notes or otherwise, exceed the
maximum nonusurious amount permissible under applicable law. If, from any
possible construction of any of the Credit Documents or any other document,
interest would otherwise be payable in excess of the maximum nonusurious
amount, any such construction shall be subject to the provisions of this
paragraph and such documents shall be automatically reduced to the maximum
nonusurious amount permitted
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under applicable law, without the necessity of execution of any amendment or
new document. If any Lender shall ever receive anything of value which is
characterized as interest on the Loans under applicable law and which would,
apart from this provision, be in excess of the maximum lawful amount, an amount
equal to the amount which would have been excessive interest shall, without
penalty, be applied to the reduction of the principal amount owing on the Loans
and not to the payment of interest, or refunded to the Borrower or the other
payor thereof if and to the extent such amount which would have been excessive
exceeds such unpaid principal amount of the Loans. The right to demand payment
of the Loans or any other indebtedness evidenced by any of the Credit Documents
does not include the right to receive any interest which has not otherwise
accrued on the date of such demand, and the Lenders do not intend to charge or
receive any unearned interest in the event of such demand. All interest paid
or agreed to be paid to the Lenders with respect to the Loans shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term (including any renewal or extension) of
the Loans so that the amount of interest on account of such indebtedness does
not exceed the maximum nonusurious amount permitted by applicable law.
3.8 Sharing of Payments. Each Lender agrees that, in the event
that any Lender shall obtain payment in respect of any Loan owing to such
Lender under this Credit Agreement through the exercise of a right of set-off,
banker's lien, counterclaim or otherwise (including, but not limited to,
pursuant to the Bankruptcy Code) in excess of its pro rata share as provided
for in this Credit Agreement, such Lender shall promptly purchase from the
other Lenders a participation in such Loans, in such amounts and with such
other adjustments from time to time, as shall be equitable in order that all
Lenders share such payment in accordance with their respective ratable shares
as provided for in this Credit Agreement. Each Lender further agrees that if a
payment to a Lender (which is obtained by such Lender through the exercise of a
right of set-off, banker's lien, counterclaim or otherwise) shall be rescinded
or must otherwise be restored, each Lender which shall have shared the benefit
of such payment shall, by repurchase of a participation theretofore sold,
return its share of that benefit to each Lender whose payment shall have been
rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a participation may, to the fullest extent permitted by law,
exercise all rights of payment, including set-off, banker's lien or
counterclaim, with respect to such participation as fully as if such Lender
were a holder of such Loan or other obligation in the amount of such
participation. Except as otherwise expressly provided in this Agreement, if
any Lender shall fail to remit to the Agent or any other Lender an amount
payable by such Lender to the Agent or such other Lender pursuant to this
Credit Agreement on the date when such amount is due, such payments shall
accrue interest thereon, for each day from the date such amount is due until
the day such amount is paid to the Agent or
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such other Lender, at a rate per annum equal to the Federal Funds Rate.
SECTION 4.
ADDITIONAL PROVISIONS REGARDING LOANS
4.1 Eurodollar Loan Provisions.
(a) Unavailability. In the event that the Agent shall have
determined in good faith (i) that U.S. dollar deposits in the principal amounts
requested with respect to a Eurodollar Loan are not generally available in the
London interbank Eurodollar market or (ii) that reasonable means do not exist
for ascertaining the Adjusted Eurodollar Rate, the Agent shall, as soon as
practicable thereafter, give notice of such determination to the Borrower and
the Lenders. In the event of any such determination under clauses (i) or (ii)
above, until the Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (A) any request by
the Borrower for Eurodollar Loans shall be deemed to be a request for Base Rate
Loans, and (B) any request by the Borrower for conversion into or continuation
of Eurodollar Loans shall be deemed to be a request for conversion into or
continuation of Base Rate Loans.
(b) Change in Legality.
(i) Notwithstanding any other provision herein,
if any change in any law or regulation or in the interpretation
thereof by any Governmental Authority charged with the administration
or interpretation thereof shall make it unlawful for any Lender to
make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar
Loan, then, by written notice to the Borrower and to the Agent, such
Lender may:
(A) declare that Eurodollar Loans, and
conversions to or continuations of Eurodollar Loans, will not
thereafter be made by such Lender hereunder, whereupon any
request by the Borrower for, or for conversion into or
continuation of, Eurodollar Loans shall, as to such Lender
only, be deemed a request for, or for conversion into or
continuation of, Base Rate Loans, unless such declaration
shall be subsequently withdrawn; and
(B) require that all outstanding Eurodollar Loans
made by it be converted to Base Rate Loans in which event all
such Eurodollar Loans shall be automatically converted to Base
Rate Loans.
In the event any Lender shall exercise its rights under clause (A) or
(B) above, all payments and prepayments of principal which would otherwise have
been applied to repay the Eurodollar Loans
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that would have been made by such Lender or the converted Eurodollar Loans of
such Lender shall instead be applied to repay the Base Rate Loans made by such
Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans.
(c) Increased Costs. If at any time a Lender shall incur
increased costs or reductions in the amounts received or receivable hereunder
with respect to the making, the commitment to make or the maintaining of any
Eurodollar Loan because of (i) any change since the date of this Agreement in
any applicable law, governmental rule, regulation, guideline or order (or in
the interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, guideline or such order)
including, without limitation, the imposition, modification or deemed
applicability of any reserves, deposits or similar requirements (such as, for
example, but not limited to, a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the extent
included in the computation of the Adjusted Eurodollar Rate) or (ii) other
circumstances affecting the London interbank Eurodollar market; then the
Borrower shall pay to such Lender promptly upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Lender may determine in its sole
discretion) as may be required to compensate such Lender for such increased
costs or reductions in amounts receivable hereunder.
Each determination and calculation made by a Lender under this Section
4.1 shall, absent manifest error, be binding and conclusive on the parties
hereto.
4.2 Capital Adequacy. If, after the date hereof, any Lender has
determined that the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy), then, upon notice from such Lender, the Borrower
shall pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. Each determination by any such Lender of
amounts owing under this Section 4.2 shall, absent manifest error, be
conclusive and binding on the parties hereto.
4.3 Compensation. The Borrower shall compensate each Lender, upon
its written request, for all reasonable losses, expenses and
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liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other
funds required by the Lender to fund its Eurodollar Loans) which such Lender
may sustain:
(a) if for any reason (other than a default by such Lender or the
Agent) a borrowing of Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing;
(b) if any repayment, continuation or conversion of any Eurodollar
Loan occurs on a date which is not the last day of an Interest Period
applicable thereto, including, without limitation, in connection with any
demand, acceleration, mandatory prepayment or otherwise (including any demand
under this Section 4); or
(c) if the Borrower fails to repay its Eurodollar Loans when required
by the terms of this Credit Agreement.
Calculation of all amounts payable to a Lender under this Section 4.3 shall be
made as though the Lender has actually funded its relevant Eurodollar Loan
through the purchase of a Eurodollar deposit bearing interest at the Adjusted
Eurodollar Rate in an amount equal to the amount of that Loan, having a
maturity comparable to the relevant Interest Period and through the transfer of
such Eurodollar deposit from an offshore office of that Lender to a domestic
office of that Lender in the United States of America; provided, however, that
each Lender may fund each of its Eurodollar Loans in any manner it sees fit and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 4.3.
4.4 Taxes.
(a) Tax Liabilities Imposed on a Lender. Any and all payment
by the Borrower hereunder or under any of the Loan Documents shall be made, in
accordance with the terms hereof and thereof, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
taxes measured by net income and franchise taxes imposed on any Lender by the
jurisdiction under the laws of which such Lender is organized or transacting
business or any political subdivision thereof (all such non-excluded taxes,
being hereinafter referred to as "Taxes"). If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable hereunder to
any Lender, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.4) such Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law, and (iv) the Borrower shall deliver to such Lender
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evidence of such payment to the relevant taxation authority or other authority.
(b) Other Taxes. In addition, the Borrower agrees to pay, upon
notice from a Lender and prior to the date when penalties attach thereto, all
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies of the United States or any state or political
subdivision thereof or any applicable foreign jurisdiction that arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement (collectively, the "Other Taxes").
(c) Foreign Lender. Each Lender (which, for purposes of this
Section 4.4, shall include any Affiliate of a Lender that makes any Eurodollar
Loan pursuant to the terms of this Credit Agreement) that is not a "United
States person" (as such term is defined in Section 7701(a)(30) of the Code)
shall submit to the Borrower and the Agent on or before the Closing Date (or,
in the case of a Person that becomes a Lender after the Closing Date by
assignment, promptly upon such assignment), two duly completed and signed
copies of (A) either (1) Form 1001 of the United States Internal Revenue
Service entitling such Lender to a complete exemption from withholding on all
amounts to be received by such Lender pursuant to this Agreement and/or the
Notes or (2) Form 4224 of the United States Internal Revenue Service relating
to all amounts to be received by such Lender pursuant to this Agreement and/or
the Notes and (B) an Internal Revenue Service Form W-8 or W-9 entitling such
Lender to receive a complete exemption from United States backup withholding
tax. Each such Lender shall, from time to time after submitting either such
form, submit to the Borrower and the Agent such additional duly completed and
signed copies of such forms (or such successor forms or other documents as
shall be adopted from time to time by the relevant United States taxing
authorities) as may be (1) reasonably requested in writing by the Borrower or
the Agent and (2) appropriate under then current United States laws or
regulations. Upon the reasonable request of the Borrower or the Agent, each
Lender that has not provided the forms or other documents, as provided above,
on the basis of being a United States person shall submit to the Borrower and
the Agent a certificate to the effect that it is such a "United States person."
