<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
-------------------------
<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBER 1-8941
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Class A Common Stock, $.01 par value New York Stock Exchange
7% Debentures Due 2011 American Stock Exchange
</TABLE>
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 February 28, 1997, there were outstanding 69,645,867 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 February 28, 1997 was approximately $2,833,000,000.
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 13, 1997.
================================================================================
<PAGE> 2
FRUIT OF THE LOOM, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders
(None)...................................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure (None)........................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 54
</TABLE>
i
<PAGE> 3
PART I
FORWARD LOOKING INFORMATION
Fruit of the Loom desires to provide stockholders and investors with more
meaningful and useful information. Therefore, this Annual Report contains
forward looking information and describes the Company's beliefs concerning
future business conditions and the outlook for the Company based on currently
available information. Wherever possible, the Company has identified these
"forward looking" statements by words such as "anticipates," "believes,"
"estimates," "expects" and similar expressions. These forward looking statements
are subject to risks and uncertainties which could cause the Company's actual
results or performance to differ materially from those expressed in these
statements. These risks and uncertainties include the following: 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 and
international activities. The Company assumes no obligation to update publicly
any forward looking statements, whether as a result of new information, future
events or otherwise.
ITEM 1. BUSINESS
Fruit of the Loom, Inc. ("Fruit of the Loom" or the "Company") is a
marketing oriented, vertically integrated international basic apparel company,
emphasizing branded products for consumers ranging from infants to senior
citizens. The Company 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 many colleges and universities in the United States, as well as the
likenesses of certain popular professional athletes under the PRO PLAYER(R) and
FANS GEAR(R) brands. The Company manufactures and markets men's and boys' basic
and fashion underwear, activewear for the imprint market, casualwear, jeanswear
under the GITANO(R) brand name, licensed sports apparel, women's and girls'
underwear and infants' and toddlers' apparel.
The Company's marketing programs emphasize the quality and consistency of
the brands it owns and those it licenses from others. Management believes
increased emphasis should be given to marketing programs and is doing so with
increased commitment to advertising and promotional programs. Advertising and
promotion expense was $102,700,000 in 1996 compared to $89,100,000 in 1995.
Advertising and promotion expense is expected to exceed $130,000,000 in 1997.
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, cost effective 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 products will
benefit the Company in the current retail environment where consumers are more
value conscious.
The Company offers a broad array of men's and boys' underwear including:
briefs, boxer shorts, T-shirts and A-shirts, colored and "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 overseas markets.
1
<PAGE> 4
ITEM 1. BUSINESS -- (CONTINUED)
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 28% 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 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 manufacturing
capacity, 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 Fashions
Limited ("Gitano"), including GITANO and other trademarks. Gitano designs,
manufactures (including contract manufacturing) and markets women'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 Sportswear Corporation ("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
professional sports leagues, professional players and many colleges and
universities in the United States. The Company sells a wide variety of quality
sportswear, including T-shirts, sweatshirts, shorts and outerwear under the FANS
GEAR 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 believes it 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 and T-shirts and
Fleecewear 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 1996, the Company's share in the women's and girls'
underwear market was approximately 17% compared to a market share of 28% for the
largest competing brand. No other competitor had more than a 4% market share in
1996.
2
<PAGE> 5
ITEM 1. BUSINESS -- (CONTINUED)
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.
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.
In November 1996, the Company sold substantially all the operating assets
of its Hosiery Division to an unrelated party and simultaneously entered into a
ten year licensing agreement for the purchaser to sell hosiery in a variety of
styles and colors under the FRUIT OF THE LOOM name and pay the Company a royalty
fee based on a percentage of FRUIT OF THE LOOM branded hosiery sales. Prior to
the sale, the Company manufactured and sold socks for men, women, boys and girls
under the FRUIT OF THE LOOM brand. See "SALE OF HOSIERY DIVISION" in Notes to
Consolidated Financial Statements.
MARKETING AND DISTRIBUTION
In August 1996, the Company signed a ten year agreement to rename Joe
Robbie Stadium (home of the Miami Dolphins and Florida Marlins, as well as the
FedEx(R) Orange Bowl and Carquest(R) Bowl) as Pro Player Stadium. In addition,
in 1996 the Company launched a new advertising campaign and sponsored
Countryfest, a major promotion featuring well known country music performers.
The Company expects to continue marketing activities at a higher level in future
years.
The Company sells its products to over 21,000 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 13 primary distribution centers.
The Company has historically been one of the market leaders in men's and
boys' underwear. In 1996, 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.
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 63% of the men's and boys' underwear and
approximately 59% of the women's and girls' underwear sold in the United States
in 1996, up from approximately 53% and 47%, respectively, in 1991. The Company
supplied approximately 49% of the men's and boys' underwear compared to 39% of
its principal competitor and approximately 26% of the women's and girls'
underwear compared to 38% of its principal competitor sold by discount and mass
merchandisers in the United States in 1996. 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.
The Company committed additional expenditures during 1996 to enhance its
Information Systems ("IS") and improve customer service. As part of this effort,
the Company developed a new order entry system in 1996, enabling its customers
to order from wholesalers through the Internet. In addition, the Company
implemented its Vendor Managed Inventory ("VMI") program which enables the
Company to partner with its customers and enable these customers to maintain the
most economical level of inventories. The VMI program will also enable the
Company to improve utilization of its own inventories. The initial
implementation of the VMI program was for activewear customers and is six months
ahead of original schedule. The success
3
<PAGE> 6
ITEM 1. BUSINESS -- (CONTINUED)
MARKETING AND DISTRIBUTION -- (CONTINUED)
of the program has resulted in the Company's planned expansion of VMI to other
customers in 1997. The Company plans to continue its efforts in the IS area in
future years to improve customer service.
Sales to one customer amounted to approximately 16.8%, 19.5% and 15.6% of
consolidated net sales in 1996, 1995 and 1994, respectively. Additionally, sales
to a second customer amounted to approximately 12.2%, 10.8% and 11.8% of
consolidated net sales in 1996, 1995 and 1994, 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 sells primarily activewear through its foreign operations,
principally in Europe, Canada, Japan and Mexico. The Company's approach has
generally been to establish production in the Company's larger foreign markets
in order to better serve these markets and decrease the impact of foreign
currency fluctuations. 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 Honduras, El Salvador and Jamaica to assemble
fabrics which have been manufactured and cut in the Company's U.S. 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.
Operations outside the United States are subject to risks inherent in
operating under different legal systems and various political and economic
environments. Among the risks are changes in existing tax laws, possible
limitations on foreign investment and income repatriation, government price or
foreign exchange controls and restrictions on currency exchange. At the present
time, existing limitations, controls and restrictions have not significantly
affected the Company. In addition, currency fluctuations within certain markets
present risk.
Sales from international operations during 1996 were $366,900,000 and were
principally generated from products manufactured at the Company's foreign
facilities. These international sales accounted for approximately 15% of the
Company's net sales in 1996. Management believes international sales will
continue to be a source of growth for the Company, particularly in Europe. 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 bleached and 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 (principally in the Caribbean and Central America) to further
minimize its costs. Such contract manufacturing has been increasing and
accounted for 16% of the
4
<PAGE> 7
ITEM 1. BUSINESS -- (CONTINUED)
MANUFACTURING -- (CONTINUED)
Company's total production in 1996. In addition, the Company has been
transferring increasing amounts of its sewing operations to locations in the
Caribbean and Central America employing Company personnel. These goods accounted
for approximately 22% of the Company's total production in 1996. Offshore
contract manufacturing and offshore production at locations employing Company
personnel accounted for approximately 19% and 28% of the Company's total
production in 1996 of goods to be sold in the United States.
As part of the closure of Gitano's 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 principally 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
vertically integrated. 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
including management information systems to service its customer base more
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 lines of
decorated underwear, sportswear, T-shirts and layette products. Among the
characters licensed are: BATMAN(TM) and ROBIN(TM), LOONEY TUNES, MIGHTY MORPHIN
POWER RANGERS(TM), LOST WORLD: JURASSIC PARK(TM), MIGHTY DUCKS(TM),
HERCULES(TM), SCOOBY-DOO(TM), SESAME STREET(TM), ANASTASIA, PEANUTS(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 FANS GEAR 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 colleges and universities in the United
States. These owned and licensed trademarks are used on sports apparel,
principally T-shirts, shorts, sweatshirts and jerseys, marketed by the Company.
The Company also
5
<PAGE> 8
ITEM 1. BUSINESS -- (CONTINUED)
LICENSING AND TRADEMARKS -- (CONTINUED)
licenses properties from Warner Bros. for LOONEY TUNES for use in a dual license
concept combining cartoon characters with major professional sports leagues.
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 regulations of the Department of the Treasury, United States Customs
Service. The Company believes that its domestic 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 17% of the United States men's
and boys' underwear market (75% if Section 9802 imports are included) in 1996
and about 26% (77% including Section 9802 imports) of the women's and girls'
underwear market. With regard to activewear, imports accounted for approximately
40% of this market in 1995, the latest period for which data is available.
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, the Company
believes 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 32,900 persons. Approximately 3,200
employees, principally international, are covered by collective bargaining
agreements.
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, 1996 the
Company had entered into contracts which cover substantially all of its
estimated cotton usage for 1997 and a significant portion of its estimated
cotton usage for 1998.
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
6
<PAGE> 9
ITEM 1. BUSINESS -- (CONTINUED)
MISCELLANEOUS -- (CONTINUED)
for domestic markets and are based upon information supplied to the Company by
the National Purchase Diary, which management believes to be reliable.
1995 SPECIAL CHARGES. 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 and the accelerated
migration of some sewing operations to lower cost, offshore locations. In
addition, the Company reviewed the operations of Salem and Gitano, decided to
discontinue the use of the SALEM(R) brand and redeployed the 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. During 1996, the
Company made significant progress in completing its Restructuring Plan. 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.
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
17,219,000 square feet of usable space, of which approximately 5,549,000 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 establish and support
offshore assembly operations, is expected to approximate $65,000,000 in 1997.
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:
<TABLE>
<CAPTION>
SQUARE FEET
NO. OF ---------------------
PRIMARY USE LOCATIONS OWNED LEASED
----------- --------- ----- ------
<S> <C> <C> <C>
Manufacturing.................................. 47 7,145,000 3,039,000
Warehouse and distribution..................... 23 4,298,000 2,128,000
Sales and administration....................... 28 227,000 382,000
</TABLE>
See "LEASE COMMITMENTS" and "PROPERTY, PLANT AND EQUIPMENT" in the Notes to
Consolidated Financial Statements.
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, 1996
related to discontinued operations consist primarily of certain
7
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS -- (CONTINUED)
environmental and product liability reserves of approximately $79,600,000. The
Company has recorded receivables related to these liabilities of approximately
$24,800,000 which, management believes, will be 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 10 specifically identified environmental sites and the aforementioned
product liabilities. Four sites and the total product liabilities each
individually represent more than 10% of the net reserve and, in the aggregate,
represent approximately 75% 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 by year
for the next five years and thereafter as noted below (in thousands of dollars):
<TABLE>
<S> <C>
1997.................................................. $16,000
1998.................................................. 31,900
1999.................................................. 8,500
2000.................................................. 8,800
2001.................................................. 4,700
Thereafter............................................ 9,700
-------
$79,600
=======
</TABLE>
Only the long-term monitoring costs of approximately $10,400,000, primarily
scheduled to be paid in 2001 and beyond, have been discounted. The discount rate
used was 10%. The undiscounted aggregate long-term monitoring costs, to be paid
during the years 2001 through 2018, are approximately $20,500,000. 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. In addition, in 1996 the Company elected to early adopt
Statement of Position 96-1, Environmental Remediation Liabilities, the impact of
which was not material to the Company.
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 1997 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 totaling $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.
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS -- (CONTINUED)
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, 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 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 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. All briefs have been filed and the appeal is awaiting oral
argument.
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.
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.
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 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 claimed that all of
the defendants engaged in conduct violating Section 10b of the Securities
Exchange Act of 1934, as amended (the "Act"), and that certain of its then
officers and directors also violated Section 20a of the Act.
9
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS -- (CONTINUED)
In October 1996, the District Court approved the settlement agreement
pursuant to which plaintiffs agreed to drop their claims against the defendants,
defendants' insurers agreed to pay into an escrow account, for the benefit of
plaintiffs, the sum of $7,250,000, and the settlement proceeds were allocated
between the plaintiffs and class counsel. As part of its approval, the District
Court entered a final judgment order dismissing with prejudice all of the
plaintiffs' claims against the defendants.
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. 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 had a period of 90 days from
the date of the decision to petition for review by the United States Supreme
Court. The IRS did not petition for a review and accordingly, the case is now
closed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
"STOCKHOLDERS' EQUITY" in the Notes to Consolidated Financial Statements.
William Farley also owns 246,905 shares of the Class A Common Stock of the
Company. As of February 28, 1997, there were 1,785 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 1996 and 1995:
<TABLE>
<CAPTION>
MARKET PRICES
----------------------------------------
1996 1995
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter....................................... $26 1/2 $23 $27 1/8 $23 1/8
2nd Quarter....................................... 29 1/8 22 7/8 27 3/4 19 7/8
3rd Quarter....................................... 33 3/8 22 5/8 24 7/8 20 3/8
4th Quarter....................................... 39 30 5/8 25 1/8 16 1/2
</TABLE>
No dividends were declared on the Company's common stock issues during 1996
or 1995. The Company does not currently anticipate paying any dividends in 1997.
For restrictions on the present or future ability to pay dividends, see "LONG
TERM DEBT" in the Notes to Consolidated Financial Statements.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA(1):
Net sales.............................. $2,447.4 $2,403.1 $2,297.8 $1,884.4 $1,855.1
Gross earnings......................... 730.0 517.4(4) 646.5 647.4 660.3
Operating earnings (loss).............. 325.3 (108.1)(5) 235.0(7) 381.5 409.9
Interest expense....................... 103.6 116.9 95.4 72.7 82.1
Earnings (loss) before income tax
expense (benefit), extraordinary
items and cumulative effect of change
in
accounting principles................ 185.3(2) (246.7)(6) 133.5 367.1 319.9
Earnings (loss) before extraordinary
items and cumulative effect of change
in accounting principles............. 151.2(3) (227.3) 60.3 212.8(8) 188.5
Earnings (loss) per common share before
extraordinary items and cumulative
effect of change in accounting
principles........................... 1.98 (2.99) .79 2.80(8) 2.48
Average common shares outstanding...... 76.4 76.0 76.0 76.0 76.0
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................ $2,547.0 $2,919.5 $3,163.5 $2,734.0 $2,281.9
Long-term debt, excluding current
maturities............................ 867.4 1,427.2 1,440.2 1,194.0 756.3
Deferred and noncurrent income taxes.... 16.9 -- 43.4 51.0 49.1
Other noncurrent liabilities............ 271.2 292.9 222.3 191.5 187.9
Common stockholders' equity............. 1,064.8 895.6 1,125.8 1,047.0 855.0
</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 a pretax charge of $35.0 related to the Company's evaluation of its
exposure under the guarantee of the debt of Acme Boot Company, Inc. ("Acme
Boot"), an affiliate.
(3) Includes $24.1 related to reversal of excess income tax liabilities for tax
years through December 31, 1991, all of which closed for Federal income tax
purposes effective December 31, 1996.
(4) 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 write downs
and valuations and foreign operations.
(5) 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 write downs and valuations and foreign operations.
(6) 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.
(7) Includes pretax charges of approximately $40.0 to write inventories down to
net realizable value and a pretax charge of $18.0 related to the write-off
of Artex intangibles.
(8) Includes a pretax gain of $67.3 ($.55 per share) from the Company's
investment in Acme Boot. Excluding this gain, earnings per share were $2.25.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... $2,447.4 $2,403.1 $2,297.8
Gross earnings.............................................. $ 730.0 $ 517.4 $ 646.5
Gross margin................................................ 29.8% 21.5% 28.1%
Operating earnings (loss)................................... $ 325.3 $ (108.1) $ 235.0
Operating margin............................................ 13.3% (4.5)% 10.2%
</TABLE>
OPERATIONS
1995 RESTRUCTURING AND 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. Accordingly, the Company terminated 194 salaried and
5,926 production personnel related to closed operations. Terminated personnel
were notified of their separation in 1995 and the plant closings and attendant
personnel reductions were substantially completed in 1995.
These actions included the closing in 1995 of nine domestic manufacturing
operations, further consolidation of the Company's Gitano and licensed
sportswear operations and the accelerated migration of some sewing operations to
lower cost, offshore locations, which resulted in the need to realign certain
other domestic manufacturing operations. The Company realigned its operations by
shifting production at the remaining domestic operations in order to balance its
production capabilities. In addition, management reviewed the operations of
Salem and Gitano and decided to discontinue the use of the SALEM brand and
redeployed the tangible assets relating to the Salem business to other brands
within the Company's licensed sports apparel operations. Also, the Company
discontinued certain of its product offerings, including certain licensed
products.
In addition, management determined that significant changes and investment
would be necessary to restructure the Gitano business and implemented a plan to
improve Gitano's profitability. Management 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
write downs of goodwill of $158,500,000 reflect the write-off of all goodwill
related to the Salem and Gitano businesses. See "ACQUISITIONS" in the Notes to
Consolidated Financial Statements.
During the fourth quarter of 1995, the Company recorded charges of
approximately $82,800,000 (of which $28,400,000 were non-cash charges) related
to the closing or realignment of certain domestic manufacturing operations, the
closing of certain leased manufacturing and distribution facilities, the
write-off
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1995 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
of fixed assets related to these facilities and changes in estimates of the cost
of certain of the Company's insurance obligations. The detail of these charges
is presented below (in millions of dollars):
<TABLE>
<S> <C>
Loss on disposal of closed facilities, improvements and
equipment................................................. $29.0
Changes in estimates of insurance liabilities............... 21.8
Costs related to expected increases in workers' compensation
and health and welfare costs.............................. 8.0
Costs related to termination of certain lease agreements.... 7.3
Costs related to the severance of the hourly workforce...... 6.7
Other....................................................... 10.0
-----
$82.8
=====
</TABLE>
These charges were recorded in the fourth quarter of 1995.
The Company recorded charges in the fourth quarter of 1995 of approximately
$5,800,000 (of which approximately $800,000 was paid during 1995) related to the
cost of providing severance and benefits to employees at the closed facilities
as well as certain related administrative headcount reductions. The severance
and other benefits provided consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
The Company recorded charges of approximately $91,100,000 (of which $70,600,000
are non-cash charges) related to other asset write downs, 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. See
"CONTINGENT LIABILITIES" in the Notes to Consolidated Financial Statements.
Also, management adopted a plan to realign certain of the corporate headquarters
functions and to terminate the Company's agreement regarding 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" in the Notes to Consolidated
Financial Statements.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write downs of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to inventory
write downs 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.
In 1996, the Company achieved cost savings of approximately $54,000,000, of
which $42,000,000 were cash savings. The Company anticipates 1997 cost savings
will be higher than those achieved in 1996, as 1997 will reflect a full year's
impact of the initiatives implemented in late 1995.
The above charges were recorded as $158,500,000 of impairment write down of
goodwill, $146,700,000 of increases to cost of sales, $47,000,000 of increases
to selling, general and administrative expenses 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. During 1996, the Company made significant
progress in completing its Restructuring Plan. Finalization of many of the
Special Charges estimated at December 31, 1995 occurred during 1996. Of the
Special Charges, approximately $33,400,000 were paid in 1996 and $52,000,000
remain to be paid in 1997 and future years. At December 31, 1996 approximately
$58,800,000 remains accrued relative to the special charges
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
1995 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
recorded in 1995, $8,800,000 of which relate to restructuring charges as defined
by Emerging Issues Task Force No. 94-3. See "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- USE OF ESTIMATES" in the Notes to Consolidated Financial Statements.
1996 COMPARED TO 1995
Net sales increased 1.8% in 1996 compared to 1995. The increase in net
sales was primarily due to increased shipments of activewear T-shirts for the
imprint market, activewear and casualwear fleece products, men's and boys'
underwear, women's and girls' underwear and goods sold in Mexico and improved
mix of sales of the Company's sports and licensing division. These increases
were offset in part by price decreases on activewear T-shirts, the impact of
promotional programs in response to competitive market conditions, decreased
shipments of Gitano branded products due to repositioning of the brand and
decreased shipments of licensed products in Europe. In addition, sales of
hosiery products decreased in 1996 due to the sale of the Hosiery Division in
November 1996. See "SALE OF HOSIERY DIVISION" in the Notes to Consolidated
Financial Statements.
Gross earnings increased 41.1% in 1996 compared to 1995 and the gross
margin was 29.8% in 1996 compared to 21.5% in 1995. A substantial portion of the
improvements in gross earnings and gross margin were due to special charges in
1995 and the benefits derived from the 1995 restructuring in 1996. In addition,
gross earnings and gross margin improved due to lower raw material costs,
favorable product mix and increased sales in 1996. These improvements were
offset by the impact of price decreases on activewear T-shirts, promotional
programs, cost increases at domestic facilities and higher sales of closeouts
and discontinued products, principally as a result of the 1995 decision to
eliminate a number of product offerings.
The Company had operating earnings of $325,300,000 compared to an operating
loss of $108,100,000 in 1995. The operating margin increased 17.8 percentage
points to a positive 13.3% of net sales for 1996. The increase in operating
earnings resulted from higher gross earnings combined with lower selling,
general and administrative expenses in 1996 and the recognition of the
impairment write down of goodwill in 1995. Lower selling, general and
administrative expenses arose principally from the charges taken in the fourth
quarter of 1995, lower goodwill amortization in 1996 resulting from the write
down of goodwill in 1995 and lower shipping costs in 1996 as a result of the
Company's consolidation of distribution locations. The change in selling,
general and administrative expenses also relates to severance costs in the third
quarter of 1995 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 related management
functions into the Company's existing operations. In addition, the Company
discontinued several licensing arrangements on December 31, 1995 resulting in
lower royalty expense in 1996. Also, administrative salary expense decreased in
1996 as a result of the 1995 restructuring. Finally, selling, general and
administrative expenses decreased in 1996 due to reduced management fees and
reductions in legal and professional costs and bad debt expenses. The decrease
in selling, general and administrative expenses in 1996 was partially offset by
increases in advertising and promotion expenses and increased costs for
management information services required to meet customer demand for more
sophisticated distribution and inventory control. Selling, general and
administrative expenses were 15.4% of net sales in 1996 compared to 17.9% of net
sales in 1995.
Interest expense for 1996 decreased 11.4% from 1995. The decrease was
primarily due to the effect of lower debt levels in 1996. Lower debt levels in
1996 were due to positive cash flow from operating activities (including the
sale of accounts receivable) and proceeds from the sale of the Hosiery Division.
See "SALE OF ACCOUNTS RECEIVABLE" and "SALE OF HOSIERY DIVISION" in the Notes to
Consolidated Financial Statements and LIQUIDITY AND CAPITAL RESOURCES.
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1996 COMPARED TO 1995 -- (CONTINUED)
Included in other expense-net in 1996 is a $35,000,000 charge relating to
the Company's evaluation of its exposure under the guarantee of debt incurred by
Acme Boot under Acme Boot's credit facilities. See "OTHER EXPENSE-NET" in the
Notes to Consolidated Financial Statements. 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. In addition, other expense-net in 1996 and 1995 included
approximately $5,300,000 and $5,700,000, respectively, of deferred debt
amortization and bank fees. Other expense-net in 1996 and 1995 included $700,000
and $5,700,000, respectively, of gains related to the settlement of certain
foreign currency denominated transactions. Included in other expense-net in 1996
is $1,700,000 related to the loss on the sale of accounts receivable in December
1996. See "SALE OF ACCOUNTS RECEIVABLE" in the Notes to Consolidated Financial
Statements.
The effective income tax rate in 1996 differed from the Federal statutory
rate of 35% primarily due to the impact of higher foreign earnings, certain of
which are taxed at lower rates than in the United States, goodwill amortization,
portions of which are not deductible for Federal income tax purposes, state
income taxes and the reversal of excess income tax liabilities related to all
tax years through December 31, 1991 which were closed for Federal income tax
purposes effective December 31, 1996. The effective income tax rate in 1995
differed from the Federal statutory rate of 35% primarily due to the impact of
the impairment write down of goodwill and goodwill amortization, portions of
which are not deductible for Federal income tax purposes, the impact of
non-deductible foreign losses, the provision for interest related to prior
years' taxes and state income taxes.
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
preoperating costs as incurred resulting in an after tax charge of $5,200,000
($.07 per share).
Earnings (loss) per share before cumulative effect of change in accounting
principle was $1.98 in 1996 compared to a loss of $2.99 in 1995. 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.
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
Gitano, the assets of which were acquired in late March 1994, also contributed
to the increase in net sales. Gitano's revenues in 1995 reflected 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 had been adversely affected by reduced
consumer demand caused by labor issues in certain of the professional sports
leagues, resulted in lower unit sales levels in 1995 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.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1995 COMPARED TO 1994 -- (CONTINUED)
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 the
impairment write down 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.
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 write down
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
preoperating costs as incurred resulting in an after tax charge of $5,200,000
($.07 per share).
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1995 COMPARED TO 1994 -- (CONTINUED)
Earnings (loss) per share before cumulative effect of change in accounting
principle 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.
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. The Company has available for the funding of its operations
approximately $970,200,000 of revolving lines of credit. As of February 28, 1997
approximately $604,200,000 was available and unused under these facilities.
The Company had available a $125,000,000 short-term revolving commitment
from a group of banks which was terminated in March 1997. At December 31, 1996,
no borrowings were outstanding under this facility.
Net cash provided by operating activities for the years ended December 31,
1996 and 1995 were $513,700,000 and $107,000,000, respectively. The primary
components of cash provided by operating activities in 1996 were net earnings
plus depreciation and amortization (totaling $306,900,000) plus a decrease in
working capital of $190,900,000. In 1996, decreases in notes and accounts
receivable of $93,700,000 and inventories of $53,100,000 and increases in trade
accounts payable of $51,800,000 more than offset other working capital uses of
$7,700,000. The decrease in notes and accounts receivable in 1996 reflects the
Sale of Accounts Receivable of $200,000,000, partially offset by an increase in
sales in the fourth quarter over 1995, increased sales allowances and an
increase of reserves included in other accounts payable and accrued expenses
related to the Receivables sold. The decrease in inventory in 1996 resulted from
the implementation of management's plans to reduce inventories and the 1995
decision to eliminate a number of product offerings. The primary components of
cash provided by operating activities in 1995 were the net loss as adjusted for
depreciation and amortization and impairment write down 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 increases in
inventory in 1995 reflected the Company's ongoing efforts to improve customer
service and the sluggish retail environment which led to lower than anticipated
sales volumes.
Net cash provided by investing activities in 1996 was $31,300,000, as
compared to net cash used for investing activities of $103,300,000 in 1995. The
favorable year-to-year comparison largely resulted from lower capital
expenditures in 1996 ($44,500,000 as compared to $121,700,000 in 1995) and
proceeds from the sale of the Hosiery Division in 1996 of $73,800,000. Capital
spending, primarily to support offshore assembly operations, is anticipated to
approximate $65,000,000 in 1997 compared to $44,500,000 in 1996 and
$121,700,000, net of amount attributable to capital leases in 1995.
Net cash used for financing activities in 1996 and 1995 were $552,800,000
and $26,600,000 and consisted primarily of principal payments on long-term debt
and capital leases and, in 1996, net payments on the Company's revolving lines
of credit.
In November 1996, the Company's Board of Directors authorized the
repurchase of up to $200,000,000 of the Company's common stock in open market
and privately negotiated transactions. In 1996, the Company repurchased 440,400
shares of its Class A common stock at an aggregate cost of $16,600,000. During
the first
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
two months of 1997, the Company purchased 487,800 shares of its Class A common
stock at an aggregate cost of $18,800,000.
In December 1996, the Company entered into a three-year receivables
purchase agreement whereby it can sell up to a $200,000,000 undivided interest
in a defined pool of its trade accounts receivable. The maximum amount
outstanding as defined under the agreement varies based upon the level of
eligible receivables. Under the agreement, $200,000,000 of trade accounts
receivable were sold at December 31, 1996. The proceeds were used to reduce
amounts outstanding under the Company's revolving lines of credit. See "SALE OF
ACCOUNTS RECEIVABLE" in the Notes to Consolidated Financial Statements.
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. At December 31, 1996, approximately $30,400,000 was available and
unused under this facility. 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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, which requires an entity to
recognize the financial and servicing assets it controls and the liabilities it
has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. The
Company will apply the new rules prospectively to transactions beginning in the
first quarter of 1997. Based on current circumstances, the Company believes the
application of the new rules will not have a material impact on the consolidated
financial statements.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF FRUIT OF THE LOOM, INC.
AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 20
Consolidated Balance Sheet -- December 31, 1996 and 1995.... 21
Consolidated Statement of Operations for Each of the Years
Ended December 31, 1996, 1995 and 1994.................... 22
Consolidated Statement of Cash Flows for Each of the Years
Ended December 31, 1996, 1995 and 1994.................... 23
Notes to Consolidated Financial Statements.................. 24
Supplementary Data (Unaudited).............................. 50
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... 56
</TABLE>
Note: All other schedules are omitted because they are not applicable or not
required.
19
<PAGE> 22
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, 1996 and 1995, and the related
consolidated statements of operations and cash flows for each of the three years
in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.
ERNST & YOUNG LLP
Chicago, Illinois
February 12, 1997
20
<PAGE> 23
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including restricted cash)..... $ 18,700 $ 26,500
Notes and accounts receivable (less allowance for possible
losses of $20,600,000 and $26,600,000, respectively)... 167,300 261,000
Inventories
Finished goods......................................... 396,800 522,300
Work in process........................................ 176,700 132,400
Materials and supplies................................. 44,500 44,800
Other..................................................... 38,100 72,800
---------- ----------
Total current assets................................. 842,100 1,059,800
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 20,000 20,100
Buildings, structures and improvements.................... 483,800 486,400
Machinery and equipment................................... 1,034,600 1,076,600
Construction in progress.................................. 2,600 24,200
---------- ----------
1,541,000 1,607,300
Less accumulated depreciation............................. 641,100 578,900
---------- ----------
Net property, plant and equipment.................... 899,900 1,028,400
---------- ----------
OTHER ASSETS
Goodwill (less accumulated amortization of $284,500,000
and $257,800,000, respectively)........................ 744,300 771,100
Other..................................................... 60,700 60,200
---------- ----------
Total other assets................................... 805,000 831,300
---------- ----------
$2,547,000 $2,919,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 18,200 $ 14,600
Trade accounts payable.................................... 111,900 60,100
Accrued insurance obligations............................. 24,800 38,800
Accrued advertising and promotion......................... 18,200 23,800
Interest payable.......................................... 14,700 16,000
Accrued payroll and vacation pay.......................... 19,700 15,300
Other accounts payable and accrued expenses............... 119,200 135,200
---------- ----------
Total current liabilities............................ 326,700 303,800
---------- ----------
NONCURRENT LIABILITIES
Long-term debt............................................ 867,400 1,427,200
Net deferred income taxes................................. 16,900 --
Other..................................................... 271,200 292,900
---------- ----------
Total noncurrent liabilities......................... 1,155,500 1,720,100
---------- ----------
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, 69,937,600 and 69,268,701 shares,
respectively.......................................... 472,900 465,600
Class B Common Stock, 6,690,976 shares................. 4,400 4,400
Retained earnings......................................... 599,300 448,100
Currency translation, pension and investment
adjustments............................................ (11,800) (22,500)
---------- ----------
Total common stockholders' equity.................... 1,064,800 895,600
---------- ----------
$2,547,000 $2,919,500
========== ==========
</TABLE>
See accompanying notes.