Section 4.5 Mitigation. If a Lender claims any additional
amounts payable pursuant to Section 4.1, 4.2, 4.3 or 4.4 hereof or that it is
unable to make Eurodollar Loans, it shall use its reasonable efforts
(consistent with legal and regulatory restrictions) to avoid the need for
paying such additional amounts or such inability, including changing the
jurisdiction of its applicable lending office; provided, however, that the
taking of any such action would not, in the sole judgment of the Lender, be
disadvantageous to such Lender.
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SECTION 5.
CONDITIONS PRECEDENT
5.1 Closing Conditions. The obligation of the Lenders to enter
into this Agreement and make the initial Loans is subject to satisfaction of
the following conditions (in form and substance acceptable to the Lenders):
(a) Executed Credit Documents. Receipt by the Agent of duly
executed copies of: (i) this Credit Agreement; (ii) the Notes; (iii) the
Security Agreements and (iv) the other Credit Documents.
(b) No Default; Representations and Warranties. As of the Closing
Date (i) there shall exist no Default or Event of Default and (ii) all
representations and warranties contained herein and in the other Credit
Documents shall be true and correct in all material respects.
(c) Opinion of Counsel. Receipt by the Agent of an opinion, or
opinions, satisfactory to the Agent, addressed to the Agent on behalf of the
Lenders and dated as of the Closing Date, from legal counsel to the Credit
Parties and substantially in the form of Exhibit 5.1(c).
(d) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of each
Credit Party certified to be true and complete as of a recent date by
the appropriate Governmental Authority of the state or other
jurisdiction of its incorporation and certified by a secretary or
assistant secretary of such Credit Party to be true and correct as of
the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit
Party certified by a secretary or assistant secretary of such Credit
Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the
Board of Directors of each Credit Party approving and adopting the
Credit Documents to which it is a party, the transactions contemplated
therein and authorizing execution and delivery thereof, certified by a
secretary or assistant secretary of such Credit Party to be true and
correct and in force and effect as of the Closing Date.
(iv) Good Standing. Copies of (A) certificates of
good standing, existence or its equivalent with respect to each Credit
Party certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation and
each other jurisdiction in which such Credit Party is qualified to do
business and (B) to
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the extent available, a certificate indicating payment of all corporate
franchise taxes certified as of a recent date by the appropriate
governmental taxing authorities.
(e) Collateral Documents: Receipt by the Agent of such
agreements, documents and instruments as deemed necessary and appropriate by
the Agent in order to attach and perfect the Lenders' security interest in all
assets of the Borrower, Acme Boot Retail, Inc. and Acme Footwear Company, Inc.,
including, without limitation, UCC financing statements and trademark filings.
(f) Financial Statements. Receipt and approval by the Agent of
audited financial statements of the Borrower and the Fruit Guarantor dated
December 31, 1994.
(g) Consent of Other Lenders. Receipt and approval by the Agent
of such consents, as appropriate, of other creditors of the Borrower and
Guarantors as to the debt created hereunder and the security interests granted
by the Security Agreements.
(h) Fees and Expenses. Payment by the Borrower of all fees and
expenses owed by it to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Fee Letter.
(i) Material Adverse Effect. No event or condition shall have
occurred since the date of the financial statements delivered pursuant to
Section 5.1(f) above that has or could have a Material Adverse Effect.
(j) Evidence of Insurance. Copies of insurance policies or
certificates of insurance of the Credit Parties evidencing liability and
casualty insurance meeting the requirements set forth in the Credit Documents.
(k) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any Lender.
5.2 Conditions to Loans. In addition to the conditions precedent
stated elsewhere herein, the Lenders shall not be obligated to make Loans
unless:
(a) Notice of Borrowing. The Borrower shall have
delivered a Notice of Borrowing, duly executed and completed, by the
time specified in Section 2.2 hereof.
(b) Use of Proceeds. The Borrower shall provide to the
Agent in writing (i) whether the proceeds of the requested Loans are
to be used for the repurchase of Senior Notes or Senior Preferred
Stock and (ii) the price to be paid by the Borrower for the repurchase
of such Senior Notes or Senior Preferred Stock.
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(c) Representations and Warranties. The representations
and warranties made by the Credit Parties in any Credit Document are
true and correct in all material respects at and as if made as of the
date of the funding of the Loan, except representations and warranties
that specifically refer to an earlier date;
(d) No Default. On the date of the funding of the Loans,
no Default or Event of Default has occurred and is continuing or would
be caused by making the Loans, including, without limitation, the
restrictions on (i) the amount of Loans that may be outstanding as set
forth in Section 2.1 hereof and (ii) the use of proceeds set forth in
Section 7.1(c) hereof; and
(e) No Material Adverse Effect. There shall not have
occurred any event or condition that has had or will have a Material
Adverse Effect.
SECTION 6.
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Borrower.
(a) Organization, Standing, Etc. The Borrower represents and
warrants that it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite power
and authority, corporate and otherwise, to own and operate its properties; to
carry on its business as now conducted and proposed to be conducted; and it has
all requisite power and authority, corporate and otherwise, to execute, deliver
and perform its obligations under this Agreement and all other documents
executed in connection therewith.
(b) Enforceability. The Borrower represents and warrants that this
Agreement, and all other documents executed in connection with the Loans, when
delivered for value received, shall constitute valid and binding obligations
enforceable in accordance with their terms subject to bankruptcy and other
insolvency laws for the benefit of debtors.
(c) Qualification. The Borrower represents and warrants that it
is duly qualified, licensed or domesticated and in good standing as a foreign
corporation duly authorized to do business in all jurisdictions in which the
character of its properties owned or the nature of its activities conducted
makes such qualification, licensing or domestication necessary unless failure
to do so would not have a Material Adverse Effect.
(d) Compliance With Certificate of Incorporation, By-Laws, and
Other Instruments, Etc. The Borrower represents and warrants that: (i) it is
not in violation of any term of its Certificate of
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Incorporation or By-Laws, and no event, status or condition has occurred or is
existing which upon notice or lapse of time, or both, would constitute a
violation thereof; (ii) subject to subparagraph (iv) of this Section 6.1(d) it
is not in violation of any material term of any mortgage, indenture or
agreement relating to outstanding borrowings to which it is a party other than
the Montgomery County Tennessee Industrial Board (Acme Boot Company) Bond of
1973 (which aggregate liability to the Borrower is less than or equal to
$300,000), or of any judgment, decree or order to which it is subject, or of
any other instrument, lease, contract or agreement to which it is a party, or
of any statute, or governmental rule or regulation applicable to it, and no
event, status or condition has occurred or is existing which upon the giving of
notice or lapse of time, or both, would constitute a material violation of any
such term, any of which shall have a Material Adverse Effect on the Borrower;
(iii) the execution, delivery and performance of this Agreement and the other
instruments and agreements provided for by this Agreement to which it is, or is
to be, a party, and the carrying out of the transactions contemplated hereby
and thereby have been duly authorized by all requisite action on its part,
corporate and otherwise, and will not result in any violation of the it
Certificate of Incorporation or By-Laws, or any violation of or constitute a
default under any term described in (ii) above, or result in the creation of
any mortgage, lien, encumbrance or charge upon any of its properties or assets
pursuant to any term described in (ii) above; and (iv) the violation described
in (ii) above does not (and there is no reasonable belief that in the future it
may) have a Material Adverse Effect on the Borrower.
(e) Financial Statements. The Borrower represents and warrants
that it has furnished the Agent with copies of its consolidated and
consolidating fiscal year-end balance sheet at December 31, 1994 and its
consolidated and consolidating statements of income and of cash flows for such
fiscal year, which annual financial statements were audited by Ernst & Young,
independent certified public accountants. Such financial statements are
complete and have been prepared in accordance with GAAP applied on a basis
consistent with the accounting principles applied in the preceding fiscal
period, and present fairly the financial condition of the Borrower as at the
periods indicated and the results of the operations of the Borrower for such
periods, except for changes in GAAP that have occurred since such prior period.
Such financial statements show all liabilities, direct, indirect and contingent
(including, without limitation, guaranty and surety obligations) of the
Borrower as of the respective dates thereof and as required by GAAP, except
those arising in the ordinary course of business since the date of the last of
such financial statements.
(f) Changes in Financial Conditions. The Borrower represents and
warrants that from the date of the annual financial statements referenced in
Section 6.1(e) hereof, to the date of this Agreement, there has been no change
in the assets, liabilities, or financial condition of the Borrower from that
set forth or reflected in the
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fiscal year-end balance sheet referred to in Section 6.1(e), other than changes
in the ordinary course of business, none of which have had a Material Adverse
Effect.
(g) Disclosure. The Borrower represents and warrants that neither
this Agreement nor the financial statements referred to in Section 6.1(e) above
nor any other document, certificate or statement furnished to Agent by or on
behalf of Borrower in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein or herein not
misleading.
(h) Margin Securities. The Borrower represents and warrants that
(i) it is not engaged principally or as one of its important activities in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U) and (ii) the proposed repurchase of
the Senior Notes and the Senior Preferred Stock contemplated hereunder in order
to retire same does not violate Regulation G, T, U or X.
(i) Other Representations and Warranties. The representations and
warranties made by the Borrower in Sections 7.5, 7.8, 7.9, 7.10, 7.11, 7.15,
7.16, 7.17, 7.18, 7.19 and 7.20 of the Acme Boot Financing Agreement are true
and correct as of the date hereof, and the Borrower hereby affirms such
representations and warranties to the Lenders and agrees that such
representations and warranties are incorporated herein by reference and shall
be binding on the Borrower as if fully set forth herein (and all defined terms
used in such representations and warranties shall have the meanings set forth
in the Acme Boot Financing Agreement).
6.2 Representations and Warranties of Guarantors. Each Guarantor
hereby represents and warrants to the Agent and Lenders as follows:
(a) Corporate Existence; Compliance with Law. Each Guarantor (i)
is duly organized, validly existing and in good standing under the laws of the
State of its incorporation, (ii) has the corporate power and authority, and the
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (iii)
is duly qualified and in good standing as a foreign corporation, and is duly
authorized to do business, in each jurisdiction where the ownership or leasing
of property or the character of its operations makes such qualification
necessary, except where the failure to so qualify would not reasonably be
expected to have a Material Adverse Effect and (iv) is in compliance with all
laws except to the extent that all failures to comply therewith would not
reasonably be expected to have a Material Adverse Effect.
(b) Corporate Power; Authorization; No Violation. The execution,
delivery and performance by each Guarantor of this Agreement and the other
Credit Documents to which it is a party (i)
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are within such Guarantor's corporate power, (ii) have been duly authorized by
all necessary corporate, shareholder and other action on the part of such
Guarantor, (iii) do not violate any laws or any material contractual obligation
applicable to such Guarantor, except (y) where such violation would not
reasonably be expected to have a Material Adverse Effect and (z) those defaults
which will be cured by the execution and delivery, substantially with the
execution and delivery hereof, and the consummation of the transactions
contemplated by that certain First Supplemental Indenture by and between
Borrower and NationsBank, N.A. (Carolinas), as Trustee, and that certain
Consent and Waiver, executed by CS First Boston Corporation, both dated of even
date herewith, (iv) will not result in or require the creation or imposition of
any Lien of any nature upon or with respect to any of the properties now owned
or hereafter acquired by such Guarantor and (v) will not require any
authorization or approval or other action by, or notice to or filing or
registration with, any Governmental Authority (other than those which have been
obtained and are in force and effect).
(c) Binding Effect. This Agreement has been, and the other Credit
Documents to which each Guarantor is a party will be when executed and
delivered, duly executed and delivered on behalf of each Guarantor. This
Agreement constitutes, and the other Credit Documents to which each Guarantor
is a party when executed and delivered will constitute, a legal, valid and
binding obligation of each Guarantor, enforceable against each Guarantor in
accordance with their respective terms, except as enforcement thereof may be
subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
(d) Financial Statements. The Fruit Guarantor represents and
warrants that it has furnished the Agent with copies of its consolidated and
consolidating fiscal year-end balance sheet as at December 31, 1994 and its
consolidated and consolidating statements of income and of cash flows for such
fiscal year, which annual financial statements were audited by Ernst & Young,
independent certified public accountants. Such financial statements are
complete and have been prepared in accordance with GAAP applied on a basis
consistent with the accounting principles applied in the preceding fiscal
period, and present fairly the financial condition of the Fruit Guarantor as at
the periods indicated and the results of the operations of the Fruit Guarantor
for such periods, except for changes in GAAP that have occurred since such
prior period. Such financial statements show all liabilities, direct, indirect
and contingent (including, without limitation, guaranty and surety obligations)
of the Fruit Guarantor as of the respective dates thereof and as required by
GAAP, except those arising in the ordinary course of business since the date of
the last of such financial statements.
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(e) Solvency. None of the Guarantors is Insolvent (as defined in
the Fruit of the Loom Financing Agreement) nor will any Guarantor be rendered
Insolvent by reason of (A) the incurrence of its obligations under this Credit
Agreement or the other Credit Documents or (B) the consummation of any
transactions contemplated hereby; and after giving effect to the transactions
contemplated by this Credit Agreement, each Guarantor will have adequate cash
flow and short term borrowing capacity to pay its respective current
liabilities, on a timely basis, as they become due.
(f) Other Representations and Warranties by Fruit Guarantor. The
representations and warranties made by the Fruit Guarantor in Sections 3.8,
3.9, 3.10, 3.11, 3.12, 3.13, 3.17 and 3.18 of the Fruit of the Loom Financing
Agreement are true and correct as of the date hereof, and the Fruit Guarantor
hereby affirms such representations and warranties to the Lenders and agrees
that such representations and warranties are incorporated herein by reference
and shall be binding on the Fruit Guarantor as if fully set forth herein (and
all defined terms used in such representations and warranties shall have the
meanings set forth in the Fruit of the Loom Financing Agreement).
SECTION 7.
AFFIRMATIVE COVENANTS
7.1 Affirmative Covenants of Borrower. The Borrower covenants,
for so long as any Loans are outstanding or any obligation of the Borrower
remains outstanding under any of the Credit Documents, as follows:
(a) Accounting; Financial Statements; Etc. The Borrower will
deliver to the Agent:
(i) Within sixty (60) days after the end of each
of its first three quarters, consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such
quarter and consolidated and consolidating statements of income and
cash flow for such period, in form and detail satisfactory to the
Agent and certified as complete and correct by the chief financial
officer, treasurer or assistant treasurer of the Borrower, which
statements shall be prepared in accordance with GAAP but without
footnotes.
(ii) Within one hundred twenty (120) days after
the end of each fiscal year, consolidated and consolidating balance
sheets of the Borrower as at the end of such fiscal year, and
consolidated and consolidating statements of profit and loss,
shareholders' equity and changes in financial position of the Borrower
for such year, setting forth in each case in comparative form the
figures for the previous fiscal year and accompanied by an opinion on
such financial statements of Ernst & Young or other certified public
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accountants currently practicing and reasonably satisfactory to the
Agent, which opinion shall be unqualified as to scope and prepared
in accordance with GAAP;
(iii) Copies of all other statements or reports
prepared by or supplied to the Borrower by its accountants or auditors
reflecting the financial position of the Borrower;
(iv) Promptly upon becoming available, a copy of
all financial statements, reports, notices and proxy statements sent
by the Borrower to shareholders of Borrower and of all regular and
periodic reports filed by the Borrower with any securities exchange or
with the Securities and Exchange Commission or any governmental
authority succeeding to any or all of the functions of said
Commission;
(v) No later than sixty (60) days after the end
of each fiscal year, monthly income, expense and cash flow projections
for the next fiscal year; and
(vi) With reasonable promptness, such other data
and information with respect to the Borrower as from time to time may
be reasonably required by the Agent.
(b) Inspection. The Borrower agrees that, upon reasonable prior
notice, it will permit authorized representatives designated by the Agent to
visit and inspect any of its properties, including its books and records (and
to make extracts therefrom), and to discuss its affairs, finance and accounts
with its officers, directors, key employees and accountants, all at such
reasonable times and as often as may reasonably be requested. The Borrower
also agrees that it will at all times keep accurate and complete records with
respect to the Collateral. All information obtained will be held confidential
except as disclosure is required by law or legal process and except that such
information will be distributed to the Lenders.
(c) Use of Proceeds. The proceeds of the Loans will be used
solely for (i) the repurchase of Borrower's Senior Notes (up to $60 million par
value in the aggregate, including accrued interest), (ii) the repurchase of
Borrower's Senior Preferred Stock (up to $20 million par value in the
aggregate, including accrued dividends), (iii) the repurchase of Borrower's
common stock that is currently attached to the Senior Notes or Senior Preferred
Stock and (iv) reasonable expenses incurred with such repurchases.
(d) Notice of Default. The Borrower shall promptly notify the
Agent in writing upon the happening or occurrence or existence of any Event of
Default, or any event or condition which with the passage of time or giving of
notice, or both, would constitute an Event of Default, and shall provide to the
Agent with such written notice a detailed statement by a responsible officer of
the Borrower of all relevant facts and the action being taken or proposed to be
taken by the Borrower with respect thereto.
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(e) Compliance with Regulation U. The Borrower shall, upon
request of the Agent, take such action with respect to repurchased Senior Notes
and Senior Preferred Stock, as well as any of Borrower's common stock that may
be attached to such repurchased Senior Notes and/or Senior Preferred Stock, so
as to prevent any violation of Regulation U.