21
<PAGE> 24
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................ $2,447,400 $2,403,100 $2,297,800
Cost of sales............................................ 1,717,400 1,885,700 1,651,300
---------- ---------- ----------
Gross earnings......................................... 730,000 517,400 646,500
Selling, general and administrative expenses............. 378,000 429,700 376,300
Goodwill amortization.................................... 26,700 37,300 35,200
Impairment write down of goodwill........................ -- 158,500 --
---------- ---------- ----------
Operating earnings (loss).............................. 325,300 (108,100) 235,000
Interest expense......................................... (103,600) (116,900) (95,400)
Other expense-net........................................ (36,400) (21,700) (6,100)
---------- ---------- ----------
Earnings (loss) before income tax expense (benefit) and
cumulative effect of change in accounting
principle........................................... 185,300 (246,700) 133,500
Income tax expense (benefit)............................. 34,100 (19,400) 73,200
---------- ---------- ----------
Earnings (loss) before cumulative effect of change in
accounting principle................................ 151,200 (227,300) 60,300
Cumulative effect of change in accounting for
pre-operating costs................................. -- (5,200) --
---------- ---------- ----------
Net earnings (loss).................................... $ 151,200 $ (232,500) $ 60,300
========== ========== ==========
Earnings (loss) per common share:
Earnings (loss) before cumulative effect of change in
accounting principle................................ $ 1.98 $ (2.99) $ .79
Cumulative effect of change in accounting for
pre-operating costs................................. -- (.07) --
---------- ---------- ----------
Net earnings (loss) per common share................... $ 1.98 $ (3.06) $ .79
========== ========== ==========
Average common shares outstanding...................... 76,400 76,000 76,000
========== ========== ==========
</TABLE>
See accompanying notes.
22
<PAGE> 25
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................... $ 151,200 $ (232,500) $ 60,300
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle........................................ -- 5,200 --
Impairment write down of goodwill.................. -- 158,500 --
Depreciation and amortization...................... 155,700 169,000 155,800
Deferred income tax expense (benefit).............. 25,700 (50,500) (7,600)
Decrease (increase) in notes and accounts
receivable....................................... 93,700 34,700 (23,300)
Decrease (increase) in inventories................. 53,100 (22,700) (73,400)
Increase (decrease) in trade accounts payable...... 51,800 (53,200) 32,500
Other working capital changes...................... (7,700) 39,900 60,600
Special charges related to long-term items......... -- 59,200 18,000
Acme Boot charge................................... 35,000 -- --
Net payments on retained liabilities related to
former subsidiaries.............................. (18,000) (16,300) (14,400)
Other-net.......................................... (26,800) 15,700 6,600
---------- ---------- ----------
Net cash provided by operating activities........ 513,700 107,000 215,100
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................. (44,500) (125,600) (287,000)
Less amount attributable to capital leases............ -- 3,900 40,600
---------- ---------- ----------
Capital expenditures............................... (44,500) (121,700) (246,400)
Proceeds from sale of Hosiery Division................ 73,800 -- --
Acquisition of Gitano................................. -- -- (91,400)
Acquisition of Pro Player............................. -- -- (55,700)
Acquisition of Artex.................................. -- -- (45,000)
Other-net............................................. 2,000 18,400 7,700
---------- ---------- ----------
Net cash provided by (used for) investing
activities.................................... 31,300 (103,300) (430,800)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.............. 63,000 -- --
Proceeds under line-of-credit agreements.............. 488,500 546,700 718,000
Payments under line-of-credit agreements.............. (979,600) (550,800) (485,700)
Principal payments on long-term debt and capital
leases............................................. (125,500) (23,000) (42,200)
Common stock issued................................... 17,400 500 --
Common stock repurchased.............................. (16,600) -- --
Other-net............................................. -- -- 800
---------- ---------- ----------
Net cash (used for) provided by financing
activities.................................... (552,800) (26,600) 190,900
---------- ---------- ----------
Net decrease in cash and cash equivalents
(including restricted cash)........................... (7,800) (22,900) (24,800)
Cash and cash equivalents (including restricted cash) at
beginning of year..................................... 26,500 49,400 74,200
---------- ---------- ----------
Cash and cash equivalents (including restricted cash) at
end of year........................................... $ 18,700 $ 26,500 $ 49,400
========== ========== ==========
</TABLE>
See accompanying notes.
23
<PAGE> 26
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements 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 63% and 72% of year-end inventory amounts at December 31, 1996 and
1995, respectively, 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
$41,400,000 and $88,500,000 higher than reported at December 31, 1996 and 1995,
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 10 to 40 years.
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. The effect of the change in accounting for
pre-operating costs was not material to the reported results of operations in
1995 nor was it material to the pro forma results of operations for 1994.
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, 1996, the Company had entered into
contracts which cover substantially all of its estimated cotton usage for 1997
and a significant portion of its estimated cotton usage for 1998.
INTEREST RATE SWAP CONTRACTS. The Company uses interest rate swap contracts
to manage interest costs and risks associated with changing interest rates. The
differential to be paid or received is accrued as interest rates change and is
recognized in interest expense over the life of each contract. Counterparties to
the interest rate swap contracts are major financial institutions. Credit loss
from counterparty non-performance is not anticipated.
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
24
<PAGE> 27
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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, 1996 and 1995 were $40,200,000 and $42,200,000,
respectively.
SOFTWARE COSTS. Costs associated with developing and implementing
significant new computer software applications for internal use are deferred and
amortized over three years.
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 25, and, accordingly, typically recognizes no
compensation expense for these stock option grants.
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.
IMPAIRMENT. In 1995, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("FAS 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.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with the current year presentation.
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 write
downs of goodwill, costs associated with the closing or realignment of certain
domestic manufacturing facilities and attendant personnel reductions and charges
related to inventory write downs and valuations, foreign operations and other
corporate issues. These actions were taken in an effort to substantially reduce
the Company's cost structure, streamline operations and further improve customer
service. The Company realigned its operations by shifting production at the
remaining domestic operations in order to balance its production capabilities.
During 1995, management reviewed the operations of Salem and Gitano and
decided to discontinue the use of the SALEM brand and redeployed the 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 write downs of goodwill of $158,500,000
reflect the write-off of all goodwill related to the Salem and Gitano
businesses. See "ACQUISITIONS."
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
25
<PAGE> 28
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
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 detail of these charges is presented below (in thousands of
dollars):
<TABLE>
<S> <C>
Loss on disposal of closed facilities, improvements and
equipment................................................. $29,000
Changes in estimates of insurance liabilities............... 21,800
Costs related to expected increases in workers' compensation
and health and welfare costs.............................. 8,000
Costs related to termination of certain lease agreements.... 7,300
Costs related to the severance of the hourly workforce...... 6,700
Other....................................................... 10,000
-------
$82,800
=======
</TABLE>
These charges were recorded in the fourth quarter of 1995 as required by
Emerging Issues Task Force No. 94-3 or other authoritative literature.
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 severance
and other benefits provided consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
The Company recorded charges of approximately $91,100,000 related to other asset
write downs, 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 FII and, accordingly, recorded charges of approximately $15,500,000 related
to lease termination, severance benefits and other costs. These charges included
certain valuation reserves and the impact of license agreements which relate
specifically to the SALEM and GITANO brands. The total impact of the charges in
1995 (including the write down of goodwill) pertaining to the SALEM and GITANO
brands was $164,100,000. See "RELATED PARTY TRANSACTIONS."
The above charges were recorded as $158,500,000 of impairment write down of
goodwill, $146,700,000 of increases to cost of sales, $47,000,000 of increases
to selling general and administrative expenses 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. Finalization of many of the Special Charges
estimated at December 31, 1995 occurred during 1996. Of the Special Charges,
approximately $33,400,000 were paid in 1996 and $52,000,000 remain to be paid in
1997 and future years. At December 31, 1996 approximately $58,800,000 remains
accrued relative to the Special Charges recorded in 1995, $8,800,000 of which
relate to Restructuring charges as defined by Emerging Issues Task Force No.
94-3. See "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- USE OF ESTIMATES."
In October 1996, the Company announced plans to close its Raymondville,
Texas manufacturing facility and reduce sewing operations at its Campbellsville
and Jamestown, Kentucky facilities. These actions were taken as part of the
Company's continuing program to reduce costs and streamline operations. The
Company does not anticipate any significant charges will be incurred related to
the plant closing and reduction in operations.
26
<PAGE> 29
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SALE OF HOSIERY DIVISION
In November 1996, the Company completed the sale of a substantial portion
of its hosiery manufacturing operations and related assets for $73,800,000 in
cash. The sale resulted in a pretax gain of $4,200,000, or $.03 per share after
tax. The purchaser also entered into a ten year licensing agreement with the
Company granting the purchaser an exclusive royalty-bearing license to use the
Fruit of the Loom tradename and trademark for the manufacture, sale and
distribution of athletic, casual and dress socks for adults and children.
ACQUISITIONS
In January 1994, the Company acquired Artex for approximately $45,000,000.
In 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 of varying
amounts up to a maximum of $47,100,000 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 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 $7,900,000 and $2,700,000 were included in cash
and cash equivalents at December 31, 1996 and 1995, respectively. Included in
short-term investments at December 31, 1996 and 1995 was $6,800,000 and
$1,500,000 of restricted cash. These investments were carried at cost, which
approximated quoted market value.
SALE OF ACCOUNTS RECEIVABLE
In December 1996, the Company entered into a three-year receivables
purchase agreement whereby it can sell up to a $200,000,000 undivided interest
in a defined pool of its trade accounts receivable. The maximum amount
outstanding as defined under the agreement varies based upon the level of
eligible receivables. Under the agreement, $200,000,000 of trade accounts
receivable were sold at December 31, 1996. The sale is reflected as a reduction
of notes and accounts receivable in the accompanying Consolidated Balance Sheet
and the proceeds received are included in cash flows from operating activities
in the accompanying Consolidated Statement of Cash Flows. The proceeds from the
sale are less than the face amount of trade accounts receivable sold by a
discounted amount which closely approximates the purchaser's financing cost of
issuing its own commercial paper backed by these and other accounts receivable.
The full amount of the allowance for possible losses has been retained and
classified as a recourse liability because the Company, as agent for the
purchaser, retains the same risk of credit loss, including collection and
administrative responsibilities, as if the receivables had not been sold. The
fair value of the recourse liability of $20,900,000 at December 31, 1996
approximates the allocated allowance for possible losses given the short-term
nature of the transferred receivables. The discount and fees under this
agreement are variable based on the general level of interest rates and the
Company's debt ratings and were at an annualized rate of
27
<PAGE> 30
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SALE OF ACCOUNTS RECEIVABLE -- (CONTINUED)
approximately 5.7% at the end of 1996 on the amount of the undivided interest
sold plus certain administrative and servicing fees typical in such
transactions. These costs were approximately $1,700,000 during the year ended
December 31, 1996 and are charged to other expense in the accompanying
Consolidated Statement of Operations. The Company receives compensation for
servicing that is approximately equal to its cost of servicing the accounts
receivable. Accordingly, no servicing asset or liability is recorded.
LONG-TERM DEBT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
INTEREST RATE 1996 1995
------------- ---- ----
<S> <C> <C> <C>
Senior Secured
Capitalized lease obligations, maturing 1997-2017(1).... 4.30-11.13% $ 67,000 $ 110,300
-------- ----------
Total Senior Secured.................................... 67,000 110,300
-------- ----------
Senior Unsecured
Fixed rate Canadian debt, maturing 1997-2008............ 6.97% 112,100 117,900
Foreign Credit Facilities, maturing 1997-1998........... Variable(2) 22,500 50,900
Term Loan............................................... Variable(3) -- 40,000
Irish Term Loan, maturing 1999.......................... Variable(4) 25,700 --
Credit Agreement, maturing 1999......................... Variable(5) 37,700 503,400
Fixed rate debt, maturing 1999(6)(7).................... 7.97% 249,400 249,300
Nonredeemable fixed rate debt, maturing 2003(7)(8)...... 6.61% 149,100 149,000
Fixed rate debt, maturing 2011(9)....................... 12.6% 74,100 73,000
Nonredeemable fixed rate debt, maturing 2023(7)(10)..... 7.49% 148,000 148,000
-------- ----------
Total Senior Unsecured.................................. 818,600 1,331,500
-------- ----------
Total..................................................... 885,600 1,441,800
Less current maturities................................... (18,200) (14,600)
-------- ----------
Total long-term debt...................................... $867,400 $1,427,200
======== ==========
</TABLE>
- -------------------------
(1) Represents the principal portion on capitalized lease obligations. The
capitalized leases are secured by the related property under lease.
(2) Interest ranged from 3.39% to 11.05% during 1996 and 4.43% to 11.54% during
1995. The weighted average interest rate for borrowings outstanding at
December 31, 1996 was approximately 6.5%.
(3) Interest ranged from 6.13% to 6.8% during 1996 and 6.44% to 7.13% during
1995. The Term Loan was prepaid at par value in November 1996.
(4) Interest ranged from 3.39% to 10.38% during 1996. The weighted average
interest rate for borrowings outstanding at December 31, 1996 was
approximately 6.46%.
(5) Interest ranged from 5.55% to 8.5% during 1996 and 5.49% to 9% during 1995.
(6) Net of unamortized discount of $600 and $700 in 1996 and 1995, respectively
(nominal rate 7.875%).
(7) The obligations of the Company under the Credit Agreement, the Canadian
Debt (as hereinafter defined), the Foreign Credit Facilities and the Irish
Term Loan 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 $900 and $1,000 in 1996 and 1995,
respectively (nominal rate 6.5%).
28
<PAGE> 31
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONTINUED)
(9) Net of unamortized discount of $50,900 and $52,000 in 1996 and 1995,
respectively (nominal rate 7%). This fixed rate obligation ranks pari pasu
with the Company's Credit Agreement.
(10) Net of unamortized discount of $2,000 in 1996 and 1995 (nominal rate
7.375%).
The 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, 1996 and 1995, approximately $73,000,000 of letters of
credit were issued under the Credit Agreement to secure a bond posted in
connection with the appeal of the LMP Litigation. Borrowings under the Credit
Agreement bear interest at a rate approximating the prime rate (8.25% at
December 31, 1996) or, at the election of the Company, at rates approximating
LIBOR (5.5% at December 31, 1996) plus 35 basis points. The Company also pays a
facility fee (the "Facility Fee") under the Credit Agreement equal to 20 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
ratings. The weighted average interest rate for borrowings outstanding under the
Credit Agreement at December 31, 1996 was approximately 6.72%. Borrowings under
the Credit Agreement are guaranteed by certain of the Company's subsidiaries.
The Company had available a $125,000,000 short-term revolving commitment
from a group of banks which was terminated in March 1997. At December 31, 1996,
no borrowings were outstanding under this facility.
The Company has $98,400,000 of standby letter of credit facilities from its
bank lenders. At December 31, 1996 and 1995, approximately $75,800,000 and
$79,600,000, respectively, of letters of credit were issued under these
facilities, to secure various insurance, debt and other obligations, of which
$55,800,000 and $59,600,000 of these obligations are reflected in the
accompanying Consolidated Balance Sheet as of December 31, 1996 and 1995,
respectively. In addition, the Company has $65,000,000 of trade letter of credit
facilities. At December 31, 1996 and 1995, the Company had $7,400,000 and
$16,700,000, respectively, of documentary letters of credit outstanding under
these facilities to finance various trade activities.
The Company's wholly-owned subsidiary, Fruit of the Loom Canada, Inc., has
an unsecured senior note due in installments through 2008 (the "Canadian Debt")
that was issued in a private placement transaction with certain insurance
companies. The Canadian Debt is fully guaranteed by the Company and its
principal operating subsidiaries and ranks pari passu in right of payment with
the Credit Agreement.
The 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 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 Credit Agreement provides for the acceleration of amounts outstanding
thereunder should any person or entity other than William Farley, the Company's
Chairman of the Board and Chief Executive Officer, or any person or entity
controlled by Mr. 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: $18,200,000 in 1997; $30,700,000 in 1998;
$321,300,000 in 1999; $8,500,000 in 2000; and $9,200,000 in 2001.
29
<PAGE> 32
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONTINUED)
Cash payments of interest on debt were $101,600,000, $114,600,000, and
$86,600,000 in 1996, 1995 and 1994, respectively. These amounts exclude amounts
capitalized.
FINANCIAL INSTRUMENTS
During 1996, the Company entered into interest rate swaps to help manage
its interest rate exposures and its mix of fixed and floating interest rates.
The Company is party to interest rate swap contracts expiring in 1998 that have
the effect of converting $100,000,000 of floating rate debt based on three month
LIBOR rates into fixed rate debt. The average annual variable rate received in
1996 was 5.53% and the average annual fixed rate paid was 5.05%.
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, 1996 and 1995, the fair value of the Company's
debt was approximately $921,900,000 and $1,505,000,000, respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counter parties to its off-balance sheet
financial instruments and does not anticipate nonperformance of the counter
parties. The Company does not require collateral from its counter parties and
management believes that the Company would not realize a material loss in the
event of nonperformance by the counter parties.
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 41.7% of net
sales in 1996 and approximately 31.6% of accounts receivable at December 31,
1996. 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, 1996 related to discontinued operations consist primarily of certain
environmental and product liability reserves of approximately $79,600,000. The
Company has recorded receivables related to these environmental liabilities of
approximately $24,800,000 which management believes will be 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 10 specifically identified environmental sites
and the aforementioned product liabilities. Four sites and the total product
liabilities each individually represent more than 10% of the net reserve and in
the aggregate represent approximately 75% of
30
<PAGE> 33
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
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 by year for the next five years and
thereafter as noted below (in thousands of dollars):
<TABLE>
<S> <C>
1997.................................................. $16,000
1998.................................................. 31,900
1999.................................................. 8,500
2000.................................................. 8,800
2001.................................................. 4,700
Thereafter............................................ 9,700
-------
$79,600
=======
</TABLE>
Only the long-term monitoring costs of approximately $10,400,000, primarily
scheduled to be paid in 2001 and beyond, have been discounted. The discount rate
used was 10%. The undiscounted aggregate long-term monitoring costs, to be paid
during the years 2001 through 2018, are approximately $20,500,000. 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. In addition, in 1996 the Company elected to early adopt
Statement of Position 96-1, Environmental Remediation Liabilities, the impact of
which was not material to the Company.
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 1997 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 totaling $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
31
<PAGE> 34
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
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 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
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. All briefs have been filed and the appeal is awaiting oral
argument.
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.
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 November 1996, in connection with the sale of a substantial portion of
its hosiery operations and related assets, the Company guaranteed the
purchaser's $10,000,000 subordinated note payable to a bank. The note bears
interest at a rate of 7.66% per annum and is due November 2006. The guarantee
imposes substantially the same covenants on the Company as imposed by the Credit
Agreement.
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. 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."
32
<PAGE> 35
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
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. At December 31, 1996, the
Company has a contingent liability to repay, in whole or in part, grants
received of approximately $56,900,000 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.
In connection with the Company's transaction with Acme Boot during 1993,
the Company guaranteed, on an unsecured basis, the repayment of debt incurred 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. Mr. Farley holds 100%
of the common stock of FI. See "OTHER EXPENSE-NET" and "RELATED PARTY
TRANSACTIONS." At December 31, 1996 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, 1996 approximately $23,800,000 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 1998. 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. At December 31, 1996, approximately $36,700,000
remains outstanding under the New Acme Credit Agreement.
33
<PAGE> 36
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
Summarized unaudited financial information for Acme Boot follows (in
thousands of dollars):
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Current assets.............................................. $ 32,900 $ 49,500
Noncurrent assets -- net.................................... 1,600 9,000
-------- --------
$ 34,500 $ 58,500
======== ========
Current liabilities......................................... $ 11,100 $ 17,900
Noncurrent liabilities...................................... 67,600 65,300
Preferred stock............................................. 3,400 2,500
Common stockholders' deficit................................ (47,600) (27,200)
-------- --------
$ 34,500 $ 58,500
======== ========
</TABLE>
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Net sales................................................... $ 89,600 $133,600
======== ========
Gross earnings.............................................. $ 26,500 $ 28,400
======== ========
Operating loss.............................................. $(15,600) $(11,900)
======== ========
Extraordinary gain on early retirement of debt.............. $ -- $ 26,700
======== ========
Net (loss) earnings......................................... $(19,500) $ 6,700
======== ========
</TABLE>
As a result of the Acme Boot operating performance and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company recorded a $35,000,000 charge in the fourth quarter of
1996 related to the Company's evaluation of its exposure under the Acme Boot
guarantees. See "OTHER EXPENSE-NET."
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, 1996 was approximately $141,900,000. 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.
34
<PAGE> 37
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS (CONTINUED)
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, 1996 the maximum amount of the
residual value guarantee relative to the assets under the lease is approximately
$96,000,000.
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, 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1997.................................................... $ 17,900 $31,600
1998.................................................... 5,200 26,200
1999.................................................... 4,000 23,100
2000.................................................... 4,000 8,500
2001.................................................... 4,000 5,000
Years subsequent to 2001................................ 73,700 3,400
-------- -------
Total minimum lease payments.............................. 108,800 $97,800
=======
Imputed interest.......................................... (41,800)
--------
Present value of minimum capitalized lease payments....... 67,000
Current portion........................................... (12,000)
--------
Long-term capitalized lease obligations................... $ 55,000
========
</TABLE>
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Land..................................................... $ 9,000 $ 10,200
Buildings, structures and improvements................... 61,700 71,700
Machinery and equipment.................................. 82,500 95,800
-------- --------
153,200 177,700
Accumulated amortization................................. (93,200) (85,700)
-------- --------
$ 60,000 $ 92,000
======== ========
</TABLE>
Rental expense for operating leases amounted to $34,100,000, $30,200,000
and $20,200,000 in 1996, 1995 and 1994, respectively.
STOCK PLANS
The Company has a number of compensation plans that provide a variety of
stock-based incentive awards to officers and key employees.
In 1996, the Company established the 1996 Incentive Compensation Plan (the
"1996 Plan"). The 1996 Plan provides for granting non-qualified stock options,
stock appreciation rights, restricted stock, deferred stock, bonus stock awards
in lieu of obligations, dividend equivalents, other stock-based awards and
performance or annual incentive awards that may be settled in cash, stock or
other property. The 1996 Plan is
35
<PAGE> 38
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
administered by the Compensation Committee of the Board of Directors (the
"Compensation Committee") and provides for granting up to 1,000,000 shares of
Class A Common Stock. Stock options may be granted under the 1996 Plan to
eligible employees of the Company (other than executive officers), its
subsidiaries and FII, at a price not less than the market price on the date of
grant. Options granted vest, may be exercised and expire at such time as
prescribed by the Compensation Committee. No option granted is exercisable
beyond ten years from the grant date. 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 1996 Plan, 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 1996 Plan.
Following is a Summary of the option activity in the 1996 Plan for 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding at January 1.................................. -- $ --
Granted................................................... 880,000 30.27
Exercised................................................. (1,500) 25.88
Cancelled................................................. (16,500) 25.88
--------
Outstanding at December 31................................ 862,000 30.36
========
Weighted average fair value of options granted in 1996.... $ 12.57
========
</TABLE>
Exercise prices for options outstanding at December 31, 1996, ranged from
$24.25 to $35.63. The weighted average remaining contractual life of those
options is 9.6 years. At December 31, 1996, none of the options outstanding were
exercisable, and a total of 998,500 shares of Class A Common Stock were reserved
for issuance under the 1996 Plan.
In 1995, the Company established the 1995 Executive Incentive Compensation
Plan (the "1995 Plan"). The 1995 Plan provides for granting non-qualified stock
options, stock appreciation rights, restricted 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 Plan
replaced the 1994 Plan, as hereinafter defined, and no further grants are
allowable under the 1994 Plan. The 1995 Plan is administered by the Compensation
Committee and provides for granting 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 Plan. Stock options may be granted under the 1995
Plan to eligible employees of the Company, its subsidiaries and FII, at a price
not less than the market price on the date of grant. Options granted vest, may
be exercised and expire at such time as prescribed by the Compensation
Committee. No option granted is exercisable beyond ten years from the grant
date. 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 Plan, 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 Plan.
In March 1996, the Company granted 392,800 shares of performance units
under the 1995 Plan with a fair value of $25.88 per share. These units confer
upon the participants the right to receive at the end of a performance and
service period one share of Class A Common Stock or the corresponding cash
equivalent or a combination thereof for each unit earned. Vesting is subject to
acceleration if a target market price is achieved
36
<PAGE> 39
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
for the Class A Common Stock. These performance units were earned in full in
1996 and accelerated vesting occurred in January 1997.
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 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.
Following is a summary of option activity in the 1995 Plan:
<TABLE>
<CAPTION>
1996 1996
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, at January 1......................... 2,609,100 $17.92 -- $ --
Granted........................................... 1,335,400 25.88 4,660,500 21.45
Exercised......................................... (479,000) 18.62 -- --
Cancelled......................................... (72,100) 18.07 (2,051,400) 25.93
---------- -----------
Outstanding, at December 31....................... 3,393,400 20.95 2,609,100 17.92
========== ===========
Exercisable, at December 31....................... 1,067,900 17.75 967,500 17.75
========== ===========
Weighted average fair value of options granted.... $ 10.57 $ 10.66
========== ===========
</TABLE>
Exercise prices for options outstanding at December 31, 1996, under the
1995 Plan ranged from $17.75 to $25.88. The weighted average remaining
contractual life of those options is 8.2 years. Options granted in 1995 included
2,509,100 options which were exchanged in the repricing in 1995. At December 31,
1996 and 1995, approximately 6,268,300 and 6,580,500 shares, respectively, of
Class A Common Stock were reserved for issuance, including shares which became
available under the 1994 Plan, the 1992 Plan and the 1987 Plan, as defined.
In 1995 the Company granted 56,000 shares of performance units under the
1995 Plan with a fair value of $24.88 per share. These units conferred upon the
participants 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. Of these units, 8,300 were
cancelled and the remaining 47,700 units were earned in 1996. Each performance
unit was valued at the market price of the Class A Common Stock on the date the
performance units were earned.
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 "Eligible Directors"). The 1995 Directors' Plan provides
for granting restricted stock units, each representing the right to receive one
share of the Company's Class A Common Stock (the "Restricted Stock Units"), to
each Eligible Director. Restricted Stock Units vest on the second anniversary of
the grant date and are 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 Plan. Each Eligible Director received
an initial grant of 2,500 Restricted Stock Units. Each Eligible Director also
received annual
37
<PAGE> 40
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
grants of 1,250 and 1,850 Restricted Stock Units in 1995 and 1996, respectively,
and the 1995 Directors' Plan provides for grants thereafter of 1,850 Restricted
Stock Units annually to each Eligible Director. In total, 35,450 and 22,500
Restricted Stock Units were outstanding at December 31, 1996 and 1995,
respectively, none of which were vested.
In 1994 the Company established the Executive Incentive Compensation Plan
(the "1994 Plan"). The 1994 Plan provided for granting 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 granting 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 Plan. No further grants are allowed
under the 1994 Plan. Stock options were granted under the 1994 Plan to eligible
employees of the Company, its subsidiaries and FII at a price not less than the
market price on the date of grant. Options granted vested at such time as
prescribed by the Compensation Committee. No option granted is exercisable later
than the tenth anniversary of its grant date.
Following is a summary of option activity in the 1994 Plan:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, at January 1............ 80,900 $27.96 664,100 $30.13 -- $ --
Granted.............................. -- -- -- -- 664,100 30.13
Exercised............................ (49,300) 27.84 -- -- -- --
Cancelled............................ (1,900) 30.88 (583,200) 30.43 -- --
------- -------- -------
Outstanding, at December 31.......... 29,700 29.82 80,900 27.96 664,100 30.13
======= ======== =======
Exercisable, at December 31.......... 29,700 29.82 80,900 27.96
======= ========
</TABLE>
Exercise prices for options outstanding at December 31, 1996, under the
1994 Plan ranged from $25.75 to $30.88. The weighted average remaining
contractual life of those options is 7.5 years at December 31, 1996 and 1995.
Shares of Class A Common Stock were reserved for issuance in the respective
amounts of options outstanding under the 1994 Plan at December 31, 1996 and
1995.
The Company granted 92,000 performance shares under the 1994 Plan to
eligible employees of the Company, its subsidiaries and FII. The Compensation
Committee set performance goals to be achieved over an initial performance
period of two years. In September 1995, the Compensation Committee extended the
initial performance period two years to December 31, 1997. These performance
shares were earned in full in 1996, and each performance share was valued at the
market price of the Class A Common Stock on the date the performance shares were
earned.
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. 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
38
<PAGE> 41
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
equal to the fair market value per share of the Class A Common Stock on the 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, 1996 and 1995, 72,500 options were outstanding and
exercisable at prices ranging from $30.88 to $42, and the weighted average
exercise price was $37.66.
In 1992, the Company established the 1992 Executive Stock Option Plan (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 (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) were granted under the 1992 Plan to two directors of
the Company who were also employees of the Company. Vesting terms of the grants
were as follows (subject to acceleration under certain circumstances): (i)
one-third of the options vested immediately upon grant; (ii) one-third of the
options 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 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. All unvested options expire six years
after the date of grant. In 1995 the 325,000 vested options were cancelled and a
total of 227,500 options were issued in their place under the 1995 Plan in
connection with the option repricing. The unvested options outstanding under the
1992 Plan were not repriced. In January 1996, 150,000 of the unvested options
were cancelled. At December 31, 1996, 500,000 unvested options remain
outstanding. At December 31, 1996 and 1995, 500,000 and 650,000 shares of Class
A Common Stock, respectively, were reserved for issuance under the 1992 Plan.
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 was also an employee
of FII at a purchase price of $10.25 per share. All of these options were
exercised in 1996.
Under the terms of the Company's 1987 Stock Option Plan (the "1987 Plan"),
options were granted to eligible employees of the Company, its subsidiaries and
FII at a price not less than the market price on the date of grant. Options 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.
No further grants are allowed under the 1987 Plan.