(f) Other Affirmative Covenants. The covenants of the Borrower
set forth in Sections 8.1, 8.2, 8.5, 8.7, 8.8, 8.9, 8.10, 8.12, 8.13, 8.14,
8.15 and 8.16 of the Acme Boot Financing Agreement are incorporated herein by
reference and shall be binding on the Borrower as if set forth herein (and all
defined terms used in such covenants shall have the meanings set forth in the
Acme Boot Financing Credit Agreement) and all notices sent to a creditor who is
a party to the Acme Boot Financing Agreement pursuant to such covenants shall
also be sent to the Agent.
7.2 Affirmative Covenants of Guarantors. Each Guarantor
covenants, for so long as any Loans are outstanding or any obligation of such
Guarantor remains outstanding under any of the Credit Documents, as follows:
(a) Financial Statements. The Fruit Guarantor will furnish to the
Agent:
(i) as soon as available, but in any event within
120 days after the end of each fiscal year of the Fruit Guarantor, a
copy of the consolidated balance sheet of the Fruit Guarantor and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the
previous year; and
(ii) as soon as available, but in any event not
later than 60 days after the end of each of the first three quarterly
periods of each fiscal year of the Fruit Guarantor, the unaudited
consolidated balance sheet of the Fruit Guarantor and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and of cash flows of the Fruit
Guarantor and its consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the previous
year (except with respect to balance sheet figures which shall be in
comparative form for the previous audited period only).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by the accountants preparing such statements or officer of the
Borrower, as the case may be, and disclosed therein) and, in the case of the
consolidated financial statements referred to in subsection 7.2(a) above,
accompanied by
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a report thereon of independent certified public accountants of recognized
national standing, which report shall contain no qualifications with respect to
the continuance of the Fruit Guarantor and its Subsidiaries as going concerns
and shall state that such financial statements present fairly the financial
position of the Fruit Guarantor and its Subsidiaries as at the dates indicated
and the results of their operations and cash flow for the periods indicated in
conformity with GAAP and that the examination by such accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards.
(b) Other Requested Information. Furnish to the Agent such other
information respecting the respective properties, business affairs, financial
condition and/or operations of each Guarantor or any of its Subsidiaries as the
Agent may from time to time reasonably request.
(c) Inspection of Property, Books and Records. Keep, or cause to
be kept, adequate records and books of accounts, in which complete entries are
to be made reflecting its business and financial transactions, such entries to
be made in accordance with GAAP consistently applied and permit the Agent or
its representatives, at any reasonable time, and from time to time at the
reasonable request of Agents and upon reasonable notice, to visit and inspect
its properties, to examine and make copies of and take abstracts from its
records and books of accounts, and to discuss its affairs, finances and
accounts with its principal officers, directors and independent public
accountants. All information obtained will be held confidential except as
disclosure is required by law or legal process and except that such information
will be distributed to the Lenders.
(d) Other Affirmative Covenants of Fruit Guarantor. The covenants
of the Fruit Guarantor set forth in Sections 5.3, 5.4, 5.5, 5.7, 5.8 and 5.9 of
the Fruit of the Loom Financing Agreement are incorporated herein by reference
and shall be binding on the Fruit Guarantor as if set forth herein (and all
defined terms used in such covenants shall have the meanings set forth in the
Fruit of the Loom Financing Agreement) and all notices sent to a creditor who
is a party to the Fruit of the Loom Financing Agreement pursuant to such
covenants shall also be sent to the Agent.
SECTION 8.
NEGATIVE COVENANTS
8.1 Negative Covenants of Borrower. The Borrower covenants, for
so long as any Loans are outstanding or any obligation of the Borrower remains
outstanding under any of the Credit Documents, as follows:
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(a) Indebtedness. The Borrower will not, nor will it permit its
Subsidiaries to, obtain or attempt to obtain (other than for the purpose of
repaying the Credit Party Obligations in full) any loans, advances, or other
financial accommodations or arrangements from any Person other than (i) the
Loans, (ii) the "Loans" to the Borrower under the Acme Boot Financing Agreement
(as defined therein) and (iii) as permitted by Section 9.1 of the Acme Boot
Financing Agreement.
(b) Liens. The Borrower will not, nor will it permit its
Subsidiaries to: create, incur, assume or suffer to exist any Lien of any kind
upon any of its property or assets (including the Collateral), whether now
owned or hereafter acquired, other than (i) Liens in favor of the Lenders, (ii)
as permitted by Section 9.2 of the Acme Boot Financing Agreement, and (iii)
Liens upon the Senior Notes and Senior Preferred Stock or any of Borrower's
common stock that may be attached to the Senior Notes and/or Senior Preferred
Stock.
(c) Sale of Assets. The Borrower will not, nor will it permit its
Subsidiaries to, sell, lease or otherwise transfer all or any material part of
its assets, except inventory in the ordinary course of its business, unless the
Borrower complies with Section 3.2(b)(iii) hereof. The Borrower will not, nor
will it permit its Subsidiaries to, sell any of the Collateral (other than
Collateral sold with the consent of NationsBank of Georgia, N.A., the proceeds
of which are used to pay obligations owing by the Borrower under the Acme Boot
Financing Agreement), except inventory in the ordinary course of business and
obsolete equipment, unless the Borrower complies with Section 3.2(b)(iii)
hereof.
(d) Other Negative Covenants. The covenants set forth in Sections
9.3, 9.4, 9.5, 9.6, 9.7, 9.9, 9.10, 9.11, 9.12 and 9.13 of the Acme Boot
Financing Agreement are incorporated herein by reference and shall be binding
on the Borrower as if set forth herein (and all defined terms used in such
covenants shall have the meanings set forth in the Acme Boot Financing
Agreement).
8.2 Negative Covenants of Fruit Guarantor. The covenants set
forth in Article VI of the Fruit of the Loom Financing Agreement are
incorporated herein by reference and shall be binding on the Fruit Guarantor as
if set forth herein (and all defined terms used in such covenants shall have
the meanings set forth in the Fruit of the Loom Financing Agreement).
SECTION 9.
GUARANTY
9.1 Guaranty of Payment. Subject to Section 9.7 below, each
Guarantor hereby unconditionally guarantees to each Lender and the Agent the
prompt payment of the Credit Party Obligations in full when due (whether at
stated maturity, as a mandatory prepayment, by
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acceleration or otherwise). This Guaranty is a guaranty of payment and not of
collection and is a continuing guaranty and shall apply to all Credit Party
Obligations whenever arising.
9.2 Obligations Unconditional. The obligations of the Guarantors
hereunder are absolute and unconditional, irrespective of the value,
genuineness, validity, regularity or enforceability of any of the Credit
Documents, or any other agreement or instrument referred to therein, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor. Each Guarantor agrees that this
Guaranty may be enforced by the Lenders without the necessity at any time of
resorting to or exhausting any other security or collateral and without the
necessity at any time of having recourse to the Notes or any other of the
Credit Documents or any Collateral, if any, hereafter securing the Credit Party
Obligations or otherwise and each Guarantor hereby waives the right to require
the Lenders to proceed against the Borrower or any other Person (including a
co-guarantor) or to require the Lenders to pursue any other remedy or enforce
any other right. Without limiting the generality of the foregoing, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. Sections
26-7 through 26-9, inclusive. Each Guarantor further agrees that such
Guarantor shall have no right of subrogation, indemnity, reimbursement or
contribution against the Borrower or any other guarantor of the Credit Party
Obligations for amounts paid under this Guaranty until such time as the Lenders
have been paid in full, the Commitment under the Credit Agreement has been
terminated and no Person or Governmental Authority shall have any right to
request any return or reimbursement of funds from the Lenders in connection
with monies received under the Loan Documents. Each Guarantor further agrees
that nothing contained herein shall prevent the Lenders from suing on the Notes
or any of the other Credit Documents or foreclosing its security interest in or
Lien on any Collateral, if any, securing the Credit Party Obligations or from
exercising any other rights available to it under this Credit Agreement, the
Notes, any other of the Credit Documents, or any other instrument of security,
if any, and the exercise of any of the aforesaid rights and the completion of
any foreclosure proceedings shall not constitute a discharge of any of such
Guarantor's obligations hereunder; it being the purpose and intent of each
Guarantor that such Guarantor's obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances until payment and
full performance of all Credit Party Obligations. Neither the Guarantors'
obligations under this Guaranty nor any remedy for the enforcement thereof
shall be impaired, modified, changed or released in any manner whatsoever by
any impairment, modification, change, release or limitation of the liability of
the Borrower or by reason of the bankruptcy or insolvency of the Borrower.
9.3 Modifications. Each Guarantor agrees that (a) all or any part
of the security now or hereafter held for the Credit Party
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Obligations, if any, may be exchanged, compromised or surrendered from time to
time; (b) the Lenders shall not have any obligation to protect, perfect, secure
or insure any such security interests, liens or encumbrances now or hereafter
held, if any, for the Credit Party Obligations or the properties subject
thereto; (c) the time or place of payment of the Credit Party Obligations may
be changed or extended, in whole or in part, to a time certain or otherwise,
and may be renewed or accelerated, in whole or in part; (d) the Borrower and
any other party liable for payment under the Loan Documents may be granted
indulgences generally; (e) any of the provisions of the Notes or any of the
other Loan Documents may be modified, amended or waived; (f) any party
(including any co-guarantor) liable for the payment thereof may be granted
indulgences or be released; and (g) any deposit balance for the credit of the
Borrower or any other party liable for the payment of the Credit Party
Obligations or liable upon any security therefor may be released, in whole or
in part, at, before or after the stated, extended or accelerated maturity of
the Credit Party Obligations, all without notice to or further assent by any
Guarantor, which shall remain bound thereon, notwithstanding any such exchange,
compromise, surrender, extension, renewal, acceleration, modification,
indulgence or release.
9.4 Waiver of Rights. Each Guarantor expressly waives: (a)
notice of acceptance of this Guaranty by the Lenders and of all extensions of
credit to the Borrower by the Lenders; (b) presentment and demand for payment
or performance of any of the Credit Party Obligations; (c) protest and notice
of dishonor or of default (except as specifically required in the Credit
Agreement) with respect to the Obligations or with respect to any security
therefor; (d) notice of the Lenders obtaining, amending, substituting for,
releasing, waiving or modifying any security interest, lien or encumbrance, if
any, hereafter securing the Credit Party Obligations, or the Lenders'
subordinating, compromising, discharging or releasing such security interests,
liens or encumbrances, if any; provided that the Agent shall notify the
Guarantors at the time it affirmatively releases, waives, modifies,
subordinates or compromises any security interest created pursuant to the Loan
Documents; (e) all other notices to which the Guarantors might otherwise be
entitled; and (f) demand for payment under this Guaranty.
9.5 Reinstatement. The obligations of the Guarantors under this
Section 9 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Person in respect of the Credit Party
Obligations is rescinded or must be otherwise restored by any holder of any of
the Credit Party Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and each Guarantor agrees that it
will indemnify the Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, reasonable fees of counsel) incurred
by the Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging
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that such payment constituted a preference, fraudulent transfer or similar
payment under any bankruptcy, insolvency or similar law.
9.6 Remedies. Each Guarantor agrees that, as between such
Guarantor, on the one hand, and the Agent and the Lenders, on the other hand,
the Credit Party Obligations may be declared to be forthwith due and payable as
provided in Section 10.2 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in Section 10.2)
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing such Credit Party Obligations from becoming
automatically due and payable) as against any other Person and that, in the
event of such declaration (or such Credit Party Obligations being deemed to
have become automatically due and payable), such Credit Party Obligations
(whether or not due and payable by any other Person) shall forthwith become due
and payable by each Guarantor. Each Guarantor (other than the Fruit Guarantor)
acknowledges and agrees that its obligations hereunder are secured in
accordance with the terms of the Security Agreements and that the Lenders may
exercise their remedies thereunder in accordance with their terms.
9.7 Limitation of Guaranty. Notwithstanding any provision to the
contrary contained herein or in any other of the Credit Documents, the
obligations of each Guarantor hereunder shall be limited to an aggregate amount
equal to the largest amount that would not render its obligations hereunder
subject to avoidance under Section 548 of the Bankruptcy Code or any comparable
provisions of any applicable state law.
SECTION 10.
EVENTS OF DEFAULT
10.1 Events of Default. An Event of Default shall exist upon the
occurrence of any of the following specified events (each an "Event of
Default"):
(a) Payment. The Borrower shall default in the payment when due
of any principal, interest, fees or other amounts owing hereunder and such
default shall continue unremedied for three or more days thereafter.
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein (including, without
limitation, representations and warranties incorporated herein by reference),
in any of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall prove
untrue in any material respect on the date as of which it was deemed to have
been made.
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(c) Covenants. Any Credit Party shall default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in subsections (a) or (b) of this Section 10.1) contained in
this Credit Agreement (including, without limitation, covenants incorporated
herein by reference) and such default shall continue unremedied for a period of
at least 30 days after the earlier of an authorized officer of a Credit Party
becoming aware of such default or notice thereof given by the Agent.
(d) Other Credit Documents. (i) Any Credit Party shall default in
the due performance or observance of any term, covenant or agreement in any of
the other Credit Documents and such default shall continue unremedied for a
period of at least 30 days after the earlier of an authorized officer of a
Credit Party becoming aware of such default or notice thereof given by the
Agent or (ii) any Credit Document shall fail to be in full force and effect or
to give the Agent and/or the Lenders the security interests, liens, rights,
powers and privileges purported to be created thereby.
(e) Guaranty. The guaranty given by the Guarantors hereunder or
any provision thereof shall cease to be in full force and effect or a Guarantor
or any Person acting by or on behalf of a Guarantor shall deny or disaffirm
such Guarantor's obligations under such guaranty.
(f) Bankruptcy, etc. The occurrence of any of the following with
respect to a Credit Party (i) a court or governmental agency having
jurisdiction in the premises shall enter a decree or order for relief in
respect of a Credit Party in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of a Credit Party or for any substantial part of its property
or ordering the winding up or liquidation of its affairs; or (ii) an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect is commenced against a Credit Party and such
petition remains unstayed and in effect for a period of 60 consecutive days; or
(iii) a Credit Party shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
such Person or any substantial part of its property or make any general
assignment for the benefit of creditors; or (iv) a Credit Party shall admit in
writing its inability to pay its debts generally as they become due or any
action shall be taken by such Person in furtherance of any of the aforesaid
purposes.
(g) Ownership. There shall occur a Change of Control.
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(h) Other Financing Agreements. There shall occur an Event of
Default (as defined therein) under (i) the Acme Boot Financing Agreement, (ii)
the Fruit of the Loom Financing Agreement or (iii) the Acme Retail Financing
Agreement.
10.2 Acceleration; Remedies. Upon the occurrence of an Event of
Default, and at any time thereafter unless and until such Event of Default has
been waived by the Required Lenders or cured to the satisfaction of the
Required Lenders, the Agent may, and shall, upon the request and direction of
the Required Lenders, by written notice to the Borrower take any of the
following actions without prejudice to the rights of the Agent or any Lender to
enforce its claims against the Credit Parties, except as otherwise specifically
provided for herein:
(i) Termination of Commitments. Declare the Commitment
terminated whereupon the Commitment shall be immediately terminated.
(ii) Acceleration of Loans. Declare the unpaid principal
of and any accrued interest in respect of all Loans and any and all
other indebtedness or obligations of any and every kind owing by the
Borrower to any of the Lenders hereunder to be due whereupon the same
shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Borrower.
(iii) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents, including,
without limitation, all rights and remedies existing under the
Security Agreements, all rights and remedies against the Guarantors
and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
10.1(f) shall occur, then the Commitment shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid fees and
other indebtedness or obligations owing to the Lenders hereunder shall
immediately become due and payable without the giving of any notice or other
action by the Agent or the Lenders.
SECTION 11.
AGENCY PROVISIONS
11.1 Appointment. Each Lender hereby designates and appoints
NationsBank, N.A. (Carolinas) as agent of such Lender to act as specified
herein and the other Credit Documents, and each such Lender hereby authorizes
the Agent, as the agent for such Lender, to take such action on its behalf
under the provisions of this Credit Agreement and the other Credit Documents
and to exercise such powers and perform such duties as are expressly delegated
by
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the terms hereof and of the other Credit Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere herein and in the other Credit Documents, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any of the other
Credit Documents, or shall otherwise exist against the Agent. The provisions
of this Section are solely for the benefit of the Agent and the Lenders and
none of the Credit Parties shall have any rights as a third party beneficiary
of the provisions hereof. In performing its functions and duties under this
Credit Agreement and the other Credit Documents, the Agent shall act solely as
agent of the Lenders and does not assume and shall not be deemed to have
assumed any obligation or relationship of agency or trust with or for the
Borrower or any other Credit Party.
11.2 Delegation of Duties. The Agent may execute any of its duties
hereunder or under the other Credit Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
11.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall
be (a) liable for any action lawfully taken or omitted to be taken by it or
such Person under or in connection herewith or in connection with any of the
other Credit Documents (except for its or such Person's own gross negligence or
willful misconduct), or (b) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by any of the
Credit Parties contained herein or in any of the other Credit Documents or in
any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection herewith or in
connection with the other Credit Documents, or enforceability or sufficiency
therefor of any of the other Credit Documents, or for any failure of the
Borrower to perform its obligations hereunder or thereunder. The Agent shall
not be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Credit Agreement, or any
of the other Credit Documents or for any representations, warranties, recitals
or statements made herein or therein or made by the Borrower or any Credit
Party in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection
herewith or therewith furnished or made by the Agent to the Lenders or by or on
behalf of the Credit Parties to the Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the
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existence or possible existence of any Default or Event of Default or to
inspect the properties, books or records of the Credit Parties. The Agent is
not a trustee for the Lenders and owes no fiduciary duty to the Lenders.