Following is a summary of option activity in the 1987 Plan:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, at January 1............ 707,400 $16.30 1,434,300 $23.47 1,515,400 $23.54
Granted.............................. -- -- -- -- 37,000 27.86
Exercised............................ (470,700) 13.40 (50,900) 9.70 (51,900) 15.98
Cancelled............................ (14,900) 34.49 (676,000) 32.04 (66,200) 33.82
-------- --------- ---------
Outstanding, at December 31.......... 221,800 21.24 707,400 16.30 1,434,300 23.47
======== ========= =========
Exercisable, at December 31.......... 221,800 21.24 707,400 16.30
======== =========
</TABLE>
Exercise prices for options outstanding at December 31, 1996, under the
1987 Plan ranged from $6.38 to $40.75. The weighted average remaining
contractual life of those options is 4.4 years. Shares of Class A Common Stock
were reserved for issuance in the respective amounts of options outstanding
under the 1987 Plan at December 31, 1996 and 1995.
39
<PAGE> 42
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
The Company has elected to follow APB 25 and related Interpretations in
accounting for its stock compensation plans because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, the Company records no compensation expense for
options granted under any of its stock plans because the exercise price of the
stock options equals the market price of the underlying Class A Common Stock on
the date granted. For other stock-based compensation awards, the Company
recognized compensation costs under APB 25 totaling $15,700,000, $2,700,000 and
$3,800,000 in 1996, 1995 and 1994, respectively.
FAS 123 requires the Company to disclose pro forma Net earnings and
Earnings per share determined as if the Company had accounted for stock-based
compensation awards granted after December 31, 1994, under the fair value method
of that statement. The fair values of options under FAS 123 were estimated at
each grant date using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 5.65% in 1996 and
6.34% in 1995, a dividend yield of zero, a volatility factor of the expected
market price of the Company's common stock of .36, and an expected option life
of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For these pro forma disclosures, the estimated fair value of options and
other stock-based awards is amortized to expense over the award's vesting
period. The Company's pro forma information follows (in thousands of dollars,
except per share information):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net earnings (loss)............. $146,100 $(235,100)
======== =========
Pro forma earnings (loss) per share....... $ 1.91 $ (3.09)
======== =========
</TABLE>
Because FAS 123 is applicable only to stock-based compensation awards
granted after December 31, 1994, the effects of applying FAS 123 for pro forma
disclosure will not be indicative of future amounts until the new rules are
applied to all outstanding nonvested awards.
At December 31, 1996 and 1995, approximately 131,400 and 181,300 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 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 19,800 previously issued shares during 1996. The Company
granted approximately 68,400 shares to eligible employees during 1996.
At December 31, 1996 and 1995, 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.
40
<PAGE> 43
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Common Shares
Balance, beginning of period.............................. 75,960 75,851 75,724
Class A shares issued upon exercise of options............ 1,059 51 52
Class A shares issued under stock grant plan-net.......... 50 58 29
Class A shares issued under long-term bonus plan.......... -- -- 46
Class A shares repurchased................................ (440) -- --
-------- --------- --------
Balance, end of period.................................... 76,629 75,960 75,851
======== ========= ========
Common Stock and Capital in Excess of Par Value
Balance, beginning of period.............................. $470,000 $ 468,100 $464,000
Class A shares issued upon exercise of options............ 22,500 700 1,000
Class A shares issued under stock grant plan-net.......... 1,400 1,200 2,000
Class A shares issued under long-term bonus plan.......... -- -- 1,100
Class A shares repurchased................................ (16,600) -- --
-------- --------- --------
Balance, end of period...................................... $477,300 $ 470,000 $468,100
======== ========= ========
Retained Earnings
Balance, beginning of period.............................. $448,100 $ 680,600 $620,300
Net earnings (loss)....................................... 151,200 (232,500) 60,300
-------- --------- --------
Balance, end of period.................................... $599,300 $ 448,100 $680,600
======== ========= ========
Currency Translation, Minimum Pension Liability and
Investment Adjustments
Balance, beginning of period.............................. $(22,500) $ (22,900) $(37,300)
Translation adjustments-net............................... 12,500 1,000 14,400
Minimum pension liability adjustment...................... (900) (600) --
Unrealized loss on investments............................ (900) -- --
-------- --------- --------
Balance, end of period.................................... $(11,800) $ (22,500) $(22,900)
======== ========= ========
</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 November 1996 the Company's Board of Directors authorized the repurchase
of up to $200,000,000 of the Company's common stock in open market and privately
negotiated transactions. In December 1996, the Company repurchased 440,400
shares of its Class A common stock at an aggregate cost of $16,600,000.
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.
41
<PAGE> 44
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY -- (CONTINUED)
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.
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 9.0% of the Company's common stock at December 31, 1996 is
held by FI and Mr. 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 32.6% 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, 1996 FI and Mr. Farley's combined
ownership of Class B Common Stock is approximately 8.7% 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.
At December 31, 1996, 35,000,000 shares of Preferred Stock with a par value
of $.01 per share were authorized, none of which have been issued.
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 16.8%, 19.5% and 15.6% of consolidated net sales in 1996, 1995 and
1994, respectively. Additionally, sales to a second customer amounted to
approximately 12.2%, 10.8% and 11.8% of consolidated net sales in 1996, 1995 and
1994, respectively.
42
<PAGE> 45
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENT AND MAJOR CUSTOMER INFORMATION -- (CONTINUED)
Sales, operating earnings and identifiable assets are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales
Domestic............................................... $2,080,500 $2,040,300 $1,972,000
Foreign................................................ 366,900 362,800 325,800
---------- ---------- ----------
Total.................................................. $2,447,400 $2,403,100 $2,297,800
========== ========== ==========
Operating Earnings (Loss)
Domestic............................................... $ 301,500 $ (53,500) $ 234,500
Foreign................................................ 47,600 (19,000) 21,900
General corporate expenses............................. (23,800) (35,600) (21,400)
---------- ---------- ----------
Total.................................................. $ 325,300 $ (108,100) $ 235,000
========== ========== ==========
Identifiable Assets
Domestic............................................... $2,121,400 $2,431,000 $2,661,000
Foreign................................................ 392,700 402,000 442,400
Corporate.............................................. 32,900 86,500 60,100
---------- ---------- ----------
Total.................................................. $2,547,000 $2,919,500 $3,163,500
========== ========== ==========
</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 a receivable related to anticipated
environmental recoveries. Corporate assets also include Federal income taxes
receivable in 1995 and 1994.
PENSION PLANS
Pension expense was $11,900,000, $12,200,000, and $11,700,000 in 1996, 1995
and 1994, respectively. The net pension expense is comprised of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Components:
Service cost -- benefits earned during the period......... $ 12,100 $ 12,800 $ 11,700
Interest cost on projected benefit obligation............. 13,500 13,100 12,800
Return on assets:
Actual (gain) loss..................................... (21,900) (27,900) 800
Deferred actuarial gains (losses)...................... 8,200 14,900 (13,500)
Amortization of unrecognized net loss..................... 700 600 1,200
Amortization of prior service cost........................ 200 200 --
Amortization of unrecognized January 1, 1987 net
transition asset....................................... (1,300) (1,300) (1,300)
Curtailment loss (gain)................................... 400 (200) --
-------- -------- --------
Net periodic pension cost............................ $ 11,900 $ 12,200 $ 11,700
======== ======== ========
Assumptions:
Discount rate............................................. 7.5% 8.25% 7.75%
Rates of increase in compensation levels.................. 4-7% 5-8% 5-8%
Expected long-term rate of return on assets............... 10% 10% 10%
</TABLE>
43
<PAGE> 46
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONTINUED)
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,
--------------------
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $137,600 $125,000
Non-vested benefits....................................... 8,000 12,300
-------- --------
Accumulated benefit obligation......................... 145,600 137,300
Effect of projected future salary increases............... 36,700 53,400
-------- --------
Projected benefit obligation................................ 182,300 190,700
Plan assets at fair value................................... 157,400 140,900
-------- --------
Plan assets less than projected benefit obligation.......... (24,900) (49,800)
Unrecognized loss........................................... 1,700 24,900
Unrecognized prior service cost............................. 2,400 2,100
Unrecognized net transition asset at end of period.......... (4,700) (5,900)
Additional minimum liability................................ (4,200) (2,700)
-------- --------
Unfunded accrued pension cost at end of period.............. $(29,700) $(31,400)
======== ========
</TABLE>
The discount rate for purposes of determining the funded status of the
plans at December 31, 1996 and 1995 was 8.0% and 7.5%, respectively.
Plan assets for the Company's funded plans, which are primarily invested in
United States Government, international and domestic debt securities,
international and domestic 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 Mr. 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 70.0% and 70.6% of the Master Trust Allocated
Assets at December 31, 1996 and 1995, respectively.
Included in the Master Trust Allocated Assets at December 31, 1996 and 1995
were 647,852 shares (with a cost of $5,100,000 and a market value of $24,500,000
and $15,800,000, respectively) of the Company's Class A Common Stock.
As of December 31, 1996 and 1995, the Master Trust holds 348,012 shares
(with a cost of $7,700,000 and a market value of $13,200,000 and $8,500,000,
respectively) of the Company's Class A Common Stock (these shares are in
addition to the 647,852 shares noted in the immediately preceding paragraph)
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 FAS No. 87 "Employers' Accounting For Pensions" ("FAS 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
in equity. To reflect the balance sheet provisions of FAS 87 relative to certain
unfunded nonqualified pension plans, the Company has recorded minimum
liabilities of $4,200,000 and $2,700,000 at December 31, 1996 and 1995,
respectively. Corresponding to these amounts, intangible assets of $2,700,000
and $2,100,000, and reductions in equity of $1,500,000 and $600,000,
respectively, were recorded at December 31, 1996 and 1995.
44
<PAGE> 47
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEPRECIATION EXPENSE
Depreciation expense, including amortization of capital leases,
approximated $121,800,000, $125,500,000, and $107,600,000 in 1996, 1995 and
1994, respectively.
ADVERTISING EXPENSE
Advertising, which is expensed as incurred, approximated $81,600,000,
$72,000,000 and $70,800,000 in 1996, 1995 and 1994, 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,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit) on earnings (loss) before
cumulative effect of change in accounting principle....... $34,100 $(19,400) $73,200
Cumulative effect of change in accounting principle for
pre-operating costs....................................... -- (1,900) --
------- -------- -------
Total income tax expense (benefit).......................... $34,100 $(21,300) $73,200
======= ======== =======
</TABLE>
Included in earnings (loss) before income tax expense (benefit) and
cumulative effect of change in accounting principle are foreign earnings of
$1,600,000 in 1996 and foreign losses of $47,300,000 and $15,500,000 in 1995 and
1994, respectively.
The components of income tax expense (benefit) related to earnings (loss)
before cumulative effect of change in accounting principle were as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $ 6,500 $ 17,000 $73,600
State..................................................... 1,900 15,200 6,100
Foreign................................................... -- (1,100) 1,100
------- -------- -------
Total current.......................................... 8,400 31,100 80,800
------- -------- -------
Deferred:
Federal................................................... 21,700 (38,800) (7,400)
State..................................................... 3,700 (11,200) (200)
Foreign................................................... 300 (500) --
------- -------- -------
Total deferred......................................... 25,700 (50,500) (7,600)
------- -------- -------
Total.................................................. $34,100 $(19,400) $73,200
======= ======== =======
</TABLE>
45
<PAGE> 48
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
The income tax rate on earnings (loss) before cumulative effect of change
in accounting principle differed from the Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% (35.0)% 35.0%
Reversal of income tax accruals............................. (13.0) -- --
Interest on prior years' taxes.............................. -- 2.1 5.2
Impairment write down of goodwill........................... -- 11.1 --
Foreign operating (earnings) losses......................... (10.1) 6.1 4.1
Goodwill amortization....................................... 5.1 4.4 7.9
State income taxes, net of Federal tax benefit.............. 2.0 1.1 2.9
Other-net................................................... (.6) 2.3 (.3)
----- ----- ----
Effective rate............................................ 18.4% (7.9)% 54.8%
===== ===== ====
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $118,600,000 at December 31, 1996. $84,800,000 of those earnings
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Upon distribution
of those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries. In the
event that the other foreign entities' earnings were distributed, it is
estimated that U.S. federal and state income taxes, net of foreign credits, of
approximately $24,800,000 would be due.
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,
----------------------
1996 1995
---- ----
<S> <C> <C>
Depreciation and amortization............................... $ 149,000 $ 139,800
Items includible in future tax years........................ 61,600 51,500
--------- ---------
Gross deferred tax liabilities............................ 210,600 191,300
--------- ---------
Inventory valuation reserves................................ (23,400) (29,600)
Accrued employee benefit expenses........................... (34,600) (32,500)
Acquired tax benefits and basis differences................. (49,600) (51,700)
Allowance for possible losses on receivables................ (5,800) (6,300)
Items deductible in future tax years........................ (80,300) (80,000)
--------- ---------
Gross deferred tax assets................................. (193,700) (200,100)
--------- ---------
Net deferred tax liability (asset)........................ $ 16,900 $ (8,800)
========= =========
</TABLE>
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 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.
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
46
<PAGE> 49
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
Circuit affirmed the decision of the United States Tax Court. The IRS had a
period of 90 days from the date of the decision to petition for review by the
United States Supreme Court. The IRS did not petition for a review and,
accordingly, the case is now closed. Effective December 31, 1996, for Federal
income tax purposes, all years through December 31, 1991, were closed. As a
result, excess income tax liabilities totaling $24,100,000 for tax years through
December 31, 1991, were reversed in the fourth quarter and reduced income tax
expense in 1996.
Cash payments for income taxes were $13,600,000, $32,700,00 and,
$49,000,000 in 1996, 1995 and 1994, respectively.
OTHER EXPENSE-NET
Other expense-net in 1996 includes a $35,000,000 charge relating to the
Company's evaluation of its exposure under the guarantee of debt incurred or
created by Acme Boot under the Acme Boot Credit Facilities. See "CONTINGENT
LIABILITIES." 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 1996, 1995
and 1994 was deferred debt fee amortization and bank fees of approximately
$5,300,000, $5,700,000, and $8,100,000, respectively. Other expense-net in 1996
and 1995 includes gains of $700,000 and $5,700,000, respectively, as compared to
$1,900,000 of expense in 1994 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
Earnings per share are based on the weighted average number of common
shares outstanding during each year. The effect of common stock equivalents on
earnings per share is not material.
RELATED PARTY TRANSACTIONS
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green, Kentucky operations certain functions historically
performed by FII personnel. In connection with this effort, the Board of
Directors determined that the Company's management agreement with FII should not
be renewed for 1996 and that the general management functions previously
performed by FII under the agreement should be assumed directly by the Company.
Accordingly, effective January 1, 1996, the Company severed its relationship
with FII 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 of its personnel and settlement of all obligations the Company owed 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
47
<PAGE> 50
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS (CONTINUED)
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
($3,600,000 was actually paid 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 to which the Company was
a party. 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."
Under the terms of the management agreement between FII and the Company,
FII provided the Company, to the extent that the Company requested, (i) general
management services which included, but were 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,
prior to 1996, the Company. Certain of the executive officers of the Company
were employed by, and received their compensation from, FII. These officers
devoted their time as needed to those companies owned and controlled by Mr.
Farley and, accordingly, did not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the Company
paid 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 did 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 were generally payable to FII
upon the closing of the subject transaction or agreement.
Under the terms of the management agreement, the Company paid 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 and $8,800,000 in 1995 and
1994, 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.
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. 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
48
<PAGE> 51
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS (CONTINUED)
the above mentioned proceeds. In connection with the 1993 transaction the
Company guaranteed, on an unsecured basis, the repayment of debt incurred by
Acme under the Acme Boot Credit Facility and the New Acme Credit Agreement. FI
owns 100% of the common stock of Acme Boot. Mr. Farley holds 100% of the common
stock of FI. Other expense-net in 1996 includes a $35,000,000 charge related to
the Company's evaluation of its exposure under the guarantee. See "CONTINGENT
LIABILITIES."
49
<PAGE> 52
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>
1996
Net sales..................................... $506.2 $732.2 $628.0 $581.0 $2,447.4
Gross earnings................................ 137.0 208.8 200.6 183.6 730.0
Operating earnings............................ 50.0 101.7 94.2 79.4 (1) 325.3
Net earnings.................................. 12.5 47.8 47.8 43.1 (2) 151.2
Earnings per common share..................... .16 .63 .63 .56 1.98
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)(4) (227.3)
Net earnings (loss)........................... 11.3(3) 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>
- -------------------------
(1) Includes a pretax charge of $35.0 related to the Company's evaluation of its
exposure under the guarantee of the debt of Acme Boot.
(2) Includes $24.1 related to reversal of excess income tax liabilities for tax
years through December 31, 1991, all of which closed for Federal income tax
purposes effective December 31, 1996.
(3) 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).
(4) Includes pretax charges of $372.9 ($287.4 after tax) related to impairment
write downs of goodwill, costs associated with the closing or realignment of
certain domestic manufacturing facilities and attendant personnel reductions
and charges related to inventory write downs and valuations, foreign
operations and other corporate issues.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
50
<PAGE> 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Farley.............. 54 Chairman of the Board and Chief Executive Officer
Richard C. Lappin........... 52 President and Chief Operating Officer
Larry K. Switzer............ 53 Senior Executive Vice President and Chief Financial Officer
Burgess D. Ridge............ 52 Senior Vice President -- Administration & Secretary
G. William Newton........... 44 Senior Vice President -- Finance
John D. Wigodsky(1)......... 47 Executive Vice President -- Sales and Marketing
Bernhard Hansen............. 69 President, Europe
</TABLE>
- -------------------------
(1) Mr. Wigodsky resigned as Executive Vice President -- Sales and Marketing
effective March 1997.
Officers serve at the discretion of the Board of Directors. Through
December 31, 1995, Messrs. Lappin, Switzer, and Ridge 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. For more
than 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. (formerly West Point
Acquisition Corp. and currently West Point Stevens, Inc.) from March 1989 until
October 1992.
RICHARD C. LAPPIN. Mr. Lappin has been a director of the Company since
December 1990 and served as Vice Chairman of the Company from October 1991 until
February 1996. Mr. Lappin was appointed President and Chief Operating Officer of
the Company in February 1996. Mr. Lappin served as an officer and director of
Acme Boot until May 1996. Mr. Lappin also served as President and Chief
Operating Officer of FII from February 1991 until December 1995.
LARRY K. SWITZER. Mr. Switzer was Executive Vice President and Chief
Financial Officer of FII from May 1994 until December 1995, and of the Company
and FI from May 1994 until February 1996. In February 1996, Mr. Switzer was
appointed Senior Executive Vice President and Chief Financial Officer of the
Company and FI. Mr. Switzer also serves as an officer and a director of Acme
Boot. 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
1992 to August 1992.
BURGESS D. RIDGE. Mr. Ridge served as Vice President -- Administration of
FII and FI from before 1992 until December 1995, and the Company and FI from
before 1992 until February 1996. Mr. Ridge was appointed Senior Vice President
- -- Administration and Secretary of the Company and FI in February 1996.
51
<PAGE> 54
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- (CONTINUED)
G. WILLIAM NEWTON. Mr. Newton served as Senior Vice President -- Finance of
Union Underwear Company, Inc. (the Company's operating subsidiary, "Union") from
August 1994 until February 1996. Mr. Newton was appointed Senior Vice President
- -- Finance of the Company in February 1996. From before 1992 until April 1994,
Mr. Newton was Vice President and Chief Financial Officer of Allegro
MicroSystems, a manufacturer of semiconductors supplying the automotive,
electronic and telecommunications industries worldwide.
JOHN D. WIGODSKY. Mr. Wigodsky was Executive Vice President -- Operations
of Union from before 1992 until February 1996. Mr. Wigodsky was appointed
Executive Vice President -- Sales and Marketing in February 1996.
BERNHARD HANSEN. Mr. Hansen was President, Europe of Union from July 1995
until November 1996. In November 1996, Mr. Hansen was appointed President,
Europe of the Company. From before 1992 until July 1995, Mr. Hansen served as an
independent consultant.
BRIAN J. HANIGAN. Mr. Hanigan was appointed Vice President and Treasurer of
the Company in February 1997. Mr. Hanigan was Assistant Treasurer of the Company
from before 1992 until February 1997.
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 13, 1997 (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
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 Company's management agreement with FII under the agreement
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 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 its personnel and in settlement of all obligations
the Company owed 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 ($3,600,000 was actually paid in 1996), all of which related to the
severance of certain FII employees who were not re-employed by the Company,
including severance
52
<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
payments under certain employment agreements to which the Company was a party.
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 settlement amounts were included
in the Company's special charge accrued in the fourth quarter of 1995.
Under the terms of the management agreement between FII and the Company,
FII provided the Company, to the extent that the Company requested, (i) general
management services which included, but were 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 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, prior to 1996, the Company. Certain of the executive officers of the
Company were employed by, and received their compensation from, FII. These
officers devote their time as needed to those companies owned and controlled by
Mr. Farley and, accordingly, did not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the Company
paid 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 did 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 were generally payable to FII
upon the closing of the subject transaction or agreement.
Under the terms of the management agreement, the Company paid 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 and $8,800,000 in 1995 and
1994, 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 part of the Company's normal executive relocation policy and in
connection with the transition of certain executive functions from Chicago,
Illinois to Bowling Green, Kentucky, the Company made an interest free bridge
loan, based on the equity in the home, to Mr. Ridge, the Company's Senior Vice
President -- Administration and Secretary, of $325,500 in 1996. The loan will be
repaid upon the sale of the home.
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. 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" and "RELATED PARTY TRANSACTIONS" 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. In connection with
the 1993 transaction, the Company guaranteed, on an unsecured basis, the
repayment of debt incurred by Acme Boot under the Acme Boot Credit Facility and
the
53
<PAGE> 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
New Acme Credit Agreement. Other expense-net in 1996 includes a $35,000,000
charge related to the Company's evaluation of its exposure under the guarantee.
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.
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 19 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 19 is filed as part of this Annual Report.
3. Exhibits
The exhibits listed in the Index to Exhibits on pages 57 and 58 are filed
as part of this Annual Report.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of 1996.
54
<PAGE> 57
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 26, 1997.
FRUIT OF THE LOOM, INC.
By: /s/ LARRY K. SWITZER
------------------------------------
(Larry K. Switzer
Senior 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 26, 1997.
<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 Senior Executive Vice President and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial and
(Larry K. Switzer) Accounting Officer)
/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>
55
<PAGE> 58
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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)(2) DEDUCTIONS(3) OF PERIOD
------------ ---------- ----------------- -------------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Reserves deducted from assets
to which they apply:
Accounts receivable
allowances:
Doubtful accounts....... $15,200 $ 5,900 $ (1,100) $10,900 $ 9,100
Sales discounts, returns, and
allowances................... 11,400 51,200 (15,500) 35,600 11,500
------- ------- -------- ------- -------
$26,600 $57,100 $(16,600) $46,500 $20,600
======= ======= ======== ======= =======
Reserves included in Other
accounts payable and accrued
expenses..................... $ -- $ -- $ 20,900 $ -- $20,900
======= ======= ======== ======= =======
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
======= ======= ======== ======= =======
</TABLE>
- -------------------------
(1) Reserves included in Other accounts payable and accrued expenses represents
recourse liability retained in connection with Sale of Accounts Receivable
in December 1996. Corresponding amounts of $5,400 and $15,500 have been
deducted from accounts receivable allowances at time of sale.
(2) Recoveries of bad debts, foreign currency translation and, in 1994, the
effect of acquisitions.
(3) Bad debts written off and allowances and discounts taken by customers.
56
<PAGE> 59
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
the Loom, Inc. and Chemical Mellon Shareholder Services,
L.L.C., Rights Agent (incorporated herein by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
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. (incorporated
herein by reference to Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
</TABLE>
57
<PAGE> 60
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS (CONTINUED)
(ITEM 14(A)(3) AND 14(C))
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C>
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.
(incorporated herein by reference to Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
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 (incorporated herein by
reference to Exhibit 10(r) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10(s)* -- Fruit of the Loom, Inc. 1996 Incentive Compensation Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, Reg. No. 333-09203).
10(t) -- Purchase and Contribution Agreement dated as of December 18,
1996 among Union Underwear Company, Inc., Pro Player, Inc.
and Salem Sportswear, Inc., as the Originators and FTL
Receivables Company, as the Purchaser.
10(u) -- Receivables Purchase Agreement dated as of December 18, 1996
among FTL Receivables Company, as Seller, Union Underwear
Company, Inc., as initial Servicer, Barton Capital
Corporation, as Purchaser, and Societe Generale, as Agent.
21 -- Subsidiaries of the Company.
23 -- 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.
58
<PAGE> 1
Exhibit 10(t)
PURCHASE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 18, 1996
AMONG
THE CORPORATIONS IDENTIFIED ON THE SIGNATURE PAGES HEREOF,
AS THE ORIGINATORS,
AND
FTL RECEIVABLES COMPANY,
AS THE PURCHASER
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
AGREEMENT TO PURCHASE AND CONTRIBUTE
1.1. Agreement to Purchase and Sell...................... 2
1.2. Timing of Purchases................................. 3
1.3. Consideration for Purchases......................... 3
1.4. Purchase and Sale Termination Date.................. 3
1.5. Intention of the Parties............................ 3
1.6. Incidents of Ownership.............................. 4
ARTICLE II
CALCULATION OF PURCHASE PRICE
2.1. Calculation of Purchase Price........................ 4
ARTICLE III
CONTRIBUTION OF RECEIVABLES;
PAYMENT OF PURCHASE PRICE
3.1. Contribution of Receivables......................... 5
3.2. Initial Purchase Price Payment...................... 5
3.3. Subsequent Purchase Price Payments.................. 5
3.4. Settlement as to Specific Receivables and Dilution.. 6
3.5. Reconveyance of Receivables......................... 8
3.6. Payments and Computations, etc...................... 8
ARTICLE IV
CONDITIONS OF PURCHASES
4.1. Conditions Precedent to Initial Purchase............ 9
4.2. Certification as to Representations and Warranties.. 10
ARTICLE V
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
REPRESENTATIONS AND WARRANTIES OF ORIGINATORS
5.1. Organization and Good Standing..................... 10
5.2. Due Qualification.................................. 11
5.3. Power and Authority; Due Authorization............. 11
5.4. Valid Sale or Contribution; Binding Obligations.... 11
5.5. No Violation....................................... 11
5.6. Proceedings........................................ 11
5.7. Bulk Sales Act..................................... 12
5.8. Government Approvals............................... 12
5.9. Financial Condition................................ 12
5.10. Margin Regulations................................. 12
5.11. Quality of Title................................... 12
5.12. Accuracy of Information............................ 13
5.13. Offices............................................ 13
5.14. Trade Names........................................ 13
5.15. Taxes.............................................. 14
5.16. Licenses and Labor Controversies................... 14
5.17. Compliance with Applicable Laws.................... 14
5.18. Reliance on Separate Legal Identity................ 14
5.19. Purchase Price..................................... 15
5.20. Eligibility of Receivables......................... 15
ARTICLE VI
COVENANTS OF ORIGINATORS
6.1. Affirmative Covenants............................... 15
6.2. Reporting Requirements.............................. 17
6.3. Negative Covenants.................................. 18
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1. Rights of the Company............................... 20
7.2. Responsibilities of Originators..................... 20
7.3. Further Action Evidencing Purchases................. 21
7.4. Application of Collections.......................... 22
7.5. Remedies Cumulative................................. 22
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF COMPANY
8.1. Organization and Good Standing....................... 22
8.2. Due Qualification.................................... 22
8.3. Power and Authority: Due Authorization.............. 22
8.4. Valid Sale or Contribution; Binding Obligations...... 23
8.5. Purchase Price....................................... 23
ARTICLE IX
INDEMNIFICATION
9.1. Indemnities by Originators............................ 23
ARTICLE X
MISCELLANEOUS
10.1. Amendments, etc..................................... 27
10.2. Notices, etc........................................ 27
10.3. No Waiver; Cumulative Remedies...................... 28
10.4. Binding Effect; Assignability....................... 28
10.5. Governing Law....................................... 28
10.6. Costs, Expenses and Taxes........................... 28
10.7. Consent to Jurisdiction; Waiver of Immunities....... 29
10.8. Waiver of Jury Trial................................ 29
10.9. Captions and Cross References; Incorporation
by Reference........................................ 29
10.10. Execution in Counterparts........................... 30
10.11. Acknowledgment and Agreement........................ 30
SCHEDULES
SCHEDULE 5.13 Office Locations
SCHEDULE 5.14 Trade Names
EXHIBITS
-iii-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
EXHIBIT A Form of Purchase Report
EXHIBIT B Form of FTL Note
EXHIBIT C Form of Opinion of Originator's Counsel
-iv-
<PAGE> 6
PURCHASE AND CONTRIBUTION AGREEMENT
THIS PURCHASE AND CONTRIBUTION AGREEMENT (as amended, supplemented or
modified from time to time, this "Agreement"), dated as of December 18, 1996,
is among the corporations identified on the signature pages hereof as the
Originators (each an "Originator" and collectively, the "Originators"), and FTL
RECEIVABLES COMPANY, a Delaware corporation (the "Company"), as purchaser.
Definitions
Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Appendix A to the Receivables Purchase
Agreement of even date herewith (as amended, supplemented or otherwise modified
from time to time, the "Receivables Purchase Agreement"), among the Company,
Union Underwear Company, Inc., a New York corporation ("Union"), as initial
Servicer, BARTON CAPITAL CORPORATION, as purchaser (together with its
successors and assigns, the "Purchaser"), and SOCIETE GENERALE, as agent for
Purchaser (together with its successors and assigns, the "Agent").
Background
1. The Company is a special purpose corporation, all of the capital stock
of which is wholly-owned by Union.
2. On the Initial Closing Date, Union, in its capacity as an Originator,
is transferring certain Receivables and Related Rights to the Company as a
contribution to the Company in return for 1,000 shares of the common stock of
the Company.
3. In order to finance their respective businesses, Originators wish to
sell certain Receivables and Related Rights from time to time to the Company,
and the Company is willing, on the terms and subject to the conditions set
forth herein, to purchase such Receivables and Related Rights from Originators.
4. The Company intends to sell to Purchaser an undivided variable
percentage interest in its Receivables and Related Rights pursuant to the
Receivables Purchase Agreement in order to finance its purchases of certain
Receivables and Related Rights hereunder.
5. The Company and the Purchaser have appointed Union as the initial
servicer (together with any successor servicer appointed
<PAGE> 7
under the Receivables Purchase Agreement, or if such agreement is no longer in
effect, appointed by the Company in its sole discretion, the "Servicer") of
Receivables and Related Rights pursuant to the Receivables Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I.