11.4 Reliance on Communications. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower or any of the other Credit Parties, independent accountants and other
experts selected by the Agent with reasonable care). The Agent may deem and
treat the Lenders as the owner of its interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent in accordance with Section 12.3(b) hereof. The
Agent shall be fully justified in failing or refusing to take any action under
this Credit Agreement or under any of the other Credit Documents unless it
shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or under any of the other Credit Documents in accordance with a request of the
Required Lenders (or to the extent specifically provided in Section 12.6, all
the Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors and
assigns).
11.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Agent receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders.
11.6 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent or any
affiliate thereof hereinafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any
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other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Credit Agreement. Each Lender also represents
that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement, and
to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Borrower which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates.
11.7 Indemnification. The Lenders agree to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitments, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including without
limitation at any time following the payment of the Credit Party Obligations)
be imposed on, incurred by or asserted against the Agent in its capacity as
such in any way relating to or arising out of this Credit Agreement or the
other Credit Documents or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby or any action
taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of the Agent. If any indemnity furnished to
the Agent for any purpose shall, in the opinion of the Agent, be insufficient
or become impaired, the Agent may call for additional indemnity and cease, or
not commence, to do the acts indemnified against until such additional
indemnity is furnished. The agreements in this Section shall survive the
payment of the Credit Party Obligations and all other amounts payable hereunder
and under the other Credit Documents.
11.8 Agent in Its Individual Capacity. The Agent and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower or any other Credit Party as though the
Agent were not Agent hereunder. With
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respect to the Loans made and all Obligations owing to it, the Agent shall have
the same rights and powers under this Credit Agreement as any Lender and may
exercise the same as though they were not Agent, and the terms "Lender" and
"Lenders" shall include the Agent in their individual capacity.
11.9 Successor Agent. The Agent may, at any time, resign upon 20
days written notice to the Lenders. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Agent with the prior
written consent of the Borrower and Guarantors (unless a Default or Event of
Default exists and is continuing and then such consent shall not be required).
If no successor Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the notice of
resignation, then the retiring Agent shall select a successor Agent provided
such successor is a Lender hereunder or a commercial bank organized under the
laws of the United States of America or of any State thereof and has a combined
capital and surplus of at least $400,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations as Agent, as appropriate, under this Credit
Agreement and the other Credit Documents and the provisions of this Section
11.9 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Credit Agreement.
SECTION 12.
MISCELLANEOUS
12.1 Notices. Except as otherwise expressly provided herein, all
notices and other communications shall have been duly given and shall be
effective (i) when delivered, (ii) when transmitted via telecopy (or other
facsimile device), (iii) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (iv) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on Schedule
12.1, or at such other address as such party may specify by written notice to
the other parties hereto.
12.2 Right of Set-Off. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of, and during the continuance of, an Event of
Default and the commencement of remedies described in Section 10.2 hereof, each
Lender is authorized at any time and from time to time, without presentment,
demand, protest or other notice of any kind (all of which rights being hereby
expressly waived), to set-off and to appropriate and apply any and all deposits
(general or special) and any other
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indebtedness at any time held or owing by such Lender (including, without
limitation branches, agencies or Affiliates of such Lender wherever located) to
or for the credit or the account of the Borrower or any other Credit Party
against obligations and liabilities of the Borrower or any other Credit Party
to the Lenders hereunder, under the Notes, the other Credit Documents or
otherwise, irrespective of whether the Agent or the Lenders shall have made any
demand hereunder and although such obligations, liabilities or claims, or any
of them, may be contingent or unmatured, and any such set-off shall be deemed
to have been made immediately upon the occurrence of an Event of Default even
though such charge is made or entered on the books of such Lender subsequent
thereto. The Credit Parties hereby agree that any Person purchasing a
participation in the Loans and Commitments hereunder pursuant to Section
12.3(c) may exercise all rights of set-off with respect to its participation
interest as fully as if such Person were a Lender hereunder.
12.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that the Borrower may not assign and
transfer any of its interests without prior written consent of the Lenders; and
provided further that the rights of each Lender to transfer, assign or grant
participations in its rights and/or obligations hereunder shall be limited as
set forth in this Section 12.3. Notwithstanding the above, nothing herein
shall prevent or prohibit any Lender from (i) pledging its Loans hereunder to a
Federal Reserve Bank in support of borrowings made by such Lender from such
Federal Reserve Bank, or (ii) granting assignments or participation in such
Lender's Loans and/or Commitments hereunder to its parent company and/or to any
Affiliate of such Lender.
(b) Assignments. Each Lender may, with the prior written consent
of the Borrower, the Fruit Guarantor and the Agent, which consent shall not be
unreasonably withheld or delayed, assign all or a portion of its rights and
obligations hereunder pursuant to an assignment agreement substantially in the
form of Exhibit 12.3 to one or more Eligible Assignees; provided that (i) any
such assignment shall be in a minimum aggregate amount of $5,000,000 of the
Commitment and in integral multiples of $1,000,000 above such amount and (ii)
each such assignment shall be of a constant, not varying, percentage of all of
the assigning Lender's rights and obligations under this Credit Agreement. Any
assignment hereunder shall be effective upon satisfaction of the conditions set
forth above and delivery to the Agent of a duly executed assignment agreement
together with a transfer fee of $2,500 payable to the Agent for its own
account. Upon the effectiveness of any such assignment, the assignee shall
become a "Lender" for all purposes of this Credit Agreement and the other
Credit Documents and, to the extent of such assignment, the assigning Lender
shall be relieved of its obligations hereunder to the extent of the Loans and
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Commitment components being assigned. Along such lines the Borrower agrees
that upon notice of any such assignment and surrender of the appropriate Note
or Notes, it will promptly provide to the assigning Lender and to the assignee
separate promissory notes in the amount of their respective interests
substantially in the form of the original Note (but with notation thereon that
it is given in substitution for and replacement of the original Note or any
replacement notes thereof).
(c) Participations. Each Lender may sell, transfer, grant or
assign participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall remain a
"Lender" for all purposes under this Credit Agreement (such selling Lender's
obligations under the Credit Documents remaining unchanged) and the participant
shall not constitute a Lender hereunder, (ii) no such participant shall have,
or be granted, rights to approve any amendment or waiver relating to this
Credit Agreement or the other Credit Documents except to the extent any such
amendment or waiver would (A) reduce the principal of or rate of interest on or
fees in respect of any Loans in which the participant is participating, (B)
postpone the date fixed for any payment of principal (including extension of
the Maturity Date or the date of any mandatory prepayment), interest or fees in
which the participant is participating, or (C) release all or substantially all
of the Collateral or release the Guaranty (except as expressly provided in the
Credit Documents) supporting any of the Loans or the Commitment in which the
participant is participating, (iii) sub-participations by the participant
(except to an Affiliate, parent company or Affiliate of a parent company of the
participant) shall be prohibited and (iv) any such participations shall be in a
minimum aggregate amount of $5,000,000 of the Commitment and in integral
multiples of $1,000,000 in excess thereof. In the case of any such
participation, the participant shall not have any rights under this Credit
Agreement or the other Credit Documents (the participant's rights against the
selling Lender in respect of such participation to be those set forth in the
participation agreement with such Lender creating such participation) and all
amounts payable by the Borrower hereunder shall be determined as if such Lender
had not sold such participation; provided, however, that such participant shall
be entitled to receive additional amounts under Section 4 to the same extent
that the Lender from which such participant acquired its participation would be
entitled to the benefit of such cost protection provisions.
12.4 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Agent or any Lender in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
the Borrower or any Credit Party and the Agent or any Lender shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies
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provided herein are cumulative and not exclusive of any rights or remedies
which the Agent or any Lender would otherwise have. No notice to or demand on
the Borrower in any case shall entitle the Borrower or any Credit Party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
12.5 Payment of Expenses, etc. The Credit Parties agree to: (i)
pay all reasonable out-of-pocket costs and expenses of the Agent in connection
with the negotiation, preparation, execution and delivery and administration of
this Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and expenses of Moore & Van Allen, special counsel to the Agent) and any
amendment, waiver or consent relating hereto and thereto including, but not
limited to, any such amendments, waivers or consents resulting from or related
to any work-out, renegotiation or restructure relating to the performance by
the Borrower under this Credit Agreement and of the Agent and the Lenders in
connection with enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, in connection
with any such enforcement, the reasonable fees and disbursements of counsel for
the Agent and each of the Lenders); (ii) pay and hold each of the Lenders
harmless from and against any and all present and future claims for Taxes and
Other Taxes and hold each of the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Lender) to pay such Taxes and Other Taxes;
and (iii) indemnify each Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses incurred by any of them as
a result of, or arising out of, or in any way related to, or by reason of, any
investigation, litigation or other proceeding (whether or not any Lender is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of proceeds of any Loans (including other extensions of
credit) hereunder or the consummation of any other transactions contemplated in
any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of gross
negligence or willful misconduct on the part of the Person to be indemnified).