AGREEMENT TO PURCHASE AND CONTRIBUTE
1.1. Agreement to Purchase and Sell. On the terms and subject to the
conditions set forth in this Agreement (including Article IV), and in
consideration of the Purchase Price, each Originator agrees to sell to the
Company, and does hereby sell to the Company, and the Company agrees to
purchase from each Originator, and does hereby purchase from each Originator,
without recourse and without regard to collectibility, all of each such
Originator's right, title and interest in and to:
(a) each Receivable of Originator that existed and was owing to Originator
as of the close of Originator's business on December 18, 1996 (the "Initial
Closing Date") (other than the Receivables and Related Rights contributed by
Union to the Company pursuant to Section 3.1 (the "Contributed Receivables"));
(b) each Receivable created or originated by each such Originator from the
close of each such Originator's business on the Initial Closing Date to and
including the Purchase and Sale Termination Date with respect to such
Originator;
(c) all rights to, but not the obligations under, all Related Assets;
(d) all monies due or to become due with respect to any of the foregoing;
(e) all books and records related to any of the foregoing; and
(f) all proceeds thereof (as defined in the UCC) received on or after the
date hereof including, without limitation, all funds which either are received
by each such Originator, the Company or the Servicer from or on behalf of the
Obligors in payment of any amounts owed (including, without limitation, finance
charges, interest and all other charges) in respect of Receivables, or are
applied to such amounts owed by the Obligors (including, without limitation,
insurance payments, if any, that each such Originator or the Servicer (if other
than the applicable Originator) applies in
-2-
<PAGE> 8
the ordinary course of its businessto amounts owed in respect of any
Receivable).
All purchases and contributions hereunder shall be made without recourse, but
shall be made pursuant to, and in reliance upon, the representations,
warranties and covenants of the Originator selling, or, in the case of Union in
its capacity as an Originator, contributing and selling, the applicable
Receivables set forth in each Transaction Document. The Company's foregoing
commitment to purchase such Receivables and the proceeds and rights described
in subsections (c) through (f) of this Section 1.1 (collectively, the "Related
Rights") is herein called the "Purchase Facility."
1.2. Timing of Purchases.
(a) Initial Closing Date Purchases. Each Originator's entire right, title
and interest in (i) each Receivable that existed and was owing to such
Originator as of the close of such Originator's business on the Initial Closing
Date, (other than, with respect to Union in its capacity as an Originator,
Contributed Receivables), and (ii) all Related Rights with respect thereto
shall have been sold to the Company on the Initial Closing Date.
(b) Regular Purchases. After the Initial Closing Date, each Receivable
created or originated by each Originator and described in Section 1.1(b) hereof
and all Related Rights shall be purchased and owned by the Company (without any
further action) upon the creation or origination of such Receivable.
1.3. Consideration for Purchases. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to make all Purchase
Price payments to the applicable Originator, and to reflect all contributions,
in accordance with Article III.
1.4. Purchase and Sale Termination Date. The "Purchase and Sale
Termination Date" shall be, separately with respect to each Originator, the
Payment Date immediately following the day on which such Originator shall have
given notice to the Company or the Company shall have given notice to such
Originator that such Originator or the Company, as the case may be, desires to
terminate this Agreement with respect to the Receivables and Related Rights
originated by the applicable Originator.
As used herein, "Payment Date" means (i) the Initial Closing Date and (ii)
each Business Day thereafter that the applicable Originator is open for
business.
1.5. Intention of the Parties. It is the express intent of the parties
hereto that the transfers of the Receivables (other than Contributed
Receivables) and Related Rights by each Originator to the Company, as
contemplated by this Agreement be, and be treated
-3-
<PAGE> 9
as, sales and not as secured loans secured by the Receivables and Related
Rights for all purposes (including tax and accounting). Each party hereto
agrees to account for such transfers as sales on all reports and financial
statements. If, however, notwithstanding the intent of the parties, such
transactions are deemed to be loans, each Originator hereby grants to the
Company a first priority security interest in all of such Originator's right,
title and interest in and to the Receivables and the Related Rights now
existing and hereafter created, all monies due or to become due and all amounts
received with respect thereto, and all proceeds thereof, to secure all of such
Originator's obligations hereunder.
1.6. Incidents of Ownership. The Company shall have no obligation to
account for, to replace, to substitute or to return all or any portion of the
Receivables or Related Rights to any Originator (except as expressly provided
herein), without regard to whether the Collections and other proceeds of such
Receivables are in excess of the Purchase Price paid therefor. The Company
shall have the sole right vis a vis each Originator to retain any gains or
profits created by buying, selling or holding all or any portion of the
Receivables and Related Rights purchased by it hereunder.
ARTICLE II.
CALCULATION OF PURCHASE PRICE
2.1. Calculation of Purchase Price. On or prior to the fifteenth Business
Day of each month (the "Purchase Report Date"), the Servicer shall deliver to
the Company, the Agent and Originators a report in substantially the form of
Exhibit A (each such report being herein called a "Purchase Report") with
respect to the matters set forth therein and the Company's purchases of
Receivables from Originators that have been made during the immediately
preceding calendar month.
The "Purchase Price" (to be paid to each Originator in accordance with the
terms of Article III) for the Receivables and the Related Rights that are
purchased from such Originator hereunder shall be determined in accordance
with the following formula:
PP = UB X FMVD
where:
------
PP = Purchase Price for each Receivable as calculated on the
relevant Payment Date.
UB = the Unpaid Balance of such Receivable.
-4-
<PAGE> 10
FMVD = Fair Market Value Discount, as measured on such Payment Date,
which is equal to the quotient (expressed as percentage) of
(a) one divided by (b) the sum of (i) one, plus (ii) the
product of (A) the Prime Rate on such Payment Date plus 1.0%
and (B) a fraction, the numerator of which is the Average
Maturity (calculated as of the last day of the calendar
month next preceding such Payment Date) and the denominator
of which is 365.
"Prime Rate" means a per annum rate equal to the "prime rate" as published
in the "Money Rates" section of The Wall Street Journal, or if such rate is
unavailable, the rate of interest most recently announced by SG at its branch
office in New York, New York as its reference rate.
ARTICLE III.
CONTRIBUTION OF RECEIVABLES;
PAYMENT OF PURCHASE PRICE
3.1. Contribution of Receivables. On the Initial Closing Date, Union
shall, and hereby does, contribute to the capital of the Company, Receivables
and Related Rights with respect thereto consisting of each Receivable of Union
that existed and was owing to Union on the Initial Closing Date, beginning with
the oldest of such Receivables and continuing chronologically thereafter, and
all or an undivided interest in the most recent of such contributed Receivables
such that the aggregate Unpaid Balance of all such contributed Receivables
shall be equal to $27,500,000.
3.2. Initial Purchase Price Payment. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to pay to each
Originator the Purchase Price for the purchase of Receivables to be made from
such Originator on the Initial Closing Date, partially in cash in the amount of
the proceeds of the Purchase with respect to the applicable Receivables and
Related Rights made by the Purchaser on the Initial Closing Date under the
Receivables Purchase Agreement, and partially by issuing a promissory note in
the form of Exhibit B to each Originator with an initial principal balance
equal to the remaining Purchase Price due to such Originator (as such
promissory note may be amended, supplemented, indorsed or otherwise modified
from time to time, together with all promissory notes issued from time to time
in substitution therefor or renewal thereof in accordance with the Transaction
Documents, being herein called the "FTL Note").
3.3. Subsequent Purchase Price Payments. On each Business Day falling
after the Initial Closing Date and on or prior to the
-5-
<PAGE> 11
Purchase and Sale Termination Date with respect to each Originator, on the
terms and subject to the conditions set forth in this Agreement, the Company
shall pay to each Originator the Purchase Price for the Receivables sold
by such Originator to the Company on such Business Day, in cash, in the
aggregate amount of Collections received on or prior to such day (that
constitute available funds) less an amount equal to the accrued obligations of
the Company (including, without limitation, the Servicer's Fee) and any amounts
to be held for or distributed to the Purchaser under the Receivables Purchase
Agreement. To the extent any of such Purchase Price remains unpaid (or if any
payment in respect thereof is made in excess of the Purchase Price payable to
any Originator attributable to Receivables), such remaining portion of such
Purchase Price shall be paid (or such excess shall be reflected, as the case
may be) by means of an automatic increase (or decrease, as applicable) to the
outstanding principal amount of the FTL Note given by the Company to such
Originator; provided, however, if on any Purchase Report Date any FTL Note has
been reduced to below zero as of the last day of the prior month, the amount
that otherwise would have decreased the outstanding principal amount of such
FTL Note to below zero as of such last day shall be paid by the applicable
Originator to the Company in cash.
On each Purchase Report Date with respect to purchases and payments made
during the immediately preceding month, Servicer shall make all appropriate
record keeping entries with respect to the FTL Notes or otherwise to reflect
the foregoing payments and adjustments pursuant to Section 3.4, and Servicer's
books and records shall constitute rebuttable presumptive evidence of the
principal amount of and accrued interest on each FTL Note at any time.
Furthermore, Servicer shall hold each FTL Note for the benefit of the
applicable Originator, and all payments under each FTL Note shall be made to
the Servicer for the account of the applicable payee thereof. Each Originator
hereby irrevocably authorizes Servicer to mark the FTL Note given to such
Originator "CANCELLED" and to return such FTL Note to the Company upon the
final payment thereof after the occurrence of the Purchase and Sale Termination
Date with respect to such Originator.
3.4. Settlement as to Specific Receivables and Dilution.
(a) If on the day of purchase or contribution of any Receivable from an
Originator hereunder, any of the representations or warranties set forth in
Section 5.4, 5.11 or 5.20 is not true with respect to such Receivable or as a
result of any action or inaction of such Originator, on any day any of the
representations or warranties set forth in Section 5.4, 5.11 or 5.20 is no
longer true with respect to such a Receivable, then the Purchase Price (or in
the case of a Contributed Receivable, the Unpaid Balance of such Receivable
(the "Contributed Value")) with respect to such Receivables shall be reduced by
an amount equal to the Unpaid
-6-
<PAGE> 12
Balance of such Receivable and shall be accounted to such Originator as
provided in subsection (c) below; provided, that if the Company thereafter
receives payment on account of Collections due with respect to such Receivable,
the Company promptly shall deliver such funds to such Originator.
(b) If, on any day, the Unpaid Balance of any Receivable (including any
Contributed Receivable) purchased (or contributed) hereunder is reduced or
adjusted as a result of any defective, rejected, returned goods or services,
any incorrect billing, or any discount or other adjustment made by an
Originator or Servicer or any setoff or dispute between an Originator or the
Servicer and an Obligor as indicated on the books of the Servicer (or, for
periods prior to the Initial Closing Date, the books of an Originator), then
the Purchase Price or the Contributed Value, as the case may be, with respect
to such Receivable shall be reduced by the amount of such net reduction and
shall be accounted to Originator as provided in subsection (c) below.
(c) Any reduction in the Purchase Price (or Contributed Value) of any
Receivable pursuant to subsection (a) or (b) above shall be applied as a credit
for the account of the Company against the Purchase Price of Receivables
subsequently purchased by the Company from the applicable Originator hereunder;
provided, however if there have been no purchases of Receivables (or
insufficiently large purchases of Receivables) to create a Purchase Price
sufficient to so apply such credit against, the amount of such credit
(i) shall be paid in cash to the Company by the applicable Originator
in the manner and for application as described in the following proviso,
or
(ii) shall be deemed to be a payment under, and shall be deducted
from the principal amount outstanding under, the applicable FTL Note, to
the extent that such payment is permitted under Section 7.03(f) of the
Receivables Purchase Agreement;
provided, further, that at any time (y) when a Liquidation Event or Unmatured
Liquidation Event exists or (z) on or after the Purchase and Sale Termination
Date with respect to the applicable Originator, the amount of any such credit
shall be paid by the applicable Originator to the Company by deposit in
immediately available funds into the Collection Account for application by
Servicer to the same extent as if Collections of the applicable Receivable in
such amount had actually been received on such date.
(d) Each Purchase Report shall include, in respect of the Receivables
previously generated by each Originator (including the Contributed
Receivables), a calculation of the aggregate reductions described in subsection
(a) or (b) relating to such Receivables
-7-
<PAGE> 13
during the preceding calendar month, as indicated on the books of the Servicer
(or, for such period prior to the Initial Closing Date, the books of each
Originator).
3.5. Reconveyance of Receivables. In the event that an Originator has paid
(including, without limitation, by credit against the Purchase Price or
reduction in the applicable FTL Note) to the Company the full Unpaid Balance of
any Receivable pursuant to Section 3.4, the Company shall reconvey such
Receivable and Related Rights with respect thereto to the applicable
Originator, without representation or warranty, but free and clear of all liens
created by the Company.
3.6. Payments and Computations, etc.
(a) All amounts to be paid or deposited by an Originator hereunder shall be
paid or deposited in accordance with the terms hereof no later than 11:00 a.m.
(Chicago time) on the day when due in lawful money of the United States of
America in same day funds.
(b) Each Originator shall, to the extent permitted by law, pay to the
Company interest on all amounts not paid or deposited by it when due hereunder,
such interest to be calculated at the Default Rate from (and including) the
date due and payable to the date paid and such interest shall be payable on
demand; provided that the applicable interest rate shall not at any time exceed
the maximum rate permitted by applicable law.
(c) All computations of interest hereunder shall be made on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed.
(d) Each Originator hereby irrevocably and unconditionally waives and
relinquishes to the fullest extent it may legally do so (i) any express or
implied vendor's lien, and any other lien, security interest, charge or
encumbrance, which would otherwise be imposed on or affect any Receivable or
Related Right on account of any unpaid amount of the Purchase Price therefor or
on account of any other unpaid amounts otherwise payable by the Company under
or in connection with this Agreement or otherwise and (ii) with respect to the
obligations of such Originator to make payments or deposits under this
Agreement (including, without limitation, payments under Section 9.1), any
set-off, counterclaim, recoupment, defense and other right or claim which such
Originator may have against the Company as a result of or arising out of the
failure of the Company to pay any amount on account of any Purchase Price under
Sections 3.2 and 3.3 or any other amount payable by the Company to Originator
under this Agreement or otherwise.
-8-
<PAGE> 14
ARTICLE IV.
CONDITIONS OF PURCHASES
4.1. Conditions Precedent to Initial Purchase. The initial purchase
hereunder is subject to the condition precedent that the Company shall have
received, on or before the Initial Closing Date, the following, each (unless
otherwise indicated) dated the Initial Closing Date, and each in form,
substance and date satisfactory to the Company:
(a) A copy of the resolutions of the Board of Directors of each Originator
approving the Transaction Documents to be delivered by it and the transactions
contemplated hereby and thereby, certified by the Secretary or Assistant
Secretary of such Originator;
(b) Status certificates for each Originator issued as of a recent date by
the Secretary of State of the states determined with respect to such Originator
by the Company in its reasonable discretion;
(c) A certificate of the Secretary or Assistant Secretary of each
Originator certifying the names and true signatures of the officers authorized
on such Originator's behalf to sign the Transaction Documents to be delivered
by it (on which certificate the Company and Servicer (if other than such
Originator) may conclusively rely until such time as the Company and the
Servicer shall receive from such Originator a revised certificate meeting the
requirements of this subsection (c));
(d) The certificate of incorporation of each Originator, duly certified by
the Secretary of State of the state of its incorporation as of a recent date,
together with a copy of the by-laws of Originator, each duly certified by the
Secretary or an Assistant Secretary of such Originator;
(e) Copies of the proper financing statements (Form UCC-1) that have been
duly executed and name each Originator as the assignor and the Company as the
assignee (and Purchaser as assignee of the Company) of the Receivables
generated by such Originator and Related Rights or other, similar instruments
or documents, as may be necessary or, in Servicer's or the Agent's opinion,
desirable under the UCC of all appropriate jurisdictions or any comparable law
of all appropriate jurisdictions to perfect the Company's ownership interest in
all Receivables in which an ownership interest may be assigned to it hereunder;
(f) Written search reports from a Person satisfactory to Servicer and the
Agent listing all effective financing statements
-9-
<PAGE> 15
that name each Originator as debtor or assignor and that are filed in the
jurisdictions in which filings were made pursuant to the foregoing subsection
(e), together with copies of such financing statements (none of which, except
for those described in the foregoing subsection (e), shall cover any Receivable
or any Related Right), and tax and judgment lien search reports from a Person
satisfactory to Servicer and the Agent showing no evidence of such liens filed
against such Originator;
(g) Favorable opinions of Katten, Muchin & Zavis, counsel to the
Originators in the form of Exhibit C;
(h) Evidence (i) of the execution and delivery by each of the parties
thereto of each of the other Transaction Documents to be executed and delivered
in connection herewith and (ii) that each of the conditions precedent to the
execution, delivery and effectiveness of such other Transaction Documents has
been satisfied to the Company's satisfaction; and
(i) A certificate from an officer of each Originator to the effect that
Servicer and such Originator have placed on the most recent, and have taken all
steps reasonably necessary to ensure that there shall be placed on subsequent,
summary master control data processing reports the following legend (or the
substantive equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN
SOLD TO FTL RECEIVABLES COMPANY AND AN INTEREST IN THE RECEIVABLES DESCRIBED
HEREIN HAS BEEN GRANTED TO BARTON CAPITAL CORPORATION."
4.2. Certification as to Representations and Warranties. Each Originator,
by accepting the Purchase Price related to each purchase of Receivables (and
Related Rights) shall be deemed to have certified that the representations and
warranties contained in Article V are true and correct on and as of such day,
with the same effect as though made on and as of such day.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF ORIGINATORS
In order to induce the Company to enter into this Agreement and to make
purchases and accept contributions hereunder, each Originator, in its capacity
as a seller under this Agreement, hereby makes, severally with respect to
itself alone, the representations and warranties set forth in this Article V.
5.1. Organization and Good Standing. Each Originator is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, and has the corporate power and authority, and the legal right,
to own and operate its property,
-10-
<PAGE> 16
to lease the property it operates as lessee and to conduct the business in
which it is currently engaged.
5.2. Due Qualification. Each Originator 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.
5.3. Power and Authority; Due Authorization. Each Originator has (i) all
necessary power, authority and legal right to (A) execute, deliver and perform
its obligations under each Transaction Document to which it is a party, and (B)
to generate, own, sell, contribute (in the case of Union) and assign
Receivables and Related Rights on the terms and subject to the conditions
herein provided; and (ii) duly authorized by all necessary corporate action
execution, delivery and performance of the Transaction Documents and the sale,
contribution (in the case of Union) and assignment of Receivables and Related
Rights on the terms and conditions herein provided.
5.4. Valid Sale or Contribution; Binding Obligations. Each sale or
contribution (in the case of Union), as the case may be, of Receivables and
Related Rights made by each Originator pursuant to this Agreement shall
constitute a valid sale or contribution (in the case of Union), as the case may
be, transfer, and assignment thereof to the Company, enforceable against
creditors of, and purchasers from, such Originator; and this Agreement
constitutes, and each other Transaction Document to be signed by such
Originator when duly executed and delivered will constitute, a legal, valid and
binding obligation of such Originator enforceable in accordance with its 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).
5.5. No Violation. The consummation of the transactions contemplated by
this Agreement and the other Transaction Documents to which each Originator is
a party as seller, and the fulfillment of the terms hereof or thereof will not
(a) conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or both) a default under
(i) such Originator's certificate of incorporation or by-laws, or (ii) any
Contractual Obligation, (b) result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such Contractual
Obligation, other than the Transaction Documents, or (c) violate any
Requirement of Law.
-11-
<PAGE> 17
5.6. Proceedings. There is no litigation or, to each Originator's
knowledge, any proceeding or investigation pending before any Governmental
Authority (a) asserting the invalidity of any Transaction Document to which
such Originator is a party as seller, (b) seeking to prevent the sale or
contribution of Receivables and Related Rights to the Company or the
consummation of any of the other transactions contemplated by any Transaction
Document to which such Originator is a party as seller, or (c) seeking any
determination or ruling that could reasonably be expected to have a Material
Adverse Effect.
5.7. Bulk Sales Act. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
5.8. Government Approvals. Except for the filing of the UCC financing
statements referred to in Article IV, all of which, at the time required in
Article IV, shall have been duly made and shall be in full force and effect, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority is required for each Originator's due execution,
delivery and performance of any Transaction Document to which it is a party, as
seller.
5.9. Financial Condition.
(a) On the date hereof, and on the date of each sale of Receivables by each
Originator to the Company (both before and after giving effect to such sale),
such Originator shall not be Insolvent.
(b) The consolidated balance sheet of FTL and its consolidated subsidiaries
as of September 30, 1996, and the related statement of earnings and cash flows
of FTL and its consolidated subsidiaries for the nine (9) months ended
September 30, 1996, copies of which will be furnished to the Company on the
Initial Closing Date, present fairly the consolidated financial position of FTL
and its consolidated subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles; and since such date
to the Initial Closing Date, no event has occurred that has had, or is
reasonably likely to have, a Material Adverse Effect.
5.10. Margin Regulations. No use of any funds acquired by an Originator
under this Agreement will conflict with or contravene any of Regulations G, T,
U and X promulgated by the Board of Governors of the Federal Reserve System
from time to time.
5.11. Quality of Title.
(a) Each Receivable (together with the Related Rights) which is to be sold
or contributed to the Company hereunder is or shall be owned by the applicable
Originator, free and clear of any Adverse Claim. Whenever the Company makes a
purchase, or accepts a
-12-
<PAGE> 18
contribution, hereunder, it shall have acquired a valid and perfected ownership
interest (free and clear of any Adverse Claim) in all Receivables generated by
the applicable Originator and all Collections related thereto, and in such
Originator's entire right, title and interest in and to the other Related
Rights with respect thereto.
(b) No effective financing statement or other instrument similar in effect
covering any Receivable generated by an Originator or any right related to any
such Receivable is on file in any recording office except such as may be filed
in favor of the Company or such Originator, as the case may be, in accordance
with this Agreement or in favor of the Purchaser in accordance with the
Receivables Purchase Agreement.
5.12. Accuracy of Information. No factual written information furnished or
to be furnished in writing by an Originator, as seller, to the Company, the
Purchaser or the Agent for purposes of or in connection with any Transaction
Document or any transaction contemplated hereby or thereby is, and no other
such factual written information hereafter furnished (and prepared) by such
Originator, as seller, to the Company, the Purchaser, or the Agent pursuant to
or in connection with any Transaction Document, taken as a whole, will be
inaccurate in any material respect as of the date it was furnished or (except
as otherwise disclosed to the Company at or prior to such time) as of the date
as of which such information is dated or certified, or shall contain any
material misstatement of fact or omitted or will omit to state any material
fact necessary to make such information, in the light of the circumstances
under which any statement therein was made, not materially misleading on the
date as of which such information is dated or certified.
5.13. Offices. Each Originator's principal place of business and chief
executive office is located at the address set forth under such Originator's
signature hereto, and the offices where such Originator keeps all its books,
records and documents evidencing the Receivables, the related Contracts and all
other agreements related to such Receivables are located at the addresses
specified on Schedule 5.13 (or at such other locations, notified to Servicer
(if other than Originator) and the Agent in accordance with Section 6.1(f), in
jurisdictions where all action required by Section 7.3 has been taken and
completed).
5.14. Trade Names. Except as disclosed on Schedule 5.14, no Originator uses
any trade name other than its actual corporate name. From and after the date
that fell five (5) years before the date hereof, no Originator has been known
by any legal name other than its corporate name as of the date hereof, nor has
any Originator been the subject of any merger or other corporate reorganization
except as disclosed on Schedule 5.14.
-13-
<PAGE> 19
5.15. Taxes. Each Originator has filed all material tax returns and
reports required by law which are required to be filed by it and has paid all
taxes shown to be due and payable on said returns or on any assessments made
against it or any of its properties or assets and all other taxes, fees and
other charges imposed on its or any of their respective properties by any
Governmental Authority other than those the amount or validity of which are
currently being contested in good faith by appropriate proceedings diligently
pursued and with respect to which reserves in conformity with GAAP have been
provided on the books of such Originator and no tax Lien has been filed or
received. There is no proposed tax assessment against such Originator which
could reasonably be expected to have a Material Adverse Effect.
5.16. Licenses and Labor Controversies.
(a) Each Originator owns or is licensed to use all trademarks,
tradenames, copyrights, technology, know-how, patents and processes necessary
for the conduct of its business as currently conducted, except for those the
failure to own or be licensed to use, would not be reasonably likely to have
a Material Adverse Effect; and
(b) Except to the extent that such practices, circumstances, events or
questions would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (1) no Originator is engaged in
any unfair labor practice and (2) no significant strike, labor dispute,
slowdown or stoppage is pending against an Originator, or to the best
knowledge of each Originator, threatened against it.
5.17. Compliance with Applicable Laws. Each Originator is in
compliance, in all material respects, with the requirements of (i) all
applicable laws, rules, regulations, and orders of all governmental
authorities (including, without limitation, Regulation Z, laws, rules and
regulations relating to usury, truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices
and privacy and all other consumer laws applicable to the Receivables and
related Contracts) (excluding with respect to environmental matters which are
covered by clause (ii)), and (ii) to the best of its knowledge, all
applicable environmental laws, rules, regulations and orders of all
governmental authorities.
5.18. Reliance on Separate Legal Identity. Each Originator is aware that
Purchaser and the Agent are entering into the Transaction Documents to which
they are parties in reliance upon the Company's identity as a legal entity
separate from such Originator.
5.19. Purchase Price. The purchase price payable by the Company to each
Originator hereunder is intended by the Originators to be consistent with the
terms that would be obtained in an arm's
-14-
<PAGE> 20
length sale. The Servicer's Fee payable to the Servicer is intended to be
consistent with terms that would be obtained in an arm's length servicing
arrangement.
5.20. Eligibility of Receivables. Unless otherwise identified to the
Company on the date of the purchase hereunder, each Receivable purchased
hereunder is on the date of purchase an Eligible Receivable and, so long as
Union is the Servicer, each Pool Receivable included as an Eligible
Receivable in the calculation of Net Receivables Pool Balance shall be an
Eligible Receivable as of the date of such calculation.
ARTICLE VI.
COVENANTS OF ORIGINATORS
6.1. Affirmative Covenants. From the date hereof until the first day
following the Liquidation Termination Date, each Originator shall, unless the
Company and the Agent shall otherwise consent in writing (except that if the
Purchase and Sale Termination Date shall occur with respect to less than all
of the Originators, then any such Originators with respect to which the
Purchase and Sale Termination Date shall have occurred shall no longer be
subject to the restrictions set forth in this Section 6.1 following the date
upon which all Receivables sold by such Originators to the Company shall have
been paid in full or have become Defaulted Receivables):
(a) Compliance with Laws, Etc. Comply in all material respects with
all Requirements of Law, including those with respect to the Receivables
generated by it and the related Contracts and other agreements related
thereto, except to the extent that failure to comply therewith would not in
the aggregate reasonably be expected to have a Material Adverse Effect.
(b) Preservation of Corporate Existence. Continue to engage in the
business of the same type as now conducted by it and preserve, renew and keep
in full force and effect its corporate existence and take all reasonable
action to maintain all rights, privileges and franchises material to its
businesses and with all Contractual Obligations except to the extent that
failure to comply therewith would not in the aggregate reasonably be expected
to have a Material Adverse Effect.
(c) Receivables Review. (i) At any time and from time to time (but not
more, with respect to an Originator, than twice during the term of this
Agreement so long as no Liquidation Event has occurred and is continuing)
during regular business hours, upon reasonable prior notice, permit the
Company and/or the Agent, or their respective agents or representatives, (A)
to examine, to audit and
-15-
<PAGE> 21
make copies of and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in the possession or
under the control of an Originator relating to the Receivables and Related
Rights, including, without limitation, the Contracts and other agreements
related thereto, and (B) to visit such Originator's offices and properties for
the purpose of examining such materials described in the foregoing clause (A)
and discussing matters relating to the Receivables and Related Rights or such
Originator's performance hereunder with any of the officers or employees of
such Originator having knowledge of such matters; and (ii) without limiting the
provisions of clause (i) next above, from time to time on request of the Agent,
permit certified public accountants or other auditors acceptable to the Agent
to conduct a review of its books and records with respect to the Receivables
and Related Rights; provided, however, that unless a Liquidation Event has
occurred and is continuing, such review shall occur at the expense of the
applicable Originator no more than once in any calendar year.
(d) Keeping of Records and Books of Account. Maintain an ability to
recreate records evidencing the Receivables in the event of the destruction of
the originals thereof.
(e) Performance and Compliance with Receivables and Contracts. At its
expense, timely and fully perform and comply with all material provisions,
covenants and other promises required to be observed by it under the related
Contracts and all other agreements related to the Receivables and Related
Rights.
(f) Location of Records. Keep its principal place of business and chief
executive office, and the offices where it keeps its records concerning or
related to Receivables and Related Rights, at the address(es) referred to in
Schedule 5.13 or, upon 30 days' prior written notice to the Company and the
Agent, at such other locations in jurisdictions where all action required by
Section 7.3 shall have been taken and completed.
(g) Credit and Collection Policies. Comply in all material respects with
its Credit and Collection Policy in connection with the Receivables and the
related Contracts.
(h) Separate Corporate Existence of the Company. Take such actions as
shall be required in order that:
(i) the Company's operating expenses (other than certain organization
expenses and expenses incurred in connection with the preparation,
negotiation and delivery of the Transaction Documents) will not be paid by
any Originator;
(ii) the Company's books and records will be maintained separately
from those of Originators;
-16-
<PAGE> 22
(iii) all financial statements of any Originator, if any, that are
consolidated to include the Company will contain detailed notes clearly
stating that (A) all of the Company's assets are owned by the Company, and
(B) the Company is a separate entity with creditors who have received
interests in the Company's assets;
(iv) Each Originator will strictly observe corporate formalities in
its dealing with the Company;
(v) Each Originator shall not commingle its funds with any funds of
the Company;
(vi) Each Originator will maintain arm's length relationships with the
Company, and each Originator will be compensated at market rates for any
services it renders or otherwise furnishes to the Company; and
(vii) No Originator will be, or will hold itself out to be, responsible
for the debts of the Company or the decisions or actions in respect of the
daily business and affairs of the Company (other than with respect to such
decisions or actions of an Originator in its capacity as Servicer).
(i) Receipt of Collections. Each Originator shall promptly (within two
Business Days) remit to the applicable post office box related to the Lockbox
Accounts (or cause to be deposited directly to such Lockbox Accounts) all
Collections received by such Originator (and any amounts so received shall be
held in trust for the Company prior to such deposit).
(j) Post Office Boxes. Within 10 Business Days after the date hereof,
Originator shall deliver to the Agent (with a copy for Purchaser) a certificate
from an authorized officer of such Originator to the effect that (i) the name
of the renter of all post office boxes into which Collections may from time to
time be mailed have been changed to the name of the Company (unless such post
office boxes are in the name of the relevant Lockbox Banks) and (ii) all
relevant postmasters have been notified that each of Servicer and the Agent are
authorized to collect mail delivered to such post office boxes (unless such
post office boxes are in the name of the relevant Lockbox Banks).
6.2. Reporting Requirements. From the date hereof until the first day
following the Purchase and Sale Termination Date with respect to such
Originator, each Originator shall, unless the Agent and the Company shall
otherwise consent in writing, furnish to the Company and the Agent:
(a) Proceedings. As soon as possible and in any event within three
Business Days after any executive officer or the general
-17-
<PAGE> 23
counsel of such Originator has knowledge thereof, written notice to the Company
and the Agent of (i) all pending proceedings and investigations of the type
described in Section 5.6 not previously disclosed to the Company and/or the
Agent and (ii) all material adverse developments that have occurred with
respect to any previously disclosed proceedings and investigations; provided,
however, that if such proceedings and investigations are unrelated to the
Receivables and the servicing thereof, such written notice may be delivered
within 10 Business Days after such executive officer or general counsel of such
Originator has knowledge thereof;
(b) Other. Promptly, from time to time, such other information, documents,
records or reports respecting the Receivables, the Related Rights or such
Originator's performance hereunder that the Company or the Agent may from time
to time reasonably request in order to protect the interests of the Company,
the Purchaser, the Agent or any other Affected Party under or as contemplated
by the Transaction Documents.
6.3. Negative Covenants. From the date hereof until the date following the
Liquidation Termination Date, each Originator agrees that, unless the Agent and
the Company shall otherwise consent in writing, it shall not (except that if
the Purchase and Sale Termination Date shall occur with respect to less than
all of the Originators, then any such Originators with respect to which the
Purchase and Sale Termination Date shall have occurred shall no longer be
subject to the restrictions set forth in this Section 6.3 following the date
upon which all Receivables sold by such Originators to the Company shall have
been paid in full or have become Defaulted Receivables):
(a) Sales, Liens, Etc. Except as otherwise provided herein or in any
other Transaction Document, (i) sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Receivable or related Contract, Collections or Related
Security, or any interest therein, or assign any right to receive income in
respect thereof, or (ii) create or suffer to exist any Adverse Claim upon or
with respect to any proceeds of its inventory.
(b) Extension or Amendment of Receivables. Solely to the extent it is then
acting as Servicer or a subservicer, except in accordance with the Credit and
Collection Policy, extend, amend or otherwise modify the terms of any
Receivable in any material respect, or amend, modify or waive, in any material
respect, any term or condition of any Contract related thereto (which term or
condition relates to payments under, or the enforcement of, such Contract).
(c) Change in Business or Credit and Collection Policy. Make any change in
the character of its business or materially alter its
-18-
<PAGE> 24
Credit and Collection Policy, which change would, in either case, materially
impair the collectibility of any material portion of the Receivables.
(d) Receivables Not to be Evidenced by Promissory Notes. Take any action
to cause or permit any Receivable generated by it to become evidenced by any
"instrument" (as defined in the applicable UCC) unless such "instrument" shall
be delivered to the Company (which in turn (if the Receivables Purchase
Agreement is then in effect) shall deliver the same to the Purchaser (or the
Agent on its behalf)).
(e) Mergers, Acquisitions, Sales, etc. Enter into any merger,
consolidation or amalgamation, or liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution); convey, sell, assign, transfer or
otherwise dispose of all or substantially all of the property, business or
assets of such Originator and its Subsidiaries; or make any material change in
its present method of conducting business; provided, however, that as long as
immediately after giving effect to such transaction, the resulting, surviving
or transferee Person shall have Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of such Person prior to such
transaction;
(i) any Subsidiary of an Originator may be merged or consolidated with
or into such Originator or FTL (provided, however, that such Originator or
FTL, as the case may be, shall be the continuing or surviving corporation)
or with or into any one or more Wholly-Owned Subsidiaries of such
Originator or FTL, as the case may be (provided, however, that the
Wholly-Owned Subsidiary or Subsidiaries or FTL, as the case may be, shall
be the continuing or surviving corporation);
(ii) any Wholly-Owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to such Originator or FTL or any other Wholly-Owned Subsidiary
of such Originator or FTL, as the case may be.
(f) Accounting for Purchases. Account for or treat (whether in financial
statements or otherwise) the transactions contemplated hereby in any manner
other than as sales of the Receivables and Related Security by Originator to
the Company.
(g) Transaction Documents. Enter into, execute, deliver or otherwise
become bound by any agreement, instrument, document or other arrangement that
restricts the right of Originator to amend, supplement, amend and restate or
otherwise modify, or to extend or renew, or to waive any right under, this
Agreement or any other Transaction Documents, except those which exist as of
the Initial Closing Date.
-19-
<PAGE> 25
ARTICLE VII.
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1. Rights of the Company.
(a) Each Originator hereby authorizes the Company and the Servicer (if
other than such Originator) or their respective designees to take any and all
steps in such Originator's name necessary or desirable, in their respective
determination, to collect all amounts due under any and all Receivables and
Related Rights, including, without limitation, endorsing such Originator's name
on checks and other instruments representing Collections and enforcing such
Receivables and the provisions of the related Contracts that concern payment
and/or enforcement of rights to payment.
(b) Consistent with the Company's ownership of the Receivables and Related
Rights, the Company shall have all rights to and shall be solely responsible
for servicing, administering and collecting the Receivables. The Company shall
appoint the Person designated as Servicer pursuant to the terms of the
Receivables Purchase Agreement to perform such services with respect to the
Receivables and Related Rights.
(c) Each Originator hereby acknowledges that the Lockbox Accounts shall be
in the sole dominion and control of the Company (or its agent or assignee).
The Lockbox Accounts shall be used exclusively for proceeds of Receivables, and
the Originators shall not permit any other funds to be deposited therein. To
the extent any funds other than proceeds of the Receivables are deposited in
any Lockbox Account, the Company (or the Servicer) shall remove such funds
within two Business Days of the discovery of the deposit of such funds.
7.2. Responsibilities of Originators. Anything herein to the contrary
notwithstanding:
(a) Each Originator agrees to direct in the invoices sent by it to
Obligors, and hereby grants to each of the Company and the Agent the authority
to direct, all Obligors to make payments of Receivables directly to a Lockbox
Account at a Lockbox Bank.
(b) Each Originator shall perform its obligations hereunder, and the
exercise by the Company or its designee of its rights hereunder shall not
relieve such Originator from such obligations.
-20-
<PAGE> 26
(c) None of the Company, Servicer (if other than an Originator), Purchaser
or the Agent shall have any obligation or liability to any Obligor or any other
third Person arising under any Contracts related to any Receivable or any other
related agreements, nor shall the Company, Servicer (if other than an
Originator), Purchaser or the Agent be obligated to perform any of the
obligations of an Originator thereunder.
(d) Each Originator hereby grants to Servicer (if other than such
Originator) an irrevocable power of attorney, with full power of substitution,
coupled with an interest, to take in the name of such Originator all steps
necessary or advisable to indorse, negotiate or otherwise realize on any
writing or other right of any kind held or transmitted by such Originator or
transmitted or received by the Company (whether or not from such Originator) in
connection with any Receivable or Related Right.
7.3. Further Action Evidencing Purchases. Each Originator agrees that from
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that the Company or
Servicer may reasonably request in order to perfect, protect or more fully
evidence the Receivables (and the Related Rights) purchased by, or contributed
to, the Company hereunder, or to enable the Company to exercise or enforce any
of its rights hereunder or under any other Transaction Document. Without
limiting the generality of the foregoing, upon the request of the Company, each
Originator will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate; and
(b) mark the summary master control data processing records with the legend
set forth in Section 4.1(i).
Each Originator hereby authorizes the Company or its designee to file one or
more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Receivables (and the Related
Rights) now existing or hereafter generated by such Originator. If an
Originator fails to perform any of its agreements or obligations under this
Agreement within two Business Days after a request has been made by the Company
or the Agent to so perform, the Company or its designee may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of the Company or its designee incurred
in connection therewith shall be payable by such Originator as provided in
Section 10.6.
7.4. Application of Collections. Any payment by an Obligor in respect of
any indebtedness owed by it to an Originator shall,
-21-
<PAGE> 27
except as otherwise specified by such Obligor or otherwise required by contract
or law and unless otherwise instructed by the Company or the Agent, be
applied first, as a Collection of any Receivables of such Obligor, in the order
of the age of such Receivables, starting with the oldest of such Receivables,
and second, to any other indebtedness of such Obligor.
7.5. Remedies Cumulative. Upon default by an Originator of its obligations
hereunder, the Company shall have, in addition to all other rights and remedies
under this Agreement or otherwise, all other rights and remedies provided under
the UCC of each applicable jurisdiction and other applicable laws, which rights
shall be cumulative. Without limiting the foregoing, such default shall not
deny the Company any remedy in addition to termination of the Purchase Facility
to which the Company may be otherwise appropriately entitled, whether at law or
equity.
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES OF COMPANY
In order to induce the Originators to enter into this Agreement and to
sell or contribute (in the case of Union) Receivables and Related Rights
hereunder, the Company, in its capacity as purchaser under this Agreement,
hereby makes the representations and warranties set forth in this Article VIII.
8.1. Organization and Good Standing. The Company is duly organized,
validly existing and in good standing under the laws of the State of Delaware
and 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.
8.2. Due Qualification. The Company 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 qualifications necessary, except where the failure to so
qualify would not reasonably be expected to have a Material Adverse Effect.
8.3. Power and Authority: Due Authorization. The Company has (i) all
necssary power, authority and legal rights to (A) execute, deliver and perform
its obligations under each Transaction Document to which is a party, and (B) to
purchase or accept contribution of Receivables and Related Rights on the terms
and subject to the conditions herein provided; and (ii) duly authorized by all
necessary corporate action execution, delivery and performance of the
Transaction Documents to which it is a party and the purchase,
-22-
<PAGE> 28
contribution and assignment of Receivables and Related Rights on the terms and
conditions herein provided.
8.4. Valid Sale or Contribution; Binding Obligations. This Agreement
constitutes, and each other Transaction Document to be signed by the Company
when duly executed and delivered will constitute, a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforcement thereof may be subject to (i) the effects 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).
8.5. Purchase Price. The purchase price payable by the Company to each
Originator hereunder is intended by the Company to be consistent with the terms
that would be obtained in an arm's length sale. The Servicer's Fee payable to
the Servicer is intended to be consistent with terms that would be obtained in
an arms length servicing arrangement.
ARTICLE IX.
INDEMNIFICATION
9.1. Indemnities by Originators.
(a) Without limiting any other rights which the Company may have hereunder
or under applicable law, each Originator, severally and for itself alone,
hereby agrees to indemnify the Company and each of its successors, transferees
and assigns, and all officers, directors, shareholders, controlling persons,
employees and agents of any of the foregoing (each of the foregoing Persons
being individually called a "Purchase and Sale Indemnified Party"), forthwith
on demand, from and against any and all damages, losses, claims, judgments,
liabilities and related costs and expenses, including reasonable attorneys'
fees and disbursements (all of the foregoing being collectively called
"Purchase and Sale Indemnified Amounts") awarded against or incurred by any of
them arising out of or as a result of the following (without duplication of
amounts payable pursuant to Section 3.4):
(i) the transfer by an Originator of an interest in any Receivable or
Related Right to any Person other than the Company;
(ii) the breach of any representation or warranty made by an
Originator under or in connection with this Agreement or any other
Transaction Document, or any information or report
-23-
<PAGE> 29
delivered by such Originator pursuant hereto or thereto, any of which
shall have been false or incorrect in any material respect when made or
deemed made;
(iii) the failure by an Originator to comply with any applicable law,
rule or regulation with respect to any Receivable or the related
Contract, or the nonconformity of any Receivable or the related Contract
with any such applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in the Company an
ownership interest in the Receivables generated by an Originator and
Related Rights free and clear of any Adverse Claim, other than an Adverse
Claim arising solely as a result of an act of the Company, Purchaser or
Agent, whether existing at the time of the purchase or contribution of
such Receivables or at any time thereafter;
(v) the failure of an Originator to file with respect to itself, or
any delay by such Originator in filing, financing statements or other
similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivables or
purported Receivables generated by such Originator or Related Rights,
whether at the time of any purchase or contribution or at any subsequent
time;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable or purported
Receivable generated by such Originator (including, without limitation, a
defense based on such Receivables or the related Contracts not being a
legal, valid and binding obligation of such Obligor enforceable against
it in accordance with its terms), or any other claim resulting from the
goods or services related to any such Receivable or the furnishing of or
failure to furnish such goods or services;
(vii) any product liability claim arising out of or in connection with
goods or services that are the subject of any Receivable;
(viii) any litigation, proceeding or investigation against an
Originator;
(ix) any tax or governmental fee or charge (other than any tax
excluded pursuant to the proviso below), all interest and penalties
thereon or with respect thereto, and all out-of-pocket costs and
expenses, including the reasonable fees and expenses of counsel in
defending against the same, which may arise by reason of the purchase,
contribution or ownership of the Receivables or any Related Right
connected with any such Receivables; and
-24-
<PAGE> 30
(x) any failure of an Originator, individually or as Servicer, to
perform its duties or obligations in accordance with the provisions of
this Agreement or any other Transaction Document;
excluding, however, (i) Purchase and Sale Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of a Purchase
and Sale Indemnified Party, (ii) any indemnification which has the effect of
recourse to an Originator for non-payment of the Receivables due to credit
reasons of Obligors and (iii) any tax based upon or measured by net income or
gross receipts.
If for any reason the indemnification provided above in this Section
9.1(a) is unavailable to a Purchase and Sale Indemnified Party or is
insufficient to hold such Purchase and Sale Indemnified Party harmless, then
each Originator shall contribute to the amount paid or payable by such Purchase
and Sale Indemnified Party as a result of such loss, claim, damage or liability
to the maximum extent permitted under applicable law. Promptly after receipt
by a Purchase and Sale Indemnified Party under this Article IX of notice of any
claim or the commencement of any action arising out of or as a result of any of
paragraphs (i) through (x) above, the Purchase and Sale Indemnified Party
shall, if a claim in respect thereof is to be made against an Originator under
this Article IX, notify such Originator in writing of the claim or the
commencement of that action; provided, however, that the failure to notify such
Originator shall not relieve it from any liability which it may have under this
Article IX except to the extent it has been materially prejudiced by such
failure.
(b) Promptly after the receipt by a Purchase and Sale Indemnified Party or
Parties of a notice of the commencement of any action, suit, proceeding,
investigation or claim against such Purchase and Sale Indemnified Party or
Parties as to which it proposes to demand indemnification from an Originator or
Originators pursuant to this Section 9.1, such Purchase and Sale Indemnified
Party or Parties shall notify the applicable Originators and the Servicer in
writing of the commencement thereof; but the failure so to notify such
Originators and the Servicer will not relieve any such Originator from any
liability which such Originator may have to such Purchase and Sale Indemnified
Party or Parties pursuant to this Section 9.1 unless to the extent that such
failure results in the forfeiture by any such Originator of substantive rights
and defenses. After such notice, if (i) the applicable Originators shall
acknowledge in writing to such Purchase and Sale Indemnified Party or Parties
that such Originators shall be obligated to indemnify such Purchase and Sale
Indemnified Party or Parties under this Section 9.1 with respect to such
action, suit, proceeding, investigation or claim, (ii) the defendants in, or
targets of, any such action, suit, proceeding, investigation or claim include
both
-25-
<PAGE> 31
such Originators and any such Purchase and Sale Indemnified Party or
Parties, and (iii) the Purchase and Sale Termination Date shall not have
occurred, such Originators to the extent that they shall wish, jointly with
such Purchase and Sale Indemnified Party or Parties, shall be entitled to
participate therein in defense of such action, suit, proceeding or
investigation, and such Originators and such Purchase and Sale Indemnified
Party or Parties shall cooperate in the defense thereof and shall retain
counsel reasonably satisfactory to such Originators and such Purchase and Sale
Indemnified Party or Parties to undertake the joint defense of such Originators
and such Purchase and Sale Indemnified Party or Parties at such Originators'
cost, risk and expense. If (i) in the reasonable opinion of such Purchase and
Sale Indemnified Party or Parties, the engagement of such counsel would present
a conflict of interest that would prevent such counsel from effectively
undertaking such joint defense, (ii) such Purchase and Sale Indemnified Party
or Parties reasonably conclude that there may be legal defenses available to it
or them that are different from or in addition to those available to such
Originators, (iii) such Originators fail to employ counsel reasonably
satisfactory to such Purchase and Sale Indemnified Party or Parties in a timely
manner, or (iv) if the Purchase and Sale Termination Date shall occur, then
such Purchase and Sale Indemnified Party or Parties may employ separate counsel
to represent or defend it or them in any such action, suit, proceeding or
investigation and such Originators shall pay all fees, expenses and
disbursements of such counsel; provided, however, that in no event shall such
Originators be liable for the fees, expenses and disbursements of more than one
counsel representing all Purchase and Sale Indemnified Parties that are parties
to the same action, suit, proceeding, investigation or claim.
(c) No Originator shall (i) without the prior written consent of the
relevant Purchase and Sale Indemnified Party or Parties (which consent shall
not be unreasonably withheld or delayed) settle or compromise or consent to the
entry of any judgment with respect to any pending action, suit, proceeding,
investigation or claim in respect to which indemnification or contribution may
be sought hereunder (whether or not the relevant Purchase and Sale Indemnified
Party or Parties are actual or potential parties to such claim) unless such
settlement, compromise or consent includes an unconditional release of each
relevant Purchase and Sale Indemnified Party from all liability arising out of
such action, suit, proceeding, investigation or claim or (ii) be liable for any
settlement of any such action affected without its written consent (which
consent shall not be unreasonably withheld or delayed), but if settled with its
written consent or if there be a final judgment of the plaintiff in any action,
the Originators agree to indemnify and hold harmless any Purchase and Sale
Indemnified Party from and against any Purchase and Sale Indemnified Amounts
relating thereto.
-26-
<PAGE> 32
In the event of any dispute between any Purchase and Sale Indemnified
Party or Parties, on the one hand, and any Originator, on the other hand, as to
whether such Originator is acting reasonably in objecting to any proposed
settlement, compromise or consent, such dispute shall be resolved through
binding arbitration in Chicago, Illinois in accordance with the commercial
arbitration rules of the American Arbitration Association. There shall be a
single arbitrator to be selected by mutual agreement of such Purchase and Sale
Indemnified Party or Parties and such Originators (or if such parties cannot
agree on an arbitrator, by an arbitrator selected by a federal or state court
located in the City of Chicago). Any such arbitration must be commenced not
later than 30 days after the date such dispute arose.
ARTICLE X.
MISCELLANEOUS
10.1. Amendments, etc.
(a) The provisions of this Agreement may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Originators, the Company, the Servicer (if other than an
Originator) and the Agent (if the Receivables Purchase Agreement is then in
effect).
(b) No failure or delay on the part of the Company, Servicer, an Originator
or any third party beneficiary in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Company,
Servicer, or Originators in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by the Company or
Servicer under this Agreement shall, except as may otherwise be stated in such
waiver or approval, be applicable to subsequent transactions. No waiver or
approval under this Agreement shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
10.2. Notices, etc. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by express
mail or courier or by certified mail, postage-prepaid, or by facsimile, to the
intended party at the address or facsimile number of such party set forth under
its name on the signature pages hereof or at such other address or facsimile
number as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall
-27-
<PAGE> 33
be effective, (i) if personally delivered or sent by express mail or courier
or if sent by certified mail, when received, and (ii) if transmitted by
facsimile, when sent, receipt confirmed by telephone or electronic means.
10.3. No Waiver; Cumulative Remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.4. Binding Effect; Assignability. This Agreement shall be binding upon
and inure to the benefit of the Company, Originators and each of their
respective successors and permitted assigns. No Originator may assign its
rights hereunder or any interest herein without the prior consent of the
Company and, if the Receivables Purchase Agreement is then in effect, the
Agent. This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until the date after the Purchase and Sale Termination Date
with respect to all of the Originators on which all Originators have received
payment in full for all Receivables and Related Rights purchased pursuant to
Section 1.1 hereof. The rights and remedies with respect to any breach of any
representation and warranty made by an Originator pursuant to Article V and the
indemnification and payment provisions of Article IX and Section 10.6 shall be
continuing and shall survive any termination of this Agreement.
10.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF NEW YORK (INCLUDING SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF PURCHASER IN THE RECEIVABLES, OR
REMEDIES HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
10.6. Costs, Expenses and Taxes. In addition to the obligations of
Originators under Article IX, Originators agree to pay on demand:
(a) all reasonable costs and expenses in connection with the enforcement of
this Agreement and the other Transaction Documents; and
(b) all stamp and other similar taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of
this Agreement or the other Transaction Documents, and agrees to indemnify each
Purchase and Sale Indemnified Party against any liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
-28-
<PAGE> 34
10.7. Consent to Jurisdiction; Waiver of Immunities. EACH PARTY HERETO
ACKNOWLEDGES AND AGREES THAT:
(a) IT IRREVOCABLY (i) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION,
FIRST, OF ANY FEDERAL COURT, AND SECOND, IF FEDERAL JURISDICTION IS NOT
AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN THE
BOROUGH OF MANHATTAN, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED
ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT,
AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING.
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.
10.8. Waiver of Jury Trial. EACH PARTY HERETO EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
10.9. Captions and Cross References; Incorporation by Reference. The
various captions (including, without limitation, the table of contents) in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. References in this
Agreement to any underscored Section or Exhibit are to such Section or Exhibit
of this Agreement, as the case may be. The Exhibits hereto are hereby
incorporated by reference into and made a part of this Agreement.
10.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement.
10.11. Acknowledgment and Agreement. By execution below, each
Originator expressly acknowledges and agrees that all of the Company's rights,
title, and interests in, to, and under this
-29-
<PAGE> 35
Agreement shall be assigned by the Company to the Purchaser pursuant to the
Receivables Purchase Agreement, and each Originator consents to such
assignment. Each of the parties hereto acknowledges and agrees that the Agent
and the Purchaser are third party beneficiaries of the rights of the Company
arising hereunder and under the other Transaction Documents to which any
Originator is a party.
-30-
<PAGE> 36
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
FTL RECEIVABLES COMPANY
By:_________________________
Name:
Title:
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
ORIGINATORS:
UNION UNDERWEAR COMPANY, INC.
By:_________________________
Name:
Title:
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
PRO PLAYER, INC.
By:_________________________
Name:
Title:
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
<PAGE> 37
SALEM SPORTSWEAR, INC.
By:__________________________
Name:________________________
Title:_______________________
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
Acknowledged and consented by:
UNION UNDERWEAR COMPANY, INC.,
as Servicer
By:__________________________
Name:________________________
Title:_______________________
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
<PAGE> 38
SCHEDULE 5.13
OFFICE LOCATIONS
None.
<PAGE> 39
SCHEDULE 5.14
TRADE NAMES
None.
<PAGE> 40
EXHIBIT A
FORM OF PURCHASE REPORT
<PAGE> 41
EXHIBIT B
FORM OF FTL NOTE
<PAGE> 42
EXHIBIT C
FORM OF OPINION OF ORIGINATOR'S COUNSEL
<PAGE> 1
Exhibit 10(u)
RECEIVABLES PURCHASE AGREEMENT
dated as of December 18, 1996
among
FTL RECEIVABLES COMPANY,
as Seller,
UNION UNDERWEAR COMPANY, INC.,
as initial Servicer,
BARTON CAPITAL CORPORATION,
as Purchaser,
and
SOCIETE GENERALE,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I.
THE COMMITMENT; PURCHASE AND REINVESTMENT LIMITS
<S> <C> <C>
1.01 Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.02 Purchase and Reinvestment Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03 Making Purchases from Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Number of Yield Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.05 Commitment Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Purchase and Reinvestment Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.07 Voluntary Termination of Commitment or Reduction
of Facility Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II.
UNDIVIDED INTEREST AND PURCHASER'S SHARE
2.01 Undivided Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.03 Net Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.04 Purchaser's Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.05 Yield Reserve; Earned Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.06 Servicer's Fee Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.07 Required Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III.
SETTLEMENTS
3.01 Establishment and Use of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.02 Settlement and Reinvestment Procedures to be Followed
Absent the Occurrence of a Liquidation Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.03 Settlement Procedures to be Followed if a
Liquidation Day Occurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.04 Special Settlement Procedures; Reduction of
Investment, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.05 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.06 Payments and Computations, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.07 Dividing or Combining Undivided Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV.
FEES AND YIELD PROTECTION
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION> PAGE
<S> <C> <C>
4.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.02 Yield Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V.
CONDITIONS OF PURCHASES
5.01 Conditions Precedent to Initial Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.02 Conditions Precedent to All Purchases and Reinvestments . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.02 Representations and Warranties of Union. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII.
GENERAL COVENANTS OF SELLER AND SERVICER
7.01 Affirmative Covenants of Seller and Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.02 Reporting Requirements of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.03 Negative Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII.
ADMINISTRATION AND COLLECTION
8.01 Designation of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.02 Duties of Servicer and Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.03 Rights of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.04 Responsibilities of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.05 Certain Responsibilities of Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.06 Further Action Evidencing Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.07 Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX.
SECURITY INTEREST
9.01 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.02 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION> PAGE
<S> <C> <C>
9.03 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE X.
LIQUIDATION EVENTS
10.01 Liquidation Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE XI.
THE AGENT
11.01 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.02 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.03 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE XII.
ASSIGNMENT OF PURCHASER'S INTEREST
12.01 Restrictions on Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.02 Rights of Assignee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.03 Evidence of Assignment; Endorsement on Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.04 Rights of the Banks and Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE XIII.
INDEMNIFICATION
13.01 Indemnity by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XIV.
MISCELLANEOUS
14.01 Amendments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.02 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.03 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
14.04 Binding Effect; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
14.05 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
14.06 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
14.07 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
14.08 Captions and Cross References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14.09 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
14.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION> PAGE
<S> <C> <C>
14.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
14.12 Consent to Jurisdiction; Waiver of Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
14.13 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
14.14 Recourse to Directors or Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
-iv-
<PAGE> 6
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(f) Description of Proceedings of Seller
SCHEDULE 6.02(f) Description of Proceedings of Union
SCHEDULE 6.01(m) List of Offices of Seller and Servicer
Where Records are Kept
SCHEDULE 6.01(n) List of Lockbox Banks
SCHEDULE 6.01(r) List of Trade Names
SCHEDULE 7.01(f) Description of Credit and Collection Policies
SCHEDULE 7.03(d) List of Account Banks
-v-
<PAGE> 7
EXHIBITS
EXHIBIT 1.03(a) Notice of Purchase
EXHIBIT 2.03(b) Specific Concentration Limits
for Wal-Mart Stores
EXHIBIT 3.05(a) Form of Periodic Report
EXHIBIT 5.01(a) Form of Certificate
EXHIBIT 5.01(i)(i) Form of Opinion of Special
Counsel to Seller
EXHIBIT 5.01(i)(ii) Form of Opinion of Special
Counsel of Seller
EXHIBIT 7.01(i)(a) Form of Lockbox Agreement
EXHIBIT 7.01(i)(b) Form of Collection Account
Agreement
EXHIBIT 7.01(i)(c) Form of Liquidation Account
Agreement
EXHIBIT 12.04 Form of Assignment (for
assignment to third party)
-vi-
<PAGE> 8
RECEIVABLES PURCHASE AGREEMENT
dated as of December 18, 1996
THIS IS A RECEIVABLES PURCHASE AGREEMENT among FTL RECEIVABLES
COMPANY, a Delaware corporation ("Seller"), UNION UNDERWEAR COMPANY, INC., a
New York corporation ("Union") as the initial Servicer, BARTON CAPITAL
CORPORATION, a Delaware corporation, as purchaser (in such capacity, together
with its successors and assigns in such capacity, the "Purchaser") and SOCIETE
GENERALE, a banking corporation organized under the laws of France, acting
through its Chicago Branch ("SG"), as agent for Purchaser (in such capacity,
together with its successors and assigns in such capacity, the "Agent").
Unless otherwise indicated, capitalized terms used in this Agreement are
defined in Appendix A.
Background
1. Seller is a party to a Purchase and Contribution Agreement
with the Originators, pursuant to which Seller has purchased, and expects to
purchase Receivables. Seller intends to sell interests, herein called
Undivided Interests, in Pool Receivables. Seller and Purchaser have agreed, on
the terms and subject to the conditions contained in this Agreement, that
Purchaser will purchase such Undivided Interests from Seller from time to time
during the term of this Agreement.
2. Seller and Purchaser have also agreed that, on the terms and
subject to the conditions set forth in this Agreement, certain of the
Collections related to such Undivided Interests shall be reinvested in
additional undivided interests in Pool Receivables.
3. Seller, Purchaser and the Agent have asked Union to undertake
certain collecting and servicing responsibilities in respect of the Receivables
and Union, as initial Servicer, is willing to undertake such responsibilities.
4. SG has been requested, and is willing, to act as the Agent.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 9
ARTICLE I.
THE COMMITMENT; PURCHASE AND REINVESTMENT LIMITS
1.01 Commitment. On the terms and subject to the conditions set
forth in this Agreement (including Article V), Purchaser agrees to make
Purchases and Reinvestments from time to time from the date hereof to the
Commitment Termination Date as follows:
(a) Purchases. Purchaser shall purchase from Seller
Undivided Interests (as defined in Section 2.01). Each such purchase
is herein called a "Purchase".
(b) Reinvestments. Pursuant to Section 3.02, Purchaser
shall make reinvestments in Pool Receivables (herein called
"Reinvestments") by permitting Servicer to reinvest certain of the
Collections in additional undivided interests in Pool Receivables.
Purchaser's obligation to make such Purchases and Reinvestments is herein
called the "Commitment".
1.02 Purchase and Reinvestment Limits. Under no circumstances shall
Purchaser be obligated to make any Purchase or Reinvestment to the extent that,
after giving effect to such Purchase or Reinvestment, as the case may be:
(a) Facility Limit. The Aggregate Investment would
exceed an amount equal to $200,000,000 as such amounts may be reduced
pursuant to Section 1.07 (such amounts, as so reduced, herein being
called the "Facility Limit").
(b) Aggregate Undivided Interest Limit. The Aggregate
Undivided Interest (expressed as a percentage) would exceed 100% (the
"Aggregate Undivided Interest Limit").
1.03 Making Purchases from Seller.
(a) Notice of Purchase. Each Purchase shall be made on a Business
Day pursuant to a notice substantially in the form of Exhibit 1.03(a) from
Seller to the Agent and shall be received by the Agent not later than 2:00 p.m.
(Chicago time) on the second Business Day before the date of such proposed
Purchase. Each such notice of a proposed Purchase shall specify the desired
amount and date of such Purchase and the desired duration of the initial Yield
Period for the resulting Undivided Interest. The Seller shall select the
duration of such initial, and each subsequent Yield Period, and the Agent shall
use reasonable
-2-
<PAGE> 10
efforts, taking into account market conditions, to accommodate Seller's
selections.