12.6 Amendments, Waivers and Consents. Neither this Credit
Agreement nor any other Credit Document nor any of the terms hereof or thereof
may be amended, changed, waived, discharged or terminated unless such
amendment, change, waiver, discharge or termination is in writing signed by the
Required Lenders; provided that no such amendment, change, waiver, discharge or
termination shall, without the consent of each Lender, (a) extend the scheduled
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maturities (including the final maturity and any mandatory prepayments) of any
Loan, or any portion thereof, or reduce the rate or extend the time of payment
of interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or fees hereunder or reduce
the principal amount thereof, or increase the Commitments of the Lenders over
the amount thereof in effect (it being understood and agreed that a waiver of
any Default or Event of Default or of a mandatory reduction in the total
Commitments shall not constitute a change in the terms of any Commitment of any
Lender), (b) release all or substantially all of the Collateral securing the
Credit Party Obligations hereunder, (c) release the Borrower or the Fruit
Guarantor from its obligations under the Credit Documents, (d) amend, modify or
waive any provision of this Section or Section 3.6, 3.8, 4.1, 4.2, 4.3, 4.4,
10.1(a), 11.7, 12.2 and 12.3, (e) reduce any percentage specified in, or
otherwise modify, the definition of Required Lenders or (f) consent to the
assignment or transfer by the Borrower or the Fruit Guarantor of any of its
rights and obligations under (or in respect of) the Credit Documents. No
provision of Section 11 may be amended without the consent of the Agent.
12.7 Counterparts. This Credit Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Credit Agreement to produce or
account for more than one such counterpart.
12.8 Headings. The headings of the sections and subsections hereof
are provided for convenience only and shall not in any way affect the meaning
or construction of any provision of this Credit Agreement.
12.9 Defaulting Lender. Each Lender understands and agrees that if
such Lender is a Defaulting Lender then it shall not be entitled to vote on any
matter requiring the consent of the Required Lenders or to object to any matter
requiring the consent of all the Lenders; provided, however, that all other
benefits and obligations under the Loan Documents shall apply to such
Defaulting Lender.
12.10 Survival of Indemnification and Representations and Warranties.
All indemnities set forth herein and all representations and warranties made
herein shall survive the execution and delivery of this Credit Agreement, the
making of the Loans, and the repayment of the Loans and other obligations and
the termination of the Commitment hereunder.
12.11 Governing Law; Venue.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE
44
<PAGE> 48
WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding
with respect to this Agreement or any other Credit Document may be brought in
the courts of the State of North Carolina in Mecklenburg County, or of the
United States for the Western District of North Carolina, and, by execution and
delivery of this Credit Agreement, each Credit Party hereby irrevocably accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of such courts. Each Credit Party further irrevocably consents to
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at the address for notices pursuant to
Section 12.1, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of a Lender to serve process in any other
manner permitted by law or to commence legal proceedings or to otherwise
proceed against a Credit Party in any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
12.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE OTHER
CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.13 Time. All references to time herein shall be references to
Eastern Standard Time or Eastern Daylight Time, as the case may be, unless
specified otherwise.
12.14 Computation of Time Periods. For purposes of computation of
periods of time hereunder, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding."
12.15 Severability. If any provision of any of the Credit Documents
is determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
12.16 Entirety. This Credit Agreement together with the other Credit
Documents represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment
45
<PAGE> 49
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
[Remainder of Page Intentionally Left Blank]
46
<PAGE> 50
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
<TABLE>
<S> <C>
BORROWER:
ACME BOOT COMPANY, INC.
ATTEST a Delaware corporation
By:_____________________________________
______________________
(CORPORATE SEAL) Name:___________________________________
Title___________________________________
GUARANTORS: FRUIT OF THE LOOM, INC.
a Delaware corporation
ATTEST
By:_____________________________________
______________________
(CORPORATE SEAL) Name:___________________________________
Title___________________________________
ACME BOOT RETAIL CO., INC.,
ATTEST a Kentucky corporation
By:_____________________________________
______________________
(CORPORATE SEAL) Name:___________________________________
Title___________________________________
ACME FOOTWEAR COMPANY, INC.,
ATTEST a Delaware corporation
By:_____________________________________
______________________
(CORPORATE SEAL) Name:___________________________________
Title___________________________________
</TABLE>
47
<PAGE> 51
LENDERS:
NATIONSBANK, N.A. (CAROLINAS),
individually in its capacity as a
Lender and in its capacity as Agent
By:________________________________
Name:______________________________
Title______________________________
48
<PAGE> 52
Schedule 1.1
Commitment Percentages
<TABLE>
<CAPTION>
Lender Commitment Percentage
- ------ ---------------------
<S> <C>
NationsBank, N.A. (Carolinas) 100%
</TABLE>
49
<PAGE> 53
Schedule 12.1
Notices
Borrower, Acme Boot Retail Co., Inc., Acme Footwear Company, Inc.
[Acme Boot Company, Inc.]
[Acme Boot Retail Co., Inc.]
[Acme Footwear Company, Inc.]
1002 Stafford Street
Clarksville, TN 37040
Attn: Calvin McKay
Telephone: (615) 552-2000
Telecopy: (615) 647-3566
with a copy to:
233 South Wacker Drive
Suite 5000
Sears Tower
Chicago, IL 60606
Attn: Earl C. Shanks
Telephone: (312) 993-1869
Telecopy: (312) 993-1749
Fruit Guarantor
Fruit of the Loom, Inc.
233 South Wacker Drive
Suite 5000
Sears Tower
Chicago, IL 60606
Attn: Earl C. Shanks
Telephone: (312) 993-1869
Telecopy: (312) 993-1749
with copy to:
Fruit of the Loom, Inc.
233 South Wacker Drive
Suite 5000
Sears Tower
Chicago, IL 60606
Attn: General Counsel
Telephone: (312) 993-1700
Telecopy: (312) 993-1783
50
<PAGE> 54
Agent
NationsBank, N.A. (Carolinas)
Independence Center, 15th Floor
Charlotte, NC 28255
Attn: Mollie Canup
with a copy to:
233 South Wacker Drive
Suite 2800
Sears Tower
Chicago, IL 60606
Attn: Carter E. Smith
Telephone: (312) 234-5643
Telecopy: (312) 234-5601
NationsBank, N.A. (Carolinas)
233 South Wacker Drive
Suite 2800
Sears Tower
Chicago, IL 60606
Attn: Carter E. Smith
Telephone: (312) 234-5643
Telecopy: (312) 234-5601
51
<PAGE> 1
EXHIBIT 11
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
--------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRIMARY:
Earnings (loss) available to common shares:
Earnings (loss) before extraordinary items and
cumulative effect of change in accounting
principles..................................... $(227,300) $60,300 $212,800 $188,500 $111,000
Extraordinary items.............................. -- -- (8,700) (9,900) --
Cumulative effect of change in accounting
principles..................................... (5,200) -- 3,400 -- --
--------- ------- -------- -------- --------
Net earnings (loss).............................. $(232,500) $60,300 $207,500 $178,600 $111,000
========= ======= ======== ======== ========
Average common shares outstanding.................. 76,000 76,000 76,000 76,000 69,400
========= ======= ======== ======== ========
Per Share:
Earnings (loss) before extraordinary items and
cumulative effect of change in accounting
principles..................................... $ (2.99) $ .79 $ 2.80 $ 2.48 $ 1.60
Extraordinary items.............................. -- -- (.11) (.13) --
Cumulative effect of change in accounting
principles..................................... (.07) -- .04 -- --
--------- ------- -------- -------- --------
Net earnings (loss).............................. $ (3.06) $ .79 $ 2.73 $ 2.35 $ 1.60
========= ======= ======== ======== ========
FULLY DILUTED:
Earnings (loss) available to common shares:
Earnings (loss) before extraordinary items and
cumulative effect of change in accounting
principles..................................... $(227,300) $60,300 $212,800 $188,500 $111,000
Add-interest on 6 3/4% convertible subordinated
debentures, net of tax......................... -- -- -- -- 1,500
--------- ------- -------- -------- --------
Adjusted earnings (loss) before extraordinary
items and cumulative effect of change in
accounting principles.......................... (227,300) 60,300 212,800 188,500 112,500
Extraordinary items.............................. -- -- (8,700) (9,900) --
Cumulative effect of change in accounting
principles..................................... (5,200) -- 3,400 -- --
--------- ------- -------- -------- --------
Adjusted net earnings (loss)....................... $(232,500) $60,300 $207,500 $178,600 $112,500
========= ======= ======== ======== ========
Common shares outstanding per primary
computation...................................... 76,000 76,000 76,000 76,000 69,400
Add: shares issuable from assumed exercise of
6 3/4% convertible debentures.................... -- -- -- -- 3,000
Additional effect of outstanding options as
determined by the application of the treasury
stock method..................................... -- -- -- -- 400
--------- ------- -------- -------- --------
Total........................................ 76,000 76,000 76,000 76,000 72,800
========= ======= ======== ======== ========
Per Share:
Earnings (loss) before extraordinary items and
cumulative effect of change in accounting
principles..................................... $ (2.99) $ .79 $ 2.80 $ 2.48 $ 1.55
Extraordinary items.............................. -- -- (.11) (0.13) --
Cumulative effect of change in accounting
principles..................................... (.07) -- .04 -- --
--------- ------- -------- -------- --------
Net earnings (loss).............................. $ (3.06) $ .79 $ 2.73 $ 2.35 $ 1.55
========= ======= ======== ======== ========
</TABLE>
53
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF
FRUIT OF THE LOOM, INC.(1)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------------
<S> <C>
Union Underwear Company, Inc. ............................................ New York
NWI Land Management Corporation........................................... Delaware
SUBSIDIARIES OF UNION UNDERWEAR COMPANY, INC.