(b) Amount of Purchase. The amount of each Purchase shall be
equal to the lesser of (x) the amount proposed by Seller pursuant to Section
1.03(a) and (y) the maximum amount permitted under Section 1.02.
(c) Funding of Purchase. On the date of each Purchase, Purchaser
shall, upon satisfaction of the applicable conditions set forth in Article V,
make available to the Agent at its office at 181 West Madison Street in
Chicago, Illinois, not later than 1:00 p.m. (Chicago time), the amount in
payment of its Purchase in same day funds and, after receipt by the Agent of
such funds, the Agent will make such funds immediately available to the
Collection Account.
(d) Notice of Purchaser Rate. On the day of each Purchase, and
after each selection of a Yield Period, the Agent shall provide written notice
to Seller of the Purchaser Rate (including each interest rate used in its
determination) and/or the Bank Rate that applies to such Purchase and/or Yield
Period, as the case may be, and, subject to the provisions of subparagraph (a)
hereof, the duration of such Yield Period. All Purchases (and Yield Periods)
shall be funded by the issuance of Commercial Paper Notes, unless, because of
market conditions, the issuance of Commercial Paper Notes is impracticable. If
the ability of the Purchaser to issue Commercial Paper Notes shall become
impracticable, the Agent shall so notify the Seller promptly after it shall
discover that the issuance of Commercial Paper Notes is impracticable.
1.04 Number of Yield Periods. The number of Yield Periods hereunder
at any one time, after giving effect to any Purchase, or any division or
combination of Undivided Interests, shall not exceed 8.
1.05 Commitment Termination Date.
(a) The "Commitment Termination Date" shall be the earlier to
occur of (i) December 17, 1999 (such date, as the same may be extended pursuant
to this Section 1.05, being herein called the "Scheduled Commitment Termination
Date"), and (ii) the date on which the Commitment is terminated pursuant to
Section 1.06, 1.07, or 10.02.
(b) The then Scheduled Commitment Termination Date may be
extended, in the sole discretion of Purchaser and the Agent, from time to time
on each Anniversary Date for an additional one-year period, by written request
given by Seller to the Agent not more than ninety nor less than 60 days before
such Anniversary Date,
-3-
<PAGE> 11
and written acceptance given by the Agent to Seller (upon the Agent's receipt
of a written consent to such extension from Purchaser) not later than 30 days
prior to such Anniversary Date.
1.06 Purchase and Reinvestment Termination Date. The Commitment
shall terminate with respect to Purchases and Reinvestments, and Purchaser
shall have no obligation to make any further Purchases or Reinvestments
hereunder, upon the termination of either (i) the Banks' commitments under the
Stand-by Purchase Agreement or (ii) the Enhancement Bank's commitment under the
Enhancement Agreement. Purchaser agrees to give Seller at least 30 days' prior
written notice of the termination of the Commitment with respect to Purchases
and Reinvestments pursuant to the foregoing sentence.
1.07 Voluntary Termination of Commitment or Reduction of Facility
Limit. Seller may, upon at least five Business Days' notice to the Agent,
terminate the Commitment in whole or reduce in part the unused portion of the
Facility Limit; provided, however, that (a) each partial reduction shall be in
an amount equal to $25,000,000 or an integral multiple thereof and (b) after
giving effect to any partial reduction, the remaining Facility Limit will not
be less than $100,000,000.
ARTICLE II.
UNDIVIDED INTEREST AND PURCHASER'S SHARE
2.01 Undivided Interest.
(a) Definition and Computation of Undivided Interest. For
purposes of this Agreement, "Undivided Interest" means an undivided ownership
interest, expressed as a floating percentage determined from time to time, in
(A) all then outstanding Pool Receivables, (B) all rights to, but not the
obligations under, all Related Security with respect to such Pool Receivables,
and (C) all Collections with respect to, and other proceeds of, such Pool
Receivables and Related Security. Each Undivided Interest shall be computed as
follows:
UI = I + SFR + RR + YR
-----------------
NPB
where:
UI = the Undivided Interest at any time;
I = the Investment in such Undivided Interest at such
time, as determined pursuant to Section 2.02;
-4-
<PAGE> 12
SFR = the Servicer's Fee Reserve for such Undivided
Interest at such time, as determined pursuant to
Section 2.06;
RR = the Required Reserve for such Undivided Interest at
such time, as determined pursuant to Section 2.07;
YR = the Yield Reserve for such Undivided Interest at such
time, as determined pursuant to Section 2.05; and
NPB = the Net Pool Balance at such time, as determined
pursuant to Section 2.03.
The "related" Undivided Interest with respect to any of the foregoing items
shall mean the Undivided Interest as to which such item is calculated.
(b) Frequency of Computation of Purchaser's Interest. Each
Undivided Interest initially shall be computed as of the opening of Servicer's
business on the date of the Purchase of such Undivided Interest from Seller.
Thereafter, such Undivided Interest shall be recomputed as of the opening of
business on any day on which the Aggregate Investment shall be increased and
upon receipt of each Periodic Report using the information in such Periodic
Report. In addition, until such Undivided Interest shall be reduced to zero,
such Undivided Interest shall be deemed to be recomputed automatically as of
the close of Servicer's business on each day (other than a day on which an
actual recomputation is done), and, as so recomputed, shall constitute the
percentage ownership interest held by Purchaser on such day in the Pool
Receivables. Such Undivided Interest shall become zero at such time as (i)
Purchaser shall have received the accrued Earned Return for such Undivided
Interest, shall have recovered the Investment in such Undivided Interest and
shall have received all other amounts payable to Purchaser pursuant to this
Agreement in respect of such Undivided Interest, (ii) the Agent shall have
received all amounts payable to the Agent pursuant to this Agreement and (iii)
Servicer shall have received the accrued Servicer's Fee allocated to such
Undivided Interest. Each Undivided Interest shall remain constant, and the Net
Pool Balance shall be deemed to remain constant for purposes of computing such
Undivided Interest, from the time as of which any such computation or
recomputation is made until the time as of which the next such recomputation,
if any, shall be made.
2.02 Investment.
(a) Subject to subsection (b), the "Investment" in an Undivided
Interest at any time means an amount equal to
-5-
<PAGE> 13
(i) the sum of the original Dollar amount paid by
Purchaser to Seller for such Undivided Interest at the time Purchaser
acquired it by Purchase pursuant to Section 1.03, less
(ii) the aggregate amount of Collections of Pool
Receivables theretofore received and actually distributed to Purchaser
on account of such Investment pursuant to Sections 3.02, 3.03 and
3.04.
(b) If at any time any distribution of any portion of such
Collections is rescinded or must otherwise be returned for any reason, the
Investment shall not be considered reduced to the extent of such rescission or
return.
(c) The "related" Investment with regard to a Yield Period or
Undivided Interest (or portion thereof) means the Investment calculated with
regard to such Yield Period or Undivided Interest (or such portion), as the
case may be.
2.03 Net Pool Balance.
(a) The "Net Pool Balance" at any time means an amount equal to
(i) the aggregate Unpaid Balance of the Eligible
Receivables in the Receivables Pool at such time, less
(ii) the sum of the separate amounts calculated for each
Obligor as the excess of (x) the aggregate Unpaid Balance of all
Eligible Receivables in the Receivables Pool (that have not become
Defaulted Receivables) owed by such Obligor at such time over (y) the
Concentration Limit for such Obligor at such time.
(b) "Concentration Limit" for any Obligor at any time means 3%
(the "Normal Concentration Percentage") of the Unpaid Balance of all Eligible
Receivables in the Receivables Pool at such time; provided, however, that with
respect to Wal-Mart Stores, the Concentration Limit therefore shall be the
applicable amount indicated on Exhibit 2.03(b) ("Specific Concentration Limit")
if the long-term ratings issued by S&P and Moody's for Wal-Mart Stores shall
equal or exceed the required ratings set forth on such Exhibit 2.03(b).
2.04 Purchaser's Share. With respect to each Undivided Interest,
"Purchaser's Share" of Collections of Pool Receivables received by Servicer on
any day means an amount equal to the product of
-6-
<PAGE> 14
(a) the amount of all such Collections received by
Servicer on such day, times
(b) (i) if such day is not a Liquidation Day, such
Undivided Interest (expressed as a decimal) on such day, or
(ii) if such day is a Liquidation Day, such
Undivided Interest (expressed as a decimal) on the day immediately
preceding the first Liquidation Day to have occurred during the then
current Liquidation Period, or, if higher such Undivided Interest
(expressed as a decimal) on such Liquidation Day; provided that after
such time as an Undivided Interest shall have been reduced to zero,
the Purchaser's Share of such Collections therefor shall also equal
zero.
2.05 Yield Reserve; Earned Return.
(a) The "Yield Reserve" for any Undivided Interest at any time in
a Yield Period means an amount determined as follows:
YR = ER + LR
where:
YR = the Yield Reserve for such Undivided Interest at such time;
ER = the accrued and unpaid Earned Return for such Undivided
Interest at such time (for which Collections have not been
deposited and held in the Liquidation Account or Agent's
Account pursuant to Section 3.02 or 3.03), as determined
pursuant to subsection (b) of this Section 2.05; and
LR = Liquidation Return for such Undivided Interest at such time,
as determined pursuant to subsection (c) of this Section 2.05.
(b) The "Earned Return" for any Undivided Interest for each day in
a particular Yield Period means an amount determined as follows:
ER = I x PR x 1/360; or
if the Purchaser Rate for such Undivided Interest is based upon the Alternate
Base Rate:
ER = I x PR x 1/365/6;
-7-
<PAGE> 15
provided, however, that if, pursuant to the definition of "Purchaser Rate",
different Purchaser Rates would apply to different portions of an Undivided
Interest, then Earned Return shall be calculated separately with respect to
each such portion, and the Earned Return shall be the sum of the Earned Return
so calculated for such portions;
where:
ER = Earned Return for such Undivided Interest (or such portion)
accrued on such day;
I = the Investment in such Undivided Interest (or such portion) on
such day, as determined pursuant to Section 2.02; and
PR = the Purchaser Rate for such Undivided Interest (or such
portion) on such day.
No provision of this Agreement shall require the payment or permit the
collection of Earned Return in excess of the maximum permitted by applicable
law. If at any time a distribution of any portion of Collections is rescinded
or must otherwise be returned for any reason, Earned Return for any Undivided
Interest shall not be considered paid to the extent of such rescission or
return.
(c) Liquidation Return. The "Liquidation Return" for any
Undivided Interest at any time means an amount determined as follows:
LR = I x (BR + VF) x AAM
-------------------
360
where:
LR = the Liquidation Return for such Undivided Interest at such
time;
I = the Investment in such Undivided Interest at such time;
BR = the Bank Rate for such Undivided Interest for a Yield Period
of 30 calendar days deemed to commence at such time;
VF = the Variance Factor deemed to be in effect at such time, as
determined pursuant to subsection (d) of this Section 2.05;
and
-8-
<PAGE> 16
AAM = the Adjusted Average Maturity of the Receivables Pool related
to such Undivided Interest.
(d) Variance Factor. The "Variance Factor" means (i) during any
Yield Period when no Liquidation Day occurs, zero, and (ii) during any Yield
Period in which one or more Liquidation Days occur resulting from a Liquidation
Event, such percentage per annum not exceeding 1% as the Agent may designate
from time to time in its sole discretion.
2.06 Servicer's Fee Reserve.
(a) The "Servicer's Fee Reserve" for any Undivided Interest at any
time means an amount determined as follows:
SFR = SF + LSF
where:
SFR = the Servicer's Fee Reserve for such Undivided Interest at any
time;
SF = the accrued and unpaid Servicer's Fee allocated to such
Undivided Interest at such time (for which Collections have
not been deposited and held in a Bank Account or the Agent's
Account in respect thereof pursuant to Section 3.02 or 3.03),
as determined pursuant to subsection (b) of this Section 2.06;
and
LSF = the Liquidation Servicer's Fee allocated to such Undivided
Interest at such time, as determined pursuant to subsection
(c) of this Section 2.06.
(b) The Servicer's Fee allocated to any Undivided Interest accrued
for any day means
(i) at any time when Union is Servicer, an amount equal
to (w) 0.50% per annum, times (x) the Investment in such Undivided
Interest at such time, times (y) 1/360; or
(ii) at any time when Union is not Servicer, either the
amount calculated pursuant to the foregoing clause (i) or an
alternative amount specified by Servicer not exceeding
(A) (1) 110% of Servicer's reasonable estimate of
the costs and expenses that it shall incur in connection with
performing its obligations under this Agreement and the other
Transaction Documents during a calendar year, times (2) 1/360,
times
-9-
<PAGE> 17
(B) a fraction, the numerator of which shall be
the then-current amount of the Investment in such Undivided
Interest and the denominator of which shall be the
then-current Aggregate Investment.
(c) For purposes of calculating the Servicer's Fee Reserve under
Section 2.06(a), the "Liquidation Servicer's Fee" allocated to any Undivided
Interest accrued for any day means an amount equal to
(i) the amount calculated for such day pursuant to the
foregoing subsection (b), times
(ii) the number of days equal to the then Adjusted Average
Maturity.
2.07 Required Reserve. The "Required Reserve" for any Undivided
Interest on any day means an amount determined as follows:
RR = RP x I
where
RR = the Required Reserve for such Undivided Interest at
the time of computation;
RP = the Reserve Percentage which, as to each Undivided
Interest at the time of such computation, shall be
the quotient (expressed as a percentage) obtained by
dividing (x), the greater of (i) 12%, (ii) four times
the Normal Concentration Percentage and (iii) 2.25
times the product of (a) the Loss Ratio, (b) the Loss
Horizon Ratio and (c) the Payment Terms Multiplier,
by (y) 1 minus the percentage determined pursuant to
clause (x) above; and
I = the Investment in such Undivided Interest at the time
of such computation, as determined pursuant to
Section 2.02.
ARTICLE III.
SETTLEMENTS
3.01 Establishment and Use of Accounts.
-10-
<PAGE> 18
(a) Collection Account. Seller hereby agrees to establish and
maintain a Collection Account on or before the first Purchase hereunder. The
Collection Account shall be used to receive Collections (directly or via
transfer from the Lockbox Accounts) and for the other purposes described in the
Transaction Documents. Servicer shall cause all Collections to be deposited
into such Collection Account on the day on which such Collections are available
funds. No funds other than Collections or Purchases shall be deposited or
transferred into such Collection Account.
(b) Lockbox Accounts. Seller hereby agrees to establish the
Lockbox Accounts listed on Schedule 6.01(n) (and the related post office boxes)
on or before the first Purchase hereunder. The Lockbox Accounts shall be used
to receive Collections. No funds other than Collections shall be deposited or
transferred into any Lockbox Account.
(c) Liquidation Account. Seller hereby agrees to establish the
Liquidation Account on or before the date of the first Purchase hereunder. The
Liquidation Account shall be used to receive transfers of certain amounts of
Purchaser's Share of Collections prior to Settlement Dates and for the other
purposes described in the Transaction Documents. No funds other than those
transferred in accordance with this Article III shall be transferred or
deposited into the Liquidation Account.
(d) Agent's Account. The Agent hereby agrees to establish the
Agent's Account on or before the date of the first Purchase hereunder. The
Agent's Account shall be used to receive payments of amounts that are to be
distributed by the Agent to itself and/or to Purchaser, and for the other
purposes described in the Transaction Documents.
3.02 Settlement and Reinvestment Procedures to be Followed Absent the
Occurrence of a Liquidation Day.
(a) Daily Procedure (Non-Liquidation). On each day (other than a
Liquidation Day), Servicer shall deem received an amount equal to Purchaser's
Share of the Collections of Pool Receivables that are deposited in the Lockbox
Accounts on such day in respect of all Undivided Interests and that constitute
available funds; and
(i) Servicer may transfer to the Collection Account (or
may retain in one or more of the Lockbox Accounts) an amount equal to
the excess of (A) the aggregate of such Collections deposited in the
Lockbox Accounts on such day over (B) the Purchaser's Share of such
Collections for all Undivided Interests;
-11-
<PAGE> 19
(ii) Out of the portion of the Purchaser's Share of such
Collections that is allocable to each respective Undivided Interest,
Servicer shall hold in trust for the benefit of Purchaser and shall
transfer to the Liquidation Account an amount equal to the sum of (A)
the Earned Return on the Investment in such Undivided Interest accrued
to (and including) such day and not previously so transferred to the
Liquidation Account as aforementioned plus (B) any amount payable
pursuant to Section 4.02 in respect of such Undivided Interest;
(iii) Out of the portion of the Purchaser's Share of such
Collections that is allocable to each respective Undivided Interest,
Servicer shall transfer to its own account at its convenience, but in
any event within five (5) days, the amount of Servicer's Fee allocated
to such Undivided Interest (as determined in accordance with Section
2.06(b)) which has accrued to (and including) such day but which has
not previously been transferred to Servicer's account as aforesaid;
(iv) Servicer shall apply an amount equal to the remainder
of the portion of the Purchaser's Share of such Collections that is
allocable to each respective Undivided Interest to reduce the
Investment in each such Undivided Interest, such amount to be applied
pro rata in accordance with the amount of each such Investment before
such reduction (it being understood that such amount need not be
physically paid to Purchaser under this clause (iv));
(v) After such reduction, but subject to Section 3.04,
the amount referred to in the foregoing clause (iv) with respect to
each Investment shall be reinvested by Servicer by means of a
Reinvestment in the related Undivided Interest, thereby increasing the
Investment in such Undivided Interest and causing a deemed
recomputation of such Undivided Interest pursuant to Section 2.01 as
of the end of such day; and
(vi) After any such Reinvestment, Servicer may transfer to
the Collection Account (or may retain in one or more of the Lockbox
Accounts) the amount referred to in the foregoing clause (v) and that
constitute available funds.
Each recomputed Undivided Interest shall constitute the percentage ownership
interest in the Pool Receivables on such day held by Purchaser with regard to
the related recomputed Investment. Except as expressly provided in the
foregoing clauses (i) through (iv), all transfers referred to in such clauses
shall be made within two Business Days after the deposit
-12-
<PAGE> 20
or transfer of the relevant Collections into the relevant Lockbox Account to
the extent of available funds.
(b) Settlement Date Procedure (Non-Liquidation). On the
Settlement Date for each Undivided Interest (if no Liquidation Day shall have
occurred during the Settlement Period then ending), Servicer shall transfer
from the Liquidation Account to the Agent's Account (i) all amounts that have
been deposited in the Liquidation Account in respect of such Undivided
Interests pursuant to Section 3.02(a) and (ii) amounts, if any, set aside
pursuant to Section 3.04(b) or (c) for payment to the Agent on such Settlement
Date.
(c) Order of Distribution. Upon the Agent's receipt of
funds transferred pursuant to Section 3.02(b), on each Settlement Date the
Agent shall distribute such funds (i) to Purchaser in payment of the accrued
and unpaid Earned Return for such Undivided Interest and the amounts payable to
Purchaser in respect of such Undivided Interest pursuant to Section 4.02, and
(ii) in the case of any amounts set aside pursuant to Section 3.04(b) or (c),
to Purchaser in reduction of the related Investment.
3.03 Settlement Procedures to be Followed if a Liquidation Day
Occurs.
(a) Daily Procedure (Liquidation). On each Liquidation Day,
Servicer shall set aside and hold in trust for the benefit of Purchaser the
Purchaser's Share (calculated in respect of all Undivided Interests) of the
Collections of Pool Receivables that were deposited in the Lockbox Accounts on
such day by transferring an amount equal to such Purchaser's Share, no later
than two Business Days after deposit of such Collections into the relevant
Lockbox Account to the extent of available funds, (i) to the Liquidation
Account (if no Liquidation Event shall be continuing on such day) or (ii) to
the Agent's Account (if a Liquidation Event shall be continuing on such day).
All amounts transferred to the Agent's Account pursuant to this Section 3.03(a)
shall be distributed by the Agent pursuant to Section 3.03(c). In addition, on
each Liquidation Day, Servicer shall transfer to the Collection Account an
amount equal to the excess of (x) the aggregate Collections deposited in the
Lockbox Accounts on such Liquidation Day over (y) the Purchaser's Share
(calculated in respect of all Undivided Interests) of such Collections.
(b) Settlement Date Procedure (Liquidation). On each Settlement
Date for each Undivided Interest, if one or more Liquidation Days have occurred
during the Settlement Period then ending, Servicer shall transfer from the
Liquidation Account to the Agent's Account all amounts that were transferred to
the
-13-
<PAGE> 21
Liquidation Account in respect of all Undivided Interests during the preceding
Settlement Period pursuant to Section 3.02(a) and 3.03(a) (but that have not
already been transferred to the Agent's Account); provided, however, that the
total amount transferred to the Agent's Account in respect of each respective
Undivided Interest shall not exceed the sum (without duplication) of (A) the
accrued and unpaid Earned Return for such Undivided Interest, (B) the amounts
payable pursuant to Section 4.02 that have then accrued, (C) all other
Obligations (other than with respect to the Investment in such Undivided
Interest) then due and payable with respect to such Undivided Interest, (D) the
aggregate amount of Servicer's Fee allocated to such Undivided Interest (as
determined in accordance with Section 2.06(b)) which has accrued since the
preceding Settlement Date for such Undivided Interest to the extent such amount
has not previously been paid to Servicer's own account, and (E) the Investment
in such Undivided Interest. No amount described in any of the foregoing
clauses (A) through (E) shall be deemed to have been reduced or paid on account
of the Purchaser's Share of any Collections until the relevant amount actually
is transferred to the Agent's Account as provided for herein (and, in the case
of payments received by the Agent pursuant to Section 3.03(a) or Section
3.04(c)(iii), the date on which such payments are required to be transferred to
Purchaser pursuant to Section 3.03(c) shall have occurred).
(c) Timing of Distributions by the Agent. On each Settlement
Date, the Agent shall distribute, in the manner set forth in Section 3.03(d),
all amounts that have been transferred to the Agent's Account pursuant to
Section 3.03(a), Section 3.03(b) and Section 3.04(c)(iii) prior to 10:00 a.m.,
Chicago time, on such Settlement Date. If amounts that are intended to be
transferred to the Agent's Account on a Settlement Date are not so transferred
before 10:00 a.m., Chicago time, on such Settlement Date, the Agent shall
distribute such amounts, in the manner set forth in Section 3.03(d), as soon as
is practicable after receipt of such amounts in the Agent's Account.
(d) Order of Distribution. On each Business Day on which the
Agent is obligated to distribute amounts in the Agent's Account pursuant to
Section 3.03(c), the Agent shall distribute such funds (i) to Purchaser or the
Agent (as the case may be) in payment of the accrued and unpaid Earned Return
for the relevant Undivided Interest(s), (ii) to Servicer in payment of the
accrued Servicer's Fee allocated to such Undivided Interest(s) (to the extent
described in clause (D) of the proviso to subsection (b) of this Section 3.03)
until reduced to zero, and (iii) to the Purchaser or Agent (as the case may be)
(A) in reduction of the Investment in such Undivided Interest(s) and (B) in
payment of any other amounts owed by Seller hereunder to Purchaser or the
Agent, in the case of each of foregoing, until reduced to zero.
-14-
<PAGE> 22
If insufficient funds shall have been transferred to the Agent's Account to
enable the Agent to distribute funds in payment in full of the aforementioned
amounts, the Agent shall distribute funds, first, the amount described in the
foregoing clause (ii) owing to the Servicer, second, in payment of the accrued
Earned Return for the relevant Undivided Interest(s), third, in reduction of
the Investment in such Undivided Interest(s), and fourth, in payment of all
other amounts then due and payable to Purchaser or the Agent hereunder.
3.04 Special Settlement Procedures; Reduction of Investment, etc.
(a) Deemed Collections. If on any day
(i) the Unpaid Balance of any Pool Receivable is
(A) reduced as a result of any defective,
rejected or returned goods or services, any cash discount, any
incorrect billing, or any adjustment by Servicer, an
Originator or any Affiliate of an Originator,
(B) reduced or cancelled as a result of a setoff
in respect of any claim by the Obligor thereof against Seller,
an Originator or any Affiliate of an Originator (whether such
claim arises out of the same or a related or unrelated
transaction), or
(C) reduced on account of the obligation of an
Originator to pay to the related Obligor any rebate or refund;
or
(ii) any of the representations or warranties of Seller or
Union set forth in Section 6.01(d), (k) or (v) is no longer true with
respect to a Receivable;
then, on such day, Seller shall be deemed to have received a Collection of the
relevant Receivable(s)
(I) in the case of clause (i) above, in the
amount of such reduction or cancellation; and
(II) in the case of clause (ii) above, in the
amount of the Unpaid Balance of such Receivable(s).
On or before the fifteenth Business Day after the Month End Date of each month
that contains one or more days on which Seller is deemed to have received such
a Collection, Seller shall transfer an amount equal to the aggregate amount of
such deemed Collections to Servicer and Servicer shall distribute such
transferred
-15-
<PAGE> 23
amount in the manner set forth in Section 3.02(a) or Section 3.03(a), as the
case may be, as if such transferred amount actually had been received by Seller
on the date of such transfer from the Obligors of such Pool Receivables and as
if such transferred amount actually had been deposited into a Lockbox Account
on the date of such transfer. For so long as (i) the Aggregate Undivided
Interest is less than the Aggregate Undivided Interest Limit, (ii) the
Aggregate Investment is less than the Facility Limit, and (iii) no Liquidation
Event or Unmatured Liquidation Event shall have occurred and be continuing,
Seller may discharge its obligation with respect to such deemed Collections set
forth in the immediately preceding sentence by directing the Servicer to reduce
the amount of any Collections to be reinvested pursuant to Section 3.02(a)(v)
by the amount of such deemed Collections and deposit such amount in accordance
with the immediately preceding sentence. Purchaser acknowledges the provisions
of Section 3.5 of the Purchase and Contribution Agreement and upon receipt or
deemed receipt of such deemed Collections pursuant hereto, hereby releases any
Adverse Claim upon any Receivable and Related Rights reconveyed by Seller to
any Originator.
(b) Unreinvested Collections. Any amount of Purchaser's share of
Collections of Pool Receivables that may not be reinvested by means of
Reinvestments in an Undivided Interest because of the requirements set forth in
Section 1.02(a) or (b) shall be so reinvested as soon as it is possible to do
so without violating either of such requirements unless the Agent designates a
Liquidation Commencement Date. To the extent and so long as such Collections
may not be so reinvested, or until otherwise required to take a specific action
in respect of such Collections pursuant to this Agreement, Servicer shall hold
such Collections in trust for the benefit of Purchaser in the Liquidation
Account, for payment to the Agent on the next following Settlement Date for the
Yield Period in which such Collections are accumulated, to the extent that
permitted Reinvestment cannot occur before such Settlement Date; provided,
however, that during any Liquidation Period, upon one Business Day's written
notice given by the Agent to Servicer, Servicer shall transfer all such
Collections to the Agent's Account. Neither the Investment in such Undivided
Interest, the related Earned Return nor any other amount owing hereunder shall
be deemed reduced or paid on account of such unreinvested Collections until the
amount to be paid to the Agent pursuant to this Section 3.04(b) is in fact
finally so paid.
(c) Seller's Reduction of Investment. If at any time Seller shall
wish to cause the reduction of the Investment in an Undivided Interest (but not
to commence the liquidation, or reduction to zero, of all Undivided Interests),
such reduction shall be made as follows:
-16-
<PAGE> 24
(i) Seller shall give the Agent at least five Business
Days' prior written notice thereof (including the amount of such
proposed reduction and the proposed date on which such reduction will
commence),
(ii) on the proposed date of commencement of such
reduction and on each day thereafter, Servicer shall refrain from
reinvesting such Collections pursuant to Section 3.02(a) and Section
3.04(b) until the amount thereof not so reinvested shall equal the
desired amount of reduction, and
(iii) Servicer shall hold such Collections for the benefit
of Purchaser in the Liquidation Account, for payment to the Agent on
the next following Settlement Date,
and the Investment in such Undivided Interest shall be deemed reduced in the
amount to be paid to the Agent only when in fact so paid and allocated by the
Agent to the Investment in such Undivided Interest; provided that
(A) the amount of any such reduction shall be not less
than $1,000,000 and shall be an integral multiple thereof, and the
Investment in such Undivided Interest, if any, after giving effect to
such reduction shall be not less than $1,000,000,
(B) if (I) Seller shall commence any voluntary reduction
in a Yield Period containing all or a portion of any Liquidation
Period or (II) a Liquidation Event shall occur after Seller shall have
commenced any voluntary reduction, then all such Collections that have
not been reinvested because of this Section 3.04(c), but that have not
already been transferred to the Agent's Account, shall be transferred
to the Agent's Account (for the benefit of Purchaser and the Agent and
for distribution pursuant to Section 3.03(c)) no later than the day
next following such Liquidation Event,
(C) Seller shall use reasonable efforts to attempt to
choose a reduction amount, and the date of commencement thereof, so
that such reduction shall commence and conclude in the same Yield
Period, and
(D) if two or more Undivided Interests shall be
outstanding at the time of any proposed reduction, such proposed
reduction shall be applied, unless the Agent shall consent otherwise,
to the Undivided Interest with the shortest remaining Yield Period.
(d) Allocations of Obligor Payments. Except as provided in
Section 3.04(a) and 8.07, or as otherwise required by law or the
-17-
<PAGE> 25
underlying Contract, all Collections received from a particular Obligor in
respect of any Receivable shall be applied to the Receivables payable by such
Obligor in the order of the age of such Receivables, starting with the oldest
such Receivable; provided, however, that, if payment is designated by such
Obligor for application to specified Receivables, it shall be applied to such
specified Receivables.
(e) Permitted Investments. Any amount in the Collection Account
and the Liquidation Account, as the case may be, may be invested by Seller (or
Servicer on Seller's behalf) in Permitted Investments, and Seller (or Servicer
on its behalf) shall take all actions necessary to ensure that Purchaser shall
have a first priority perfected security interest in such Permitted
Investments; provided, however, that investments with respect to amounts on
deposit in the Liquidation Account shall mature not later than one Business Day
next preceding the Settlement Date for any Undivided Interest next succeeding
the date of such investment.
3.05 Reporting.
(a) No later than 2:00 p.m., Chicago time, on the second Business
Day before the date of each Purchase other than the initial Purchase hereunder,
as a condition precedent to each such Purchase, Servicer shall prepare and
forward to the Agent a certificate containing a calculation of (i) the Net Pool
Balance (the calculation of which shall be based upon the information contained
in the most recent Periodic Report) and (ii) the Aggregate Investment and the
Reserves (in each case, after giving effect, on a pro forma basis, to such
Purchase).
(b) On or prior to the fifteenth Business Day of each month,
Servicer shall prepare and forward to the Agent:
(i) a Periodic Report relating to all outstanding Pool
Receivables and all Undivided Interests owned by Purchaser, as of the
close of business of Servicer on the immediately preceding Month End
Date,
(ii) an aging of all Receivables in the Receivables Pool
as of the immediately preceding Month End Date, and
(iii) concentration analyses in respect of the ten largest
Obligors of all Eligible Receivables in the Receivables Pool as of the
immediately preceding Month End Date and each Obligor that owes Pool
Receivables with an aggregate Unpaid Balance in excess of the
Concentration Limit.
-18-
<PAGE> 26
(c) On or prior to each Settlement Date, Seller will advise the
Agent and Servicer of each Liquidation Day occurring during the Settlement
Period ending on such Settlement Date.
3.06 Payments and Computations, etc.
(a) All amounts to be paid or deposited into the Agent's Account
by Seller or Servicer hereunder shall be paid or deposited in accordance with
the terms hereof no later than 9:00 a.m. (Chicago time) on the day when due in
lawful money of the United States of America in same day funds.
(b) Seller or Servicer, as applicable, shall, to the extent
permitted by law, pay to the Agent (for the benefit of Purchaser or the Agent,
as the case may be) interest on all amounts not paid or deposited when due
hereunder, such interest to be calculated at the Default Rate from (and
including) the date due and payable to the date paid and such interest shall be
payable on demand; provided, however, that the applicable interest rate shall
not at any time exceed the maximum rate permitted by applicable law.
(c) All computations of interest, Earned Return, Liquidation
Return and any fees hereunder shall be made on the basis of a year of 360 days
(or 365/6 days if such Earned Return or Liquidation Return is calculated with
respect to the Alternate Base Rate) for the actual number of days (including
the first day but excluding the last day) elapsed.
3.07 Dividing or Combining Undivided Interests.
(a) Division of Undivided Interests. The Seller, so long as no
Liquidation Event has occurred and is continuing, may at any time, as of the
last day of any Yield Period for any then existing Undivided Interest, divide
such existing Undivided Interest on such last day into two or more new
Undivided Interests, each such new Undivided Interest having an Investment as
designated by the Seller and all such new Undivided Interests collectively
having aggregate Investments equal to the Investment in such existing Undivided
Interest. The Agent shall use reasonable efforts, taking into account market
conditions, to accommodate Seller's directions.
(b) Combination of Undivided Interests. The Seller, so long as no
Liquidation Event has occurred and is continuing, may at any time, as of the
last day of any Yield Period for two or more existing Undivided Interests, on
or before the date of any proposed Purchase of an Undivided Interest pursuant
to Section 1.01 by Purchaser, on such last day or such date of Purchase, as the
case may be, combine into one new Undivided Interest such existing and/or
proposed Undivided Interests or any combination
-19-
<PAGE> 27
thereof, such new Undivided Interest having an Investment equal to the
aggregate Investments of such Undivided Interests so combined. The Agent shall
use reasonable efforts, taking into account market conditions, to accommodate
Seller's directions.
(c) Effect of Division or Combination. On and after any division
or combination of Undivided Interests as described above, each of the new
Undivided Interests resulting from such division, or the new Undivided Interest
resulting from such combination, as the case may be, shall be a separate
Undivided Interest having an Investment as set forth above, and shall take the
place of such existing Undivided Interest or Undivided Interests or proposed
Undivided Interest, as the case may be, in each case under and for all purposes
of this Agreement.
ARTICLE IV.
FEES AND YIELD PROTECTION
4.01 Fees. Seller shall pay to Purchaser for its own account such
fees on such dates and in such amounts as set forth in the letter agreement of
even date herewith between the Agent and Seller (as such letter agreement may
be amended, restated, supplemented or modified from time to time, the "Fee
Letter").
4.02 Yield Protection.
(a) If (i) any law or regulation relating to deposit insurance or
(ii) any Regulatory Change, in each case, occurring after the date hereof
(A) shall subject an Affected Party to any tax, duty or
other charge with respect to the Certificate, any Undivided Interest
owned by or funded by it, or any obligations or right to make
Purchases or Reinvestments or to provide funding therefor, or shall
change the basis of taxation of payments to the Affected Party of any
Investments or Earned Return owned by, owed to or funded by it or any
other amounts due under this Agreement or any of the other Transaction
Documents in respect of the Certificate, any Undivided Interest owned
by or funded by it or its obligations or rights, if any, to make
Purchases or Reinvestments or to provide funding therefor (except for
changes in the rate of tax on the overall net income of such Affected
Party); or
(B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Federal
Reserve Board, but excluding any reserve
-20-
<PAGE> 28
included in the determination of Earned Return), special
deposit or similar requirement against assets of any Affected Party,
deposits or obligations with or for the account of any Affected Party
or credit extended by any Affected Party; or
(C) shall change the amount of capital maintained or
required or requested or directed to be maintained by any Affected
Party; or
(D) shall impose any other condition affecting the
Certificate, any Undivided Interest owned or funded by any Affected
Party or its obligations or rights, if any, to make Purchases or
Reinvestments or to provide funding therefor;
and the result of any of the foregoing is or would be
(x) to increase the cost to (or in the case of any law or
regulation relating to deposit insurance, to impose a cost on) (I) an
Affected Party funding or making or maintaining any Purchases or
Reinvestments, any purchases, reinvestments, or loans or other
extensions of credit under the Stand-by Purchase Agreement, or any
Credit Advance, or any commitment of such Affected Party with respect
to any of the foregoing, or (II) the Agent for continuing its or
Seller's relationship with Purchaser,
(y) to reduce the amount of any sum received or
receivable by an Affected Party under this Agreement or the
Certificate, or under the Stand-by Purchase Agreement or the
Enhancement Agreement with respect thereto, or
(z) in the sole determination of such Affected Party, to
reduce the rate of return on such Affected Party's capital as a
consequence of its obligations hereunder or arising in connection
herewith to a level below that which such Affected Party could
otherwise have achieved,
then within thirty days after demand by such Affected Party (which demand shall
be accompanied by a statement setting forth the basis of such demand), Seller
shall pay to the Agent (for the benefit of such Affected Party) such additional
amount or amounts as will in good faith compensate such Affected Party for such
additional or increased cost or such reduction.
(b) Each Affected Party will notify Seller and the Agent promptly
after it has received official notice of any event occurring after the date
hereof which will entitle such Affected Party to such additional amounts as
compensation pursuant to this Section 4.02. Such additional amounts shall
accrue from the date as to which such Affected Party becomes subject to such
-21-
<PAGE> 29
additional costs as a result of such event (or if such notice of such event is
not given to Seller by such Affected Party within 90 days after such Affected
Party received such official notice of such event, from the date which is 90
days prior to the date such notice is given to Seller by such Affected Party).
(c) In determining any amount provided for or referred to in this
Section 4.02, an Affected Party may use any reasonable averaging and
attribution methods that it (in its sole discretion) shall deem applicable.
When making a claim under this Section 4.02, each Affected Party shall submit
to Seller a statement as to such increased cost or reduced return (including
calculation thereof in reasonable detail), which statement shall, in the
absence of manifest error, constitute conclusive evidence of such increased
cost or reduced return.
ARTICLE V.
CONDITIONS OF PURCHASES
5.01 Conditions Precedent to Initial Purchase. The initial Purchase
hereunder is subject to the condition precedent that the Agent shall have
received, on or before the date of such Purchase, the following, each (unless
otherwise indicated) dated such date and in form and substance satisfactory to
the Agent:
(a) A Certificate;
(b) A copy of the resolutions of the Board of Directors
of each of Seller and Union approving each Transaction Document to be
delivered by it and the transactions contemplated thereby, and
addressing such other matters as may be required by the Agent,
certified by the respective Secretary or Assistant Secretary of each
such Person;
(c) Good standing certificates for Seller and Union
issued as of a recent date acceptable to the Agent by the Secretary of
State of the jurisdiction of such Person's incorporation and the
jurisdiction of such Person's principal place of business;
(d) A certificate of the Secretary or Assistant Secretary
of each of Seller and Union certifying the names and true signatures
of the officers authorized on such Person's behalf to sign the
Transaction Documents to be delivered by it (on which certificate
Purchaser and the Agent may conclusively rely until such time as the
Agent
-22-
<PAGE> 30
shall receive from such Person a revised certificate meeting
the requirements of this subsection (d));
(e) The certificate of incorporation or other
organizational document of each of Seller and Union, duly certified by
the Secretary of State of the jurisdiction of such Person's
incorporation as of a recent date acceptable to the Agent, together
with a copy of the by-laws of each of Seller and Union, each duly
certified by the Secretary or an Assistant Secretary of such Person;
(f) Evidence (which may be telephonic) of the filing of
proper financing statements (Form UCC-1), filed on or prior to the
date of the initial Purchase, naming Seller as the assignor and
Purchaser as assignee of Receivables or an undivided interest therein
and of the other rights, instruments and moneys specified in Section
9.01, or other, similar instruments or documents, as may be necessary
or, in the opinion of the Agent, desirable under the UCC of all
appropriate jurisdictions or any comparable law of all appropriate
jurisdictions to perfect Purchaser's interests in all Undivided
Interests in the Receivables;
(g) A written search report from a Person satisfactory to
the Agent listing all effective financing statements that name Seller
or Union as debtor or assignor and that are filed in the jurisdictions
in which filings were made pursuant to subsection (f) above, together
with copies of such financing statements (none of which, except for
those described in subsection (f) above, shall cover any Receivable),
and tax and judgment lien search reports from a Person satisfactory to
the Agent showing no evidence of such liens filed against Seller or
Union;
(h) [Reserved];
(i) Favorable opinions from Katten Muchin & Zavis,
special counsel to Union, substantially in the form of Exhibits
5.01(i)(i) and 5.01(i)(ii);
(j) Such powers of attorney as the Agent shall reasonably
request to enable the Agent to collect all amounts due under any and
all Receivables following a Liquidation Event;
(k) A Periodic Report calculated as of the most recent
Month End Date;
(l) Evidence (i) of the execution and delivery by each of
the parties thereto of the Purchase and Contribution Agreement and all
documents, agreements and instruments
-23-
<PAGE> 31
contemplated thereby (which evidence shall include copies,
either original or facsimile, of each of such documents, instruments
and agreements), (ii) that each of the conditions precedent to the
execution and delivery of the Purchase and Contribution Agreement has
been satisfied to the Agent's satisfaction and (iii) that the initial
purchases under the Purchase and Contribution Agreement have been
consummated;
(m) A certificate from an officer of each of the
Originators to the effect that Servicer and the Originators have
placed on the most recent, and have taken all steps reasonably
necessary to ensure that there shall be placed on each subsequent,
data processing report that it generates which are of the type which
any proposed purchaser or lender would use to evaluate the
Receivables, the following legend (or the substantive equivalent
thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO FTL
RECEIVABLES COMPANY AND UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN
THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD BY FTL RECEIVABLES
COMPANY TO BARTON CAPITAL CORPORATION;"
(n) The fees payable to the Agent pursuant to the Fee
Letter, together with all costs and expenses due and payable pursuant
to Section 14.05, if then invoiced;
(o) Original UCC-3 financing statements that are duly
executed and that shall effect, upon filing, the termination of all
financing statements relating to the Receivables;
(p) A certificate from an authorized officer of Union and
an authorized officer of Seller as to the satisfaction of the
conditions set forth in Section 5.02; and
(q) A copy of the resolutions of the Board of Directors
of Seller evidencing the capitalization of Seller in accordance with
Section 6.01(o), certified by the Secretary or Assistant Secretary of
Seller.
5.02 Conditions Precedent to All Purchases and Reinvestments. Each
Purchase (including the initial Purchase) and each Reinvestment shall be
subject to the further conditions precedent (collectively, "Conditions
Precedent" and individually, a "Condition Precedent") that on the date of such
Purchase or Reinvestment the following statements shall be true (and Seller by
accepting the amount of such Purchase or by receiving the proceeds of such
Reinvestment, as the case may be, shall be deemed to have represented and
warranted that):
(a) The representations and warranties contained in
Section 6.01 (other than Section 6.01(i)(ii)) are true and
-24-
<PAGE> 32
correct on and as of such day with the same effect as though
made on and as of such day and shall be deemed to have been made on
such day;
(b) No event has occurred and is continuing, or would
result from such Purchase or Reinvestment, that constitutes a
Liquidation Event or an Unmatured Liquidation Event;
(c) After giving effect to each proposed Purchase or
Reinvestment, the Aggregate Investment will not exceed the Facility
Limit and the Aggregate Undivided Interest will not exceed the
Aggregate Undivided Interest Limit; and
(d) The Commitment Termination Date shall not have
occurred.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties of Seller. In order to induce
Purchaser and the Agent to enter into this Agreement and to make Purchases and
Reinvestments hereunder, Seller hereby represents and warrants to Purchaser and
the Agent as follows:
(a) Organization and Good Standing. It is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and 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.
(b) Due Qualification. It 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 or be so authorized
would not reasonably be expected to have a Material Adverse Effect.
(c) Power and Authority; Due Authorization. It has (i)
all necessary corporate power, authority and legal right to (A)
execute, deliver and perform its obligations under this Agreement, the
Certificate and each other Transaction Document to which it is a
party, and (B) to sell and assign Undivided Interests on the terms and
subject to the conditions herein provided and (ii) duly authorized by
all
-25-
<PAGE> 33
necessary corporate action such execution, delivery and
performance of this Agreement and the other Transaction Documents and
the sale and assignment of Undivided Interests on the terms and
conditions herein provided. Seller had at all relevant times, and now
has, all necessary power, authority and legal right to acquire and own
the Receivables, to sell and assign Undivided Interests, and to incur
obligations hereunder.
(d) Binding Obligations. Each Purchase made pursuant to
this Agreement shall constitute a valid sale, transfer, and assignment
of the relevant Undivided Interests in Receivables to Purchaser, or
the assignment of a perfected first priority security interest
therein, in either case, enforceable against creditors of, and
purchasers from, Seller; and this Agreement constitutes, and each
other Transaction Document to be signed by Seller when duly executed
and delivered will constitute, a legal, valid and binding obligation
of Seller enforceable in accordance with its 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).
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction
Documents and the fulfillment of the terms hereof will not (i)
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time or both) a
default under the articles or certificate of incorporation or by-laws
of Seller, (ii) violate any material Contractual Obligation applicable
to the Seller, (iii) 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 the Seller, other than
any Lien under the Transaction Documents, or (iv) violate any
Requirement of Law applicable to Seller.
(f) No Proceedings. Except as described in Schedule
6.01(f),
(i) there is no order, judgment, decree,
injunction, stipulation or consent order of any Governmental
Authority to which Seller is subject, and there is no action,
suit, arbitration, regulatory proceeding or other litigation,
proceeding or governmental investigation pending or, to the
knowledge of Seller, threatened, before or by any arbitrator
or
-26-
<PAGE> 34
Governmental Authority, against Seller that is reasonably
likely to have a Material Adverse Effect; and
(ii) there is no action, suit, proceeding,
arbitration, regulatory or governmental investigation, pending
or, to the knowledge of Seller threatened, before or by any
arbitrator or Governmental Authority (A) asserting the
invalidity of this Agreement, the Certificate or any other
Transaction Document, (B) seeking to prevent the sale and
assignment of any Undivided Interest, the issuance of the
Certificate or the consummation of any of the other
transactions contemplated by this Agreement or any other
Transaction Document, or (C) seeking to adversely affect the
federal income tax attributes of the Undivided Interests as
debt.
Notwithstanding the description of any orders, judgments,
decrees, injunctions, stipulations, consent orders, or of any pending
or threatened actions, suits, arbitrations, proceedings or other
litigation, set forth in Schedule 6.01(f), Seller acknowledges and
agrees that neither Purchaser nor the Agent, by permitting the initial
Purchase under this Agreement, is releasing, waiving or otherwise
restricting or adversely modifying, or agreeing to release, waive,
restrict or otherwise adversely modify, its right to assert that any
subsequent development with respect to any matter described in
Schedule 6.01(f) has the effect set forth in Section 6.01(f)(i) or any
similar effect under any other term, condition or provision of this
Agreement.
(g) Bulk Sales Act. No transaction contemplated by this
Agreement or any of the other Transaction Documents requires
compliance with, or will be subject to avoidance under, any bulk sales
act or similar law.
(h) Government Approvals. Except for the filing of the
UCC financing statements referred to in Article V, all of which, at
the time required in Article V, shall have been duly made and shall be
in full force and effect, no authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery and performance by Seller of
any Transaction Document to which it is a party.
(i) Financial Condition.
(i) The consolidated balance sheet of FTL and its
consolidated subsidiaries as of September 30, 1996, and the
related statement of earnings and cash flows of FTL
-27-
<PAGE> 35
and its consolidated subsidiaries for the nine (9) months
ended September 30, 1996, copies of which will be furnished
to the Agent, present fairly in all material respects the
consolidated financial position of FTL and its consolidated
subsidiaries as at such date and the consolidated results of
the operations of FTL and its consolidated subsidiaries for
the period ended on such date, all in accordance with GAAP;
and
(ii) Since September 30, 1996 until the Initial Closing
Date, no event has occurred that has had, or is reasonably
likely to have, a Material Adverse Effect.
(j) Margin Regulations. No use of any funds obtained by
Seller under this Agreement will be used for buying, purchasing,
or carrying any margin stock within the respective meanings of
each of the quoted terms under Regulations G or U promulgated by the
Federal Reserve Board from time to time or for any purpose which
violates the provisions of the regulations of the Federal Reserve
Board.
(k) Quality of Title. Each Receivable in which an
Undivided Interest is to be sold to Purchaser (together with the
Related Security for such Undivided Interest) shall be owned by Seller
free and clear of any Adverse Claim (other than any Adverse Claim
arising solely as the result of any action taken by Purchaser or by
the Agent) except as expressly provided otherwise herein or in the
Purchase and Contribution Agreement. When Purchaser makes a Purchase
it shall acquire and shall continue to maintain (at all times when the
Aggregate Undivided Interest is not zero) a valid and perfected first
priority undivided fractional interest to the extent of its Undivided
Interest in each Receivable and Collections with respect thereto, free
and clear of any Adverse Claim (other than any Adverse Claim arising
solely as the result of any action taken by Purchaser or by the
Agent). No effective financing statement or other instrument similar
in effect covering any Receivable, any interest therein, or the
Related Security or Collections with respect thereto is on file in any
recording office except for financing statements that may be filed (i)
in favor of the Originators in accordance with the Contracts, (ii) in
favor of Seller in accordance with the Purchase and Contribution
Agreement, (iii) in favor of Purchaser or the Agent in accordance with
this Agreement, (iv) in connection with any Adverse Claim arising
solely as the result of any action taken by Purchaser (or any assignee
thereof) or by the Agent or (v) in favor of the Collateral Agent or
any successor in such capacity.
-28-
<PAGE> 36
(l) Accuracy of Information. All written information
heretofore or contemporaneously furnished by Seller to Purchaser or
the Agent for purposes of, or in connection with, this Agreement and
all other Transaction Documents or any transaction contemplated hereby
or thereby, taken as a whole, is, and all other such factual, written
information hereafter furnished (if prepared by Seller or, if not
prepared by Seller, to the extent that information contained therein
was supplied by Seller) by Seller to Purchaser or the Agent pursuant
to, or in connection with, this Agreement and the other Transaction
Documents, including, without limitation, each Periodic Report and
financial statement, taken as a whole, does not contain any material
misstatement of fact and is not incomplete by omitting to state a
material fact necessary to make the statements contained therein not
misleading on the date as of which such information is dated or
certified.
(m) Offices. The principal places of business and chief
executive offices of Seller are located at the address referred to in
Section 14.02, and the offices where Seller keeps all its books,
records and documents evidencing Receivables, the related Contracts
and all purchase orders and other agreements related to such
Receivables are located at the addresses specified in Schedule 6.01(m)
(or at such other locations, notified to the Agent in accordance with
Section 7.01(e), in jurisdictions where all action required by Section
8.05has been taken and completed).
(n) Lockbox Accounts. The names and addresses of all the
Lockbox Banks, together with the account numbers of the lockbox
accounts at such Lockbox Banks, are specified in Schedule 6.01(n) (or
have been notified to the Agent in accordance with Section 7.03(d)).
(o) Capitalization. The authorized capital stock of
Seller consists of 1,000 shares of common stock, no par value ("Seller
Common Stock"), all of which shares are currently issued and
outstanding. All of such outstanding shares of Seller Common Stock
are validly issued, fully paid and nonassessable and are owned
(beneficially and of record) by Union.
(p) Solvent. On the date hereof, the Seller is not
Insolvent, nor will the Seller be rendered Insolvent by reason of (1)
the incurrence of its obligations under the Transaction Documents, or
(2) the consummation of any transactions contemplated hereby, and
after giving effect to the transactions contemplated hereby (including
before and after giving effect to all Purchases hereunder), the Seller
-29-
<PAGE> 37
will have adequate capacity to pay its then current liabilities, on a
timely basis, as they become due.
(q) Licenses, Contingent Liabilities, and Labor
Controversies.
(i) Seller owns or is licensed to use all
trademarks, tradenames, copyrights, technology, know-how,
patents and processes necessary for the conduct of its
business as currently conducted, except for those the failure
to own or be licensed to use would not be reasonably likely to
have a Material Adverse Effect.
(ii) Except to the extent that such practices,
circumstances, events or questions would not, individually or
in the aggregate, reasonably be expected to have a Material
Adverse Effect, (1) Seller is not engaged in any unfair labor
practice and (2) no significant strike, labor dispute,
slowdown or stoppage is pending against Seller, or, to the
best knowledge of Seller, threatened against Seller.
(iii) Other than any liability incident to any
litigation or proceedings described in Section 6.01(f), Seller
has no contingent liabilities not provided for or disclosed in
the financial statements referred to in Section 6.01(i) that,
individually or in the aggregate, are material to Seller.
(r) Trade Names. Seller does not use any trade name
other than its actual corporate name and the trade names set forth in
Schedule 6.01(r). From and after the date that fell five (5) years
before the date hereof, Seller has not been known by any legal name
other than its corporate name as of the date hereof, nor has any such
Person been the subject of any merger or other corporate
reorganization, except as set forth in Schedule 6.01(r).
(s) Taxes. Seller has filed or caused to be filed all
material tax returns and reports which are required to be filed and
has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its properties or assets and
all other taxes, fees and other charges imposed on its or any of their
respective properties by any Governmental Authority other than those
the amount or validity of which are currently being contested in good
faith by appropriate proceedings diligently pursued and with respect
to which reserves in conformity with GAAP have been provided on the
books of Seller and no tax Lien has been filed or received. There is
no proposed tax assessment
-30-
<PAGE> 38
against Seller which would reasonably be expected to have a Material Adverse
Effect.
(t) Compliance with Applicable Laws. Seller is in
compliance with all Requirements of Law, except to the extent that all
failures to comply therewith would not be reasonably expected to have
a Material Adverse Effect.
(u) Receivables Evidenced By Instruments. None of the
Receivables is evidenced by any "instrument" (as defined in the
applicable UCC).
(v) Eligible Receivables. Each Receivable included in
the Net Pool Balance as an Eligible Receivable on the date of any
Purchase or Reinvestment and each additional Receivable included in
the Net Pool Balance as an Eligible Receivable on the date of any
Reinvestment shall be an Eligible Receivable on such date.
6.02 Representations and Warranties of Union. In order to induce
Purchaser and the Agent to enter into this Agreement, Union as initial Servicer
hereby represents and warrants to Purchaser and the Agent as follows:
(a) Organization and Good Standing. It is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and 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.
(b) Due Qualification. It 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 or be so authorized
would not reasonably be expected to have a Material Adverse Effect.
(c) Power and Authority; Due Authorization. It has (i)
all necessary corporate power, authority and legal right to execute,
deliver and perform its obligations under this Agreement and each
other Transaction Document to which it is a party in its capacity as
Servicer and (ii) duly authorized by all necessary corporate action
such execution, delivery and performance of this Agreement and such
other Transaction Documents.
(d) Binding Obligations. This Agreement constitutes, and
each other Transaction Document to be signed by Union in
-31-
<PAGE> 39
its capacity as Servicer when duly executed and delivered will
constitute, a legal, valid and binding obligation of Union, in its
capacity as Servicer, enforceable in accordance with its 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).
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents and
the fulfillment of the terms hereof will not (i) conflict with, result
in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under the
articles or certificate of incorporation or by-laws of Union, (ii)
violate any material Contractual Obligation applicable to Union, (iii)
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 Union, other than any Lien under the Transaction
Documents, or (iv) violate any Requirement of Law applicable to Union.
(f) No Proceedings. Except as described in Schedule
6.02(f),
(i) there is no order, judgment, decree,
injunction, stipulation or consent order of, or with any
Governmental Authority to which Union is subject, and there is
no action, suit, arbitration, regulatory proceeding or other
litigation, proceeding or governmental investigation pending
or to the knowledge of Union threatened in writing, before or
by any arbitrator or Governmental Authority, against Union,
that is reasonably likely to have a Material Adverse Effect;
and
(ii) there is no action, suit, proceeding,
arbitration, regulatory or governmental investigation, pending
or to the knowledge of Union threatened, before or by any
arbitrator or Governmental Authority (A) asserting the
invalidity of this Agreement or any other Transaction Document
to which Union is a party as Servicer, (B) seeking to prevent
the consummation of any of the transactions contemplated by
this Agreement or any other Transaction Document to which
Union is a party as Servicer, or (C) seeking any determination
that could reasonably be expected to have a Material Adverse
Effect.
-32-
<PAGE> 40
(g) Government Approvals. No authorization or approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution,
delivery and performance by Union of any Transaction Document to which
it is a party in its capacity as Servicer.
(h) Financial Condition.
(i) The consolidated balance sheet of FTL and its
consolidated subsidiaries as of September 30, 1996, and the
related statement of earnings and cash flows of FTL and its
consolidated subsidiaries for the nine (9) months ended
September 30, 1996, copies of which will be furnished to the
Agent, present fairly the consolidated financial position of
FTL and its consolidated subsidiaries as at such date and the
consolidated results of the operations of Union and its
consolidated subsidiaries for the period ended on such date,
all in accordance with GAAP; and
(ii) Since September 30, 1996 until the Initial
Closing Date, no event has occurred that has had, or is
reasonably likely to have, a Material Adverse Effect.
(i) Accuracy of Information. All written information
heretofore or contemporaneously furnished by Union in its capacity as
Servicer to Purchaser or the Agent for purposes of, or in connection
with, this Agreement and all other Transaction Documents or any
transaction contemplated hereby or thereby is, taken as a whole, and
all other such factual, written information hereafter furnished (if
prepared by Union in its capacity as Servicer or, if not prepared by
Union in its capacity as Servicer, to the extent that information
contained therein was supplied by Union in its capacity as Servicer)
by Union in its capacity as Servicer to Purchaser or the Agent
pursuant to, or in connection with, this Agreement and the other
Transaction Documents, including, without limitation, each Periodic
Report and financial statement, taken as a whole, does not contain any
material misstatement of fact and is not incomplete by omitting to
state a material fact necessary to make the statements contained
therein not misleading on the date as of which such information is
dated or certified.
(j) Offices. The principal places of business and chief
executive offices of each of the Originators are located at the
address referred to in Section 14.02, and the offices where each of
the Originators keeps all of its respective books, records and
documents evidencing Receivables, the related Contracts and all
purchase orders
-33-
<PAGE> 41
and other agreements related to such Receivables are located at the
addresses specified in Schedule 6.01(m) (or at such other locations,
notified to the Agent in accordance with Section 7.01(e), in
jurisdictions where all action required by Section 8.05 has been
taken and completed).
(k) Lockbox Accounts. The names and addresses of all the
Lockbox Banks, together with the account numbers of the lockbox
accounts at such Lockbox Banks, are specified in Schedule 6.01(n) (or
have been notified to the Agent in accordance with Section 7.03(d)).
(l) Taxes. Union has filed or caused to be filed all
material tax returns and reports which are required to be filed and
has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its properties or assets and
all other taxes, fees and other charges imposed on its or any of their
respective properties by any Governmental Authority other than those
the amount or validity of which are currently being contested in good
faith by appropriate proceedings diligently pursued and with respect
to which reserves in conformity with GAAP have been provided on the
books of Union and no tax Lien has been filed or received. There is
no proposed tax assessment against Union which would reasonably be
expected to have a Material Adverse Effect.
(m) Compliance with Applicable Laws. Union, in its
capacity as Servicer, is in compliance with all Requirements of Law
with respect to the Receivables and the related Contracts, except to
the extent that all failures to comply therewith, would not be
reasonably expected to have a Material Adverse Effect.
ARTICLE VII.
GENERAL COVENANTS OF SELLER AND SERVICER
7.01 Affirmative Covenants of Seller and Union. From the date hereof
until the first day, following the Commitment Termination Date, on which (i)
all Undivided Interests shall be reduced to zero, and (ii) all Obligations that
have ever been outstanding hereunder shall have been finally and fully paid and
performed, Seller and Union (in its capacity as Servicer) each hereby covenants
and agrees with Purchaser and the Agent as to itself that, unless the Agent
shall otherwise consent in writing, it shall:
-34-
<PAGE> 42
(a) Compliance with Laws, Etc. Comply in all material
respects with all Requirements of Law except to the extent that
failure to comply therewith would not in the aggregate reasonably be
expected to have a Material Adverse Effect.
(b) Preservation of Corporate Existence. Continue to
engage in the business of the same type as now conducted by it and
preserve, renew and keep in full force and effect its corporate
existence and take all reasonable action to maintain all rights,
privileges and franchises material to its businesses except as
permitted otherwise hereunder and with all Contractual Obligations
except to the extent that failure to comply therewith would not in the
aggregate reasonably be expected to have a Material Adverse Effect.
(c) Audits. (i) At any time and from time to time during
regular business hours, upon five Business Days' prior written notice
from the Agent, permit the Agent (or such other Person who may be
designated from time to time by Purchaser), or their respective agents
or representatives, at Seller's expense, (A) to examine and make
copies of and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in its
possession or under its control relating to Receivables and the
Undivided Interests, including, without limitation, the related
Contracts and purchase orders and other agreements, and (B) to visit
its offices and properties for the purpose of examining such materials
described in clause (i)(A) next above, and to discuss matters relating
to Receivables or its performance hereunder with any of its officers
or employees having knowledge of such matters; and (ii) without
limiting the provisions of clause (i) next above, from time to time
during regular business hours, upon two Business Days prior written
notice from the Agent, permit certified public accountants or other
auditors acceptable to the Agent to conduct, at Seller's or Union's
expense as the case may be, a review of its books and records with
respect to the Receivables; provided, however, that unless a
Liquidation Event has occurred and is continuing, such review shall
occur at the Seller's or Union's expense no more than once in any
calendar year. The Agent, or its agents and representatives, may (and
the Agent (or such other Person who may be designated from time to
time by Purchaser) shall, upon the request of Purchaser) conduct a
review of the type described hereinabove whenever Purchaser or the
Agent, as the case may be, in its and their reasonable judgment,
deem such review appropriate.