Aliceville Cotton Mill, Inc. ............................................. Alabama
Apparel Outlet Stores, Inc. .............................................. Delaware
The B.V.D. Licensing Corporation.......................................... Delaware
Camp Hosiery Company, Inc. ............................................... Tennessee
Fayette Cotton Mill, Inc. ................................................ Alabama
Fruit of the Loom, Inc. (a New York corporation).......................... New York
FTL Sales Company, Inc. .................................................. New York
Gitano Fashions Limited................................................... Delaware
Greenville Manufacturing, Inc. ........................................... Mississippi
Jet Sew Technologies, Inc. ............................................... New York
Leesburg Knitting Mills, Inc. ............................................ Alabama
Martin Mills, Inc. ....................................................... Louisiana
Panola Mills, Inc. ....................................................... Mississippi
Pro Player, Inc. ......................................................... New York
Rabun Apparel, Inc. ...................................................... Georgia
Russell Hosiery Mills, Inc. .............................................. North Carolina
Salem Sportswear Corporation.............................................. Delaware
Sherman Warehouse Corporation............................................. Mississippi
Union Sales, Inc. ........................................................ Delaware
Union Yarn Mills, Inc. ................................................... Alabama
Woodville Apparel Corporation............................................. Mississippi
Winfield Cotton Mill, Inc. ............................................... Alabama
Whitmire Manufacturing, Inc. ............................................. South Carolina
Fruit of the Loom Caribbean, Inc. ........................................ Delaware
Fruit of the Loom Canada, Inc. ........................................... Ontario
Fruit of the Loom Arkansas, Inc. ......................................... Arkansas
Fruit of the Loom Texas, Inc. ............................................ Texas
Fruit of the Loom Italy, S.r.l. .......................................... Italy
AVX Management Co., Inc. ................................................. Kentucky
SUBSIDIARIES OF FRUIT OF THE LOOM, INC. (A NEW YORK CORPORATION)
Fruit of the Loom GmbH.................................................... Germany
SUBSIDIARIES OF UNION UNDERWEAR COMPANY, INC.
Superior Acquisition Corporation.......................................... Delaware
Superior Underwear Mill, Inc. ............................................ New York
FOL International......................................................... Republic of Ireland
SUBSIDIARIES OF RUSSELL HOSIERY MILLS, INC. (A NORTH CAROLINA CORPORATION)
Leesburg Yarn Mills, Inc. ................................................ Alabama
SUBSIDIARIES OF CAMP HOSIERY COMPANY, INC. (A TENNESSEE CORPORATION)
Russmont Hosiery Mill, Inc. .............................................. North Carolina
SUBSIDIARIES OF UNION SALES, INC. (A DELAWARE CORPORATION)
Fruit of the Loom Trading Company......................................... Delaware
SUBSIDIARIES OF UNION YARN MILLS, INC. (AN ALABAMA CORPORATION)
DeKalb Knitting Corporation............................................... Alabama
</TABLE>
- -------------------------
(1) Excludes some subsidiaries which, if considered in the aggregate as a single
subsidiary, would not
constitute a "significant subsidiary" at December 31, 1995.
54
<PAGE> 2
EXHIBIT 22
SUBSIDIARIES OF
FRUIT OF THE LOOM, INC.(1) -- (CONCLUDED)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------------
<S> <C>
SUBSIDIARIES OF SUPERIOR ACQUISITION CORPORATION (A DELAWARE CORPORATION)
Prendas Tejidas de Mexico, S.A. de C.V. .................................. Mexico
Tejidos de Valle Hermosa, S.A. de C.V. ................................... Mexico
Confecciones dos Caminos, S.A............................................. Honduras
Confecciones De Lourdes, S.A. de C.V. .................................... El Salvador
SUBSIDIARIES OF FOL INTERNATIONAL (A REPUBLIC OF IRELAND CORPORATION)
W.P. McCarter & Co., Ltd. ................................................ Republic of Ireland
Fruit of the Loom France, S.a.r.1. ....................................... France
FOL International GmbH.................................................... Germany
Fruit of the Loom International, Ltd. .................................... Republic of Ireland
Fruit of the Loom Investments, Ltd. ...................................... United Kingdom
Fruit of the Loom Spain, S.A. ............................................ Spain
Fruit of the Loom Benelux, S.A. .......................................... Belgium
Fruit of the Loom Nordic, AB.............................................. Sweden
Fruit of the Loom-Maroc................................................... Morocco
SUBSIDIARIES OF FRUIT OF THE LOOM INTERNATIONAL, LTD. (A REPUBLIC OF
IRELAND CORPORATION)
McCarters Ireland, Ltd. .................................................. Republic of Ireland
SUBSIDIARIES OF FRUIT OF THE LOOM INVESTMENTS, LTD. (A UNITED KINGDOM
CORPORATION)
Fruit of the Loom, Ltd. .................................................. United Kingdom
Fruit of the Loom Management Co., Ltd. ................................... United Kingdom
Fruit of the Loom Manufacturing Co., Ltd. ................................ United Kingdom
SUBSIDIARIES OF THE FRUIT OF THE LOOM TRADING COMPANY (A DELAWARE
CORPORATION)
Controladora Fruit of the Loom, S.A. de C.V. ............................. Mexico
SUBSIDIARIES OF CONTROLADORA FRUIT OF THE LOOM, S.A. DE C.V. (A MEXICO
CORPORATION)
Distribuidora Fruit of the Loom, S.A. de C.V. ............................ Mexico
Distribuidora FTL, SA. de C.V. ........................................... Mexico
Fruit of the Loom de Mexico, S.A. de C.V. ................................ Mexico
SUBSIDIARIES OF SALEM SPORTSWEAR CORPORATION
Rienzi Manufacturing, Inc. ............................................... Mississippi
Rogersville Apparel, Inc. ................................................ Alabama
Salem Screen South, Inc. ................................................. Alabama
All Star Manufacturing, Inc. ............................................. Alabama
Salem Sportswear, Inc. ................................................... New Hampshire
SUBSIDIARIES OF SALEM SPORTSWEAR, INC.
Salem International, Inc. (FSC)........................................... U.S. Virgin Islands
SUBSIDIARIES OF GITANO FASHIONS LIMITED
Noel of Jamaica Limited................................................... Jamaica
Dutton II Trading Limited................................................. Hong Kong
SUBSIDIARIES OF DUTTON II TRADING LIMITED
P.S. Garment Limited...................................................... Hong Kong
</TABLE>
- -------------------------
(1) Excludes some subsidiaries which, if considered in the aggregate as a single
subsidiary, would not constitute a "significant subsidiary" at December 31,
1995.
55
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 33-18250, 33-56214, 33-57472, 33-50499 and 333-00039 and Forms
S-3 Nos. 33-56376, 33-56378 and 33-52023) pertaining to the Fruit of the Loom,
Inc. 1987 Stock Option Plan, the Richard C. Lappin Stock Option Plan, the 1992
Executive Stock Option Plan, the Fruit of the Loom, Inc. Directors' Stock Option
Plan, the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee
Directors' Stock Plan, the registration of 800,000 shares of Class A Common
Stock, the registration of 1,550,391 shares of Class A Common Stock and the
registration of 1,800,000 shares of Class A Common Stock and in the related
Prospectuses of our report dated February 14, 1996 with respect to the
consolidated financial statements of Fruit of the Loom, Inc. and subsidiaries
included in the Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Chicago, Illinois
March 25, 1996
56
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,500
<SECURITIES> 0
<RECEIVABLES> 287,600
<ALLOWANCES> 26,600
<INVENTORY> 699,500
<CURRENT-ASSETS> 1,059,800
<PP&E> 1,607,300
<DEPRECIATION> 578,900
<TOTAL-ASSETS> 2,919,500
<CURRENT-LIABILITIES> 303,800
<BONDS> 1,427,200
0
0
<COMMON> 470,000
<OTHER-SE> 425,600
<TOTAL-LIABILITY-AND-EQUITY> 2,919,500
<SALES> 2,403,100
<TOTAL-REVENUES> 2,403,100
<CGS> 1,885,700
<TOTAL-COSTS> 1,885,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,900
<INCOME-PRETAX> (246,700)
<INCOME-TAX> (19,400)
<INCOME-CONTINUING> (227,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (5,200)
<NET-INCOME> (232,500)
<EPS-PRIMARY> (3.06)
<EPS-DILUTED> (3.06)
</TABLE>