(d) Keeping of Records and Books of Account. Maintain
and implement administrative and operating procedures (including,
without limitation, an ability to recreate
-35-
<PAGE> 43
records evidencing Receivables in the event of the destruction of the
originals thereof), and keep and maintain, all documents, books,
records and other information which is reasonably necessary for the
collection of all Receivables (including, without limitation, records
adequate to permit the prompt identification of each new Receivable
and all Collections of, and adjustments to, each existing Receivable).
(e) Location of Records. Keep its principal place of
business and chief executive office, and the offices where it keeps
its records concerning the Receivables, all related Contracts and all
purchase orders and other agreements related to such Receivables (and
all original documents relating thereto), at its address(es) referred
to in Section 6.01(m) in the case of Seller, or Section 6.02(j) in the
case of Union, or, upon 30 days' prior written notice to the Agent, at
such other locations in jurisdictions where all action required by
Section 8.05 shall have been taken and completed.
(f) Credit and Collection Policies. Comply in all
material respects with the Credit and Collection Policy in connection
with each Receivable and each Contract related thereto.
(g) Collections.
(i) Remit to the Lockbox Accounts within two
Business Days all Collections received by it; and
(ii) cause all invoices that are part of any
Contract to instruct all Obligors to cause all Collections of
Receivables to be deposited directly to one or more lockboxes
or Lockbox Accounts.
(h) Separate Corporate Existence. Seller hereby
acknowledges that Purchaser and the Agent are entering into the
transactions contemplated by this Agreement in reliance upon Seller's
identity as a legal entity separate from Servicer and Union.
Therefore, from and after the date hereof, Seller shall take all
reasonable steps to continue Seller's identity as a separate legal
entity and to make it apparent to third Persons that Seller is an
entity with assets and liabilities distinct from those of Servicer,
Union, and any Affiliate thereof, and is not a division of Servicer,
Union or any other Person. Without limiting the generality of the
foregoing and in addition to and consistent with the covenant set
forth in Section 7.01(b), Seller shall take such actions as shall be
required in order that:
-36-
<PAGE> 44
(i) Seller will be a limited purpose corporation
whose primary activities are restricted in its certificate of
incorporation to purchasing Receivables from Union, owning,
holding, granting security interests, or selling interests, in
Receivables, Contracts, Related Security and Collections
purchased from Union, entering into agreements for the
servicing of such Receivables, and conducting such other
activities as it deems necessary or appropriate to carry out
its primary activities;
(ii) Not less than one member of Seller's Board of
Directors (the "Independent Director") shall be an individual
who is not a direct, indirect or beneficial stockholder,
officer, director, employee, affiliate, associate, customer or
supplier of any of its Affiliates. The Certificate of
Incorporation of Seller shall provide that Seller's Board of
Directors shall not approve, or take any other action to cause
the commencement of a voluntary case or other proceeding with
respect to Seller under any applicable bankruptcy, insolvency,
reorganization, debt arrangement, dissolution or other similar
law, or the appointment of or taking possession by, a
receiver, liquidator, assignee, trustee, custodian, or other
similar official for Seller, unless in each case the
Independent Director shall approve the taking of such action
in writing prior to the taking of such action. The
Independent Director's fiduciary duty shall be to Seller (and
its creditors) and not to Seller's shareholders in respect of
any decision of the type described in the preceding sentence.
In the event the Independent Director resigns or otherwise
ceases to be a director of Seller, there shall be selected a
replacement Independent Director who shall not be an
individual within the proscriptions of the first sentence of
this clause (ii) or any individual who has any other type of
professional relationship with Union or any of its Affiliates
or any management personnel of any such Person or Affiliate
and who shall be (x) a tenured professor at a business or law
school, (y) a retired judge or (z) an established independent
member of the business community, having a sound reputation
and experience relative to the duties to be performed by such
individual as an Independent Director;
(iii) No Independent Director shall at any time
serve as a trustee in bankruptcy for any Affiliate of Union;
-37-
<PAGE> 45
(iv) Any employee, consultant or agent of Seller
will be compensated from Seller's own bank accounts for
services provided to Seller except as provided herein in
respect of the Servicer's Fee. Seller will engage no agents
other than an agent for service of process and a Servicer for
the Receivables, which Servicer will be fully compensated for
its services to Seller by payment of the Servicer's Fee;
(v) Seller will contract with Servicer to perform
for Seller all operations required on a daily basis to service
its Receivables. Seller will pay Servicer a monthly fee based
on the level of Receivables being managed by Servicer. Seller
will not incur any material indirect or overhead expenses for
items shared between Seller, Union and any other Affiliate
thereof that are not reflected in the Servicer's Fee. To the
extent, if any, that Seller, Union and any other Affiliate
thereof share items of expenses not reflected in the
Servicer's Fee, such as legal, auditing and other professional
services, such expenses will be allocated to the extent
practical on the basis of actual use or the value of services
rendered, and otherwise on a basis reasonably related to the
actual use or the value of services rendered, it being
understood that Union shall pay all expenses relating to the
preparation, negotiation, execution and delivery of the
Transaction Documents and the Stand-by Purchase Agreement and
any amendments thereto, including, without limitation, legal,
commitment, agency and other fees;
(vi) Seller's operating expenses will not be paid
by Union or any Affiliate thereof;
(vii) Seller will have its own separate stationery
and telephone number;
(viii) Seller's books and records will be maintained
separately from those of Union and any Affiliate thereof;
(ix) Any financial statements of Union which are
consolidated to include Seller will contain detailed notes
clearly stating that (A) all of Seller's assets are owned by
Seller and (B) Seller is a separate corporate entity with
creditors who have received ownership and security interests
in Seller's assets;
(x) Seller's assets will be maintained in a
manner that facilitates their identification and
-38-
<PAGE> 46
segregation from those of Union or any Affiliate thereof;
(xi) Seller will strictly observe corporate
formalities in its dealings with Union and any Affiliate
thereof, and funds or other assets of Seller will not be
commingled with those of Union and any Affiliate thereof.
Seller shall not maintain joint bank accounts or other
depository accounts to which Union or any Affiliate thereof
(other than Union in its capacity as Servicer) has independent
access. None of Seller's funds will at any time be pooled
with any funds of Union or any Affiliate thereof;
(xii) Seller shall pay to Union or the appropriate
Affiliate of Union, as applicable, the marginal increase (or,
in the absence of such increase, the market amount of its
portion of) in the premium payable with respect to any
insurance policy that covers Seller and Union or any Affiliate
thereof, but Seller shall not, directly or indirectly, be
named or enter into an agreement to be named, as a direct or
contingent beneficiary or loss payee, under any such insurance
policy, with respect to any amounts payable due to occurrences
or events related to Union or any Affiliate thereof (other
than Seller); and
(xiii) Seller will maintain arm's length
relationships with Union and any Affiliate thereof. Any
Person that renders or otherwise furnishes services to Seller
will be compensated by Seller at market rates for such
services. Seller will not be or will not hold itself out to
be responsible for the debts of Union or any Affiliate thereof
or the decisions or actions respecting the daily business and
affairs of Union or any Affiliate thereof.
(i) Post Office Boxes. Within 10 Business Days after the
date hereof, Union shall deliver to the Agent (i) duly executed (a)
Lockbox Agreements with each of the Lockbox Banks listed on Schedule
6.01(n) in form and substance substantially similar to Exhibit
7.01(i)(a), (b) the Collection Account Agreement with the Collection
Account Bank in form and substance substantially similar to Exhibit
7.01(i)(b), and (c) the Liquidation Account Agreement with the
Liquidation Account Bank in form and substance substantially similar
to Exhibit 7.01(i)(c) and (ii) a certificate from an authorized
officer of Union to the effect that (a) the name of the renter of all
post office boxes into which Collections may from time to time be
mailed have been changed to the name of Seller (unless such post
-39-
<PAGE> 47
office boxes are in the name of the relevant Lockbox Banks) and (b) all
relevant postmasters have been notified that Servicer and the Agent are
authorized to collect mail delivered to such post office boxes
(unless such post office boxes are in the name of the relevant
Lockbox Banks).
7.02 Reporting Requirements of Seller. From the date hereof until
the first day following the Commitment Termination Date on which (i) the
Aggregate Undivided Interest shall be reduced to zero, and (ii) all Obligations
that have ever been outstanding hereunder shall have been finally and fully
paid and performed, Seller will, unless Purchaser and the Agent shall otherwise
consent in writing, furnish to the Agent:
(a) Quarterly Financial Statements. As soon as available
and in any event within 60 days after the end of each of the first
three quarters of each fiscal year of FTL, (i) copies of (A) the
unaudited consolidated balance sheet of Seller, and (B) the unaudited
condensed consolidated balance sheet of FTL and its consolidated
subsidiaries, in each case as at the end of such quarter, together
with unaudited condensed consolidated statement of earnings and cash
flows for the portion of the fiscal year through such quarter,
certified by the chief financial officer, treasurer or chief
accounting officer of FTL (such officer being herein called the
"Financial Officer"), (ii) a letter from the Financial Officer
certifying to the best knowledge of the Financial Officer, that
neither a Liquidation Event nor an Unmatured Liquidation Event has
occurred and is continuing;
(b) Annual Financial Statements. As soon as available
and in any event within 150 days after the end of each fiscal year of
each of FTL and Seller, a copy of (A) the consolidated balance sheet
of FTL and its consolidated subsidiaries, together with the related
statement of earnings and cash flows for such fiscal year prepared in
accordance with GAAP and audited by independent certified public
accountants of nationally recognized standing and (B) Seller's audited
consolidated balance sheet as at the end of such fiscal year, together
with a special purpose report prepared by independent certified public
accountants of nationally recognized standing prepared in accordance
with GAAP;
(c) Reports to Holders and Exchanges. In addition to the
reports required by subsections (a) and (b) next above, promptly upon
the Agent's request, copies of any reports specified therein which
Union sends, generally, to any security holders, and any reports or
registration statements that Union or Seller files with the Securities
and Exchange
-40-
<PAGE> 48
Commission or any national securities exchange other than registration
statements relating to employee benefit plans;
(d) ERISA. Promptly after receiving notice of any
Reportable Event (as defined in Title IV of ERISA) with respect to
Union or any Affiliate thereof, a copy of such notice;
(e) Liquidation Events. As soon as possible after the
occurrence of each Liquidation Event and each Unmatured Liquidation
Event, a written statement of the Financial Officer describing such
event and the action that Servicer and Seller propose to take with
respect thereto, in each case in reasonable detail;
(f) Proceedings. As soon as reasonably practicable
written notice of (i) any litigation, investigation or proceeding of
the type described in Section 6.01(f) not previously disclosed to
Purchaser and the Agent and (ii) any material adverse development that
has occurred with respect to any such previously disclosed litigation,
proceedings and investigations; and
(g) Other. Promptly, from time to time, such other
information, documents, records or reports respecting the Receivables
or the condition or operations, financial or otherwise, of Seller or
Union as the Agent may from time to time reasonably request in order
to protect the interests of Purchaser or the Agent under or as
contemplated by this Agreement.
7.03 Negative Covenants of Seller. From the date hereof until the
first day, following the Commitment Termination Date, on which (i) all
Undivided Interests shall be reduced to zero and (ii) all Obligations that have
ever been outstanding hereunder shall have been finally and fully paid and
performed, Seller shall perform its Obligations under this Section 7.03 unless
the Agent shall otherwise consent in writing.
(a) Sales, Liens, Etc. Except as otherwise provided
herein or in the Purchase and Contribution Agreement, Seller shall not
sell, assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist any Adverse Claims upon or with
respect to, any Receivable, any Related Security, any of the other
assets, accounts or interests described in Section 9.01, or any
related Contract, or any interest in any of the foregoing (including
any right to receive income from or in respect of any thereof).
-41-
<PAGE> 49
(b) Extension or Amendment of Receivables. Except in
accordance with the Credit and Collection Policy, Seller shall not
extend, amend or otherwise modify the terms of any Receivable, or
amend, modify or waive, in any material respect, any term or condition
of any Contract related thereto (which term or condition relates to
payments under, or the enforcement of, such Contract).
(c) Change in Business or Credit and Collection Policy.
Seller shall not make any change in the character of its business or
materially alter its Credit and Collection Policy, which change would,
in either case, materially impair the collectibility of a material
portion of the Receivables.
(d) Addition of Lockbox Bank or Change in Payment
Instructions to Obligors; Change in Account Banks. Seller shall not
add or terminate any bank as a Lockbox Bank from those listed in
Schedule 6.01(n) or make any change in its instructions to Obligors
regarding Collections, unless (i) the Agent shall have received notice
of such addition, termination or change and duly executed counterparts
of a Lockbox Agreement with each new Lockbox Bank and copies of such
instructions (which shall be in form and substance acceptable to the
Agent) and (ii) the Agent previously shall have consented in writing
to such addition, termination or change (which consent, in the case of
any such addition or termination, shall not be unreasonably withheld
or delayed by Agent). Seller shall not add or terminate any bank as
an Account Bank from those listed in Schedule 7.03(d) or make any
change in its instructions regarding payments to be made by any
Account Bank, unless (A) the Agent shall have received duly executed
counterparts of an Account Agreement with each new Account Bank and
copies of such instructions (which shall be in form and substance
acceptable to the Agent) and (B) Purchaser previously shall have
consented in writing to such addition, termination or change (which
consent, in the case of any such addition or termination, shall not be
unreasonably withheld or delayed by Purchaser).
(e) [Reserved.]
(f) Restricted Payments.
(i) General Restriction. Except in accordance
with this Section 7.03(f), Seller shall not (A) purchase or
redeem any shares of its capital stock, (B) declare or pay any
Dividend or set aside any funds for any such purpose, (C)
prepay, purchase or redeem any subordinated indebtedness of
Seller, (D) lend or advance any funds or (E) repay any loans
or advances
-42-
<PAGE> 50
to, for or from Union or any Affiliate thereof. Actions of the type described
in this clause (i) are herein collectively called "Restricted Payments".
(ii) Types of Permitted Payments. Subject to the
limitations set forth in clause (iii) below, Seller may make
Restricted Payments so long as such Restricted Payments are
made only to an Originator and only in one or more of the
following ways:
(A) Seller may make cash payments (including
prepayments) on any FTL Note in accordance with its
terms; and
(B) if no amounts are then outstanding under
any FTL Note, Seller may declare and pay Dividends.
(iii) Specific Restrictions. Seller may make
Restricted Payments only out of funds in the Collection
Account or the Lockbox Accounts that do not represent the
Purchaser's Share of any Collections (or deemed Collections)
(prior to any Reinvestment thereof). Furthermore, Seller
shall not pay, make or declare
(A) any Dividend if, after giving effect
thereto, Seller's Tangible Net Worth would be less
than Twenty Million Dollars ($20,000,000);
(B) any Restricted Payment (including any
Dividend) if, after giving effect thereto a
Liquidation Event or Unmatured Liquidation Event
shall have occurred and be continuing.
Notwithstanding the foregoing, the restrictions set forth in this Section
7.03(f) shall not be in effect until following the redemption of all Fruit of
the Loom, Inc. Senior 7.875% Notes due October 15, 1999.
(g) Amendments to Certain Documents. Seller shall not
amend, supplement, amend and restate, or otherwise modify the Purchase
and Contribution Agreement, any FTL Note, any Account Agreement, any
Lockbox Agreement, any agreement between a Lockbox Bank and Seller
and/or Union which is referred to in any Lockbox Agreement, or
Seller's certificate of incorporation or by-laws, except (A) in
accordance with the terms of such document, instrument or agreement
and (B) with the advance written consent of the Agent.
-43-
<PAGE> 51
(h) Deposits to Special Accounts. Seller shall not
deposit or otherwise credit, or cause or permit to be so deposited or
credited to any Lockbox Account or the Collection Account cash or cash
proceeds other than Collections of Receivables.
(i) Incurrence of Indebtedness. Seller shall not (i)
create, incur or permit to exist, any Indebtedness or liability or
(ii) cause or permit to be issued for its account any letters of
credit or bankers' acceptances, except Indebtedness incurred pursuant
to the FTL Notes and liabilities incurred pursuant to or in connection
with the Transaction Documents.
ARTICLE VIII.
ADMINISTRATION AND COLLECTION
8.01 Designation of Servicer.
(a) Union as Initial Servicer. The servicing, administering and
collection of the Receivables shall be conducted by the Person designated as
Servicer hereunder ("Servicer") from time to time in accordance with this
Section 8.01. Until the Agent gives notice to Union of the designation of a
new Servicer (the "Successor Notice"), which notice may be given at any time
after the occurrence and during the continuance of a Liquidation Event, Union
is hereby designated as, and hereby agrees to perform the duties and
obligations of, Servicer pursuant to the terms hereof.
(b) Successor Notice. Upon Union's receipt of a Successor Notice,
Union agrees that it will terminate its activities as Servicer hereunder in a
manner that the Agent indicates will facilitate the transition of the
performance of such activities to the new Servicer. The Agent, or such other
Person as the Agent shall designate, shall assume each and all of the
obligations of Union to service, administer and collect such Receivables, on
the terms and subject to the conditions herein set forth, and Union shall use
its best efforts to assist the Agent (or its designee) in assuming such
obligations. Any successor Servicer shall agree for the benefit of Seller to
make distributions in accordance with Article III hereof and otherwise to be
bound hereby.
(c) Servicer's Fee. Seller hereby agrees to pay to Servicer a fee
(the "Servicer's Fee") for each calendar month (or portion thereof in which
such Person was acting as Servicer) from and including the date hereof to but
excluding the date on which
-44-
<PAGE> 52
all amounts payable under or in connection with this Agreement and the Purchase
and Contribution Agreement have been finally paid in full (and this Agreement
and the Purchase and Contribution Agreement shall have terminated), in an
amount calculated as follows:
(i) at any time when Union is Servicer, an amount equal
to one-twelfth of 0.50% of the Unpaid Balance of the Receivables as
measured on the latest Month End Date referred to in the most recent
Periodic Report (or, for the period from and including the initial
closing date of the transactions contemplated hereby to (but
excluding) the date on which the first Periodic Report is delivered
hereunder, one-twelfth of 0.50% of the Unpaid Balance of the
Receivables as measured at Servicer's close of business on such
closing date); or
(ii) on and after Servicer's reasonable request made at
any time when Union is not Servicer, the greater of (A) an amount
calculated pursuant to the foregoing clause (i) or (B) an alternative
amount specified by Servicer not exceeding 110% of the aggregate
documented reasonable costs and expenses incurred by Servicer during
such calendar month in connection with performing its obligations
under this Agreement and the other Transaction Documents; provided,
however, that in no event shall any Servicer's Fee calculated pursuant
to this clause (ii)(B) for any calendar month exceed an amount equal
to one-twelfth of 1.0% of the Unpaid Balance of the Receivables as
measured on the latest Month End Date referred to in the most recent
Periodic Report.
Such Servicer's Fee shall be paid out of Seller's share of the Collections of
Receivables, except to the extent Servicer's Fee is expressly provided to be
paid out of Purchaser's Share of such Collections pursuant to Article III
hereof. Accrued Servicer's Fee shall be payable at the times and in the
amounts specified in Article III hereof. In addition, on the fifteenth day of
each calendar month (or, if such day is not a Business Day, on the next
following Business Day), Seller and Servicer shall determine whether there was
an aggregate underpayment (in which case Seller shall make an appropriate
additional payment to Servicer on such date) or overpayment (in which case
Servicer shall make, out of Seller's share of such Collections, an appropriate
rebate to Seller on such date) of Servicer's Fee during the preceding calendar
month.
(d) Subservicers. Purchaser and the Agent hereby consent to the
appointment by Servicer of any agent or subservicer selected by Servicer in
good faith to perform all or any portion
-45-
<PAGE> 53
of the Servicer's obligations hereunder; provided that Servicer shall remain
liable for the performance of all duties and obligations of Servicer pursuant
to the terms of this Agreement and the other Transaction Documents.
8.02 Duties of Servicer and Seller.
(a) Appointment; Duties in General. Each of Seller, Purchaser and
the Agent hereby appoints Servicer, from time to time designated pursuant to
Section 8.01, as its agent to enforce their respective rights and interests in
and under the Receivables, the Contracts and the Related Security. Servicer
shall take or cause to be taken all such actions as may be necessary or
advisable to collect each Receivable (or shall cause each subservicer to take
or cause to be taken all such actions as may be necessary or advisable to
collect each Receivable with respect to which it has been appointed as
subservicer) from time to time, all in accordance with applicable laws, rules
and regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy.
(b) Allocation of Collections. Servicer shall set aside for the
account of Seller and Purchaser their respective allocable shares of the
Collections in accordance with Article III.
(c) Modification of Receivables. Servicer may adjust, and may
permit each subservicer to adjust, in accordance with the Credit and Collection
Policy, the Unpaid Balance of any Receivable to reflect the reductions or
cancellations described in the first sentence of Section 3.04(a). Servicer
shall write off Receivables from time to time in accordance with the Credit and
Collection Policy.
(d) Documents and Records. Servicer shall hold in trust for
Seller and Purchaser in accordance with their respective interests, all
documents, instruments and records (including, without limitation, computer
tapes or disks, and Contracts) that evidence or relate to the Receivables.
Upon request by the Agent, the Servicer shall deliver quarterly to the Agent on
computer its most recent domestic trial balances.
(e) Certain Duties to Seller. Servicer shall, as soon as
practicable following receipt, turn over to Seller that portion of Collections
of Receivables representing its undivided interest therein, less, in the event
Union is no longer Servicer, all reasonable and appropriate out-of-pocket costs
and expenses of Servicer of servicing, collecting and administering the
Receivables to the extent not covered by the Servicer's Fee received by it.
The Servicer shall provide to the Seller a
-46-
<PAGE> 54
written statement setting forth the out-of-pocket costs and expenses described
in the preceding sentence.
(f) Authorization to Act as Seller's Agent. Seller hereby
appoints Servicer (but only for so long as Union is Servicer, in the case of
clauses (i), (ii) and (iv) below) as its agent for the following purposes: (i)
selecting the amount of each requested Purchase, (ii) specifying accounts to
which payments are to be made to Seller, (iii) making transfers among, deposits
to and withdrawals from the Bank Accounts, the Lockbox Accounts and other
deposit accounts of Seller for the purposes described in the Transaction
Documents and (iv) arranging payment by Seller of all fees, expenses, other
Obligations and other amounts payable under the Transaction Documents. Seller
irrevocably agrees that (A) it shall be bound by all actions taken by Servicer
pursuant to the preceding sentence, and (B) that Purchaser, the Agent, the
Collection Account Bank, the Lockbox Banks, the Liquidation Account Bank and
the banks holding all other deposit accounts of Seller are entitled to accept
submissions, determinations, selections, specifications, transfers, deposits
and withdrawal requests, and payments from Servicer on behalf of Seller.
(g) Termination. The authorization of Servicer under this
Agreement shall terminate upon receipt by the Agent, after the Commitment
Termination Date, of an amount equal to (i) the Aggregate Investment plus (ii)
accrued Earned Return for each Undivided Interest, plus (iii) all other amounts
owed to Purchaser and the Agent and (unless otherwise agreed to by Servicer and
the Agent) to Servicer under this Agreement.
(h) Agreement Not to Resign. Union acknowledges that Purchaser
and the Agent have relied on Union's agreement to act as Servicer hereunder in
their respective decisions to execute and deliver the Transaction Documents.
In recognition of the foregoing, Union agrees not to resign as Servicer
voluntarily unless Union is not permitted by law to serve in such capacity, as
evidenced by an opinion of counsel to such effect, which opinion shall be
satisfactory in form and substance to the Agent.
8.03 Rights of the Agent.
(a) Notice to Obligors. At any time after the occurrence of and
during the continuation of a Liquidation Event, the Agent may notify the
Obligors of Receivables, or any of them, of the Purchaser's ownership of
Undivided Interests.
(b) Notice to Lockbox Banks and Account Banks. At any time
following the occurrence of and during the continuation of a Liquidation Event,
the Agent is hereby authorized (upon Purchaser's direction) to give notice to
the Lockbox Banks, as
-47-
<PAGE> 55
provided in the Lockbox Agreements, of the transfer to the Agent (for the
benefit of Purchaser) of dominion and control over the Lockbox Accounts to
which the Obligors of Receivables make payments. Seller hereby transfers to
the Agent (for the benefit of Purchaser), effective when the Agent shall give
notice to the Lockbox Banks as provided in the Lockbox Agreements, the
exclusive dominion and control over such Lockbox Accounts, and shall take any
further action that the Agent may reasonably request to effect such transfer.
The Agent is hereby authorized to give notice to the Account Banks, as provided
in the Account Agreements, of the transfer of dominion and control over the
Bank Accounts to the Agent (for the benefit of Purchaser). Seller hereby
transfers to the Agent (for the benefit of Purchaser), effective when the Agent
shall give notice to the Account Banks as provided in the Account Agreements,
the exclusive dominion and control over such Bank Accounts, and shall take any
further action that the Agent may reasonably request to effect such transfer.
(c) Rights on Servicer Transfer. At any time following the
designation of a Servicer other than Union pursuant to Section 8.01:
(i) The Agent may direct any Obligors of Receivables to
pay all amounts payable under any Receivable directly to the Agent or
its designee.
(ii) The Agent may direct Union to make payment of all
amounts payable to Seller under any Transaction Document to which
Union is a party directly to the Agent or its designee.
(iii) Seller shall, at the Agent's request and at Seller's
expense, give notice of Purchaser's ownership of Undivided Interests
to each Obligor and direct that payments be made directly to the Agent
or its designee.
(iv) Seller and Union shall, at the Agent's request, (A)
assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and disks,
and Contracts) which evidence the Pool Receivables, and the related
Contracts and Related Security, or which are otherwise necessary or
desirable to collect such Pool Receivables, and shall make the same
available to the Agent at a place selected by the Agent or its
designee, (B) segregate all cash, checks and other instruments
received by it from time to time constituting Collections of Pool
Receivables in a manner acceptable to the Agent and shall, promptly
upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the Agent
or its designee and
-48-
<PAGE> 56
(C) permit any successor Servicer and its agents, employees and
assignees access to its respective facilities and its books, records,
documents and instruments (including, without limitation, computer
programs, tapes and disks, and Contracts) related to Receivables.
(v) Each of Seller, Union and Purchaser hereby authorizes
he Agent to take any and all steps in Seller's name and on
behalf of Seller, Union or Purchaser which are necessary, in the
reasonable determination of the Agent, to collect all amounts due
under any and all Receivables, including, without limitation,
indorsing Seller's or Union's name on checks and other instruments
representing Collections and enforcing such Receivables, the related
Contracts, and the Related Security therefor.
(vi) Seller hereby irrevocably appoints the Agent to act
as Seller's attorney-in-fact, with full authority in the place and
stead of Seller and in the name of Seller or otherwise, to take any
action and to execute any instrument that the Agent, in its reasonable
determination, may deem necessary to accomplish the purposes of this
Agreement, including, without limitation:
(A) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any
Receivable;
(B) to receive, indorse, and collect any drafts or
other instruments, documents and chattel paper related to the
Receivables or the Related Security, or constituting
Collections;
(C) to file any claims or take any action or
institute any proceedings which Purchaser, in its reasonable
determination, may deem necessary for the collection of any of
the Receivables or otherwise to enforce the rights of the
Agent and Purchaser with respect to any of the Receivables;
and
(D) to perform the affirmative obligations of Seller
under any Transaction Document.
Seller hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section 8.03(c) is irrevocable and coupled with an
interest.
8.04 Responsibilities of Seller. Anything herein to the contrary
notwithstanding:
-49-
<PAGE> 57
(a) Seller shall perform and comply with all of its
obligations (i) pursuant to the provisions, covenants and other
promises required to be observed by it under the Contracts related to
the Receivables and under all purchase orders and other agreements and
(ii) under the Purchase and Contribution Agreement; and the Agent's
exercise of its rights hereunder shall not relieve Seller from any
such obligations.
(b) Neither Purchaser nor the Agent shall have any
obligation or liability with respect to any Receivables, related
Contracts or any other related purchase orders or other agreements,
nor shall any of them be obligated to perform any of the obligations
thereunder.
(c) Seller hereby grants to Servicer an irrevocable power
of attorney, with full power of substitution, coupled with an
interest, to take in the name of Seller all steps which are necessary
or advisable to indorse, negotiate or otherwise realize on any writing
or other right of any kind held or transmitted by Seller or
transmitted or received by Purchaser or the Agent (whether or not from
Seller) in connection with any Receivable.
8.05 Certain Responsibilities of Union. If at any time Union shall
not be Servicer, Union shall deliver all Collections received by it to the
Agent promptly upon receipt thereof and the Agent shall distribute such
Collections to the same extent as if such Collections had actually been
received from the related Obligor on the applicable dates. So long as Union
shall hold any Collections required to be paid to the Agent, it shall hold such
Collections in trust (and, if the Agent shall so request, separate and apart
from its own funds) and shall clearly mark its records to reflect such trust.
Union hereby grants to the Agent an irrevocable power of attorney, with full
power of substitution, coupled with an interest and exercisable at any time
following the occurrence and continuance of any Liquidation Event, to take in
the name of Union all steps necessary or advisable to indorse, negotiate or
otherwise realize on any writing or other right of any kind held or transmitted
by Union or transmitted and received by Purchaser or the Agent (whether or not
from Union) in connection with any Receivable.
8.06 Further Action Evidencing Purchases.
(a) Each of Seller and Servicer agrees that from time to time at
Seller's expense, it will promptly execute and deliver (or, cause the relevant
subservicer to execute and deliver) all further instruments and documents, and
take all further action, that the Agent may reasonably request in order to
perfect, protect or more fully evidence the Purchases hereunder and the
-50-
<PAGE> 58
resulting Undivided Interests, or to enable Purchaser or the Agent to exercise
or enforce any of their respective rights hereunder or under any other
Transaction Document. Without limiting the generality of the foregoing, upon
the Agent's reasonable request, Seller (or, in the case of clause (ii) below,
Servicer) will:
(i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or appropriate; and
(ii) mark its master data processing records that
evidence or list (A) Receivables and (B) related Contracts with the
legend described in Section 5.01(n).
(b) Seller and Servicer shall file one or more financing or
continuation statements, and amendments thereto and assignments thereof,
relative to all or any of the Receivables or the Related Security now existing
or hereafter arising in the name of Seller or Servicer. If Seller or Servicer
fails to perform any of its agreements or obligations under any Transaction
Document and does not remedy such failure within the applicable cure period, if
any, in the applicable Transaction Document, the Agent may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the expenses of the Agent incurred in connection therewith
shall be payable by Seller as provided in Section 13.01.
8.07 Application of Collections. Any payment by an Obligor in
respect of any indebtedness owed by it to an Originator shall, except as
otherwise specified by such Obligor or otherwise required by contract or law
and unless the Agent instructs otherwise, be applied as a Collection of any
Pool Receivable or Pool Receivables of such Obligor to the extent of any
amounts then due and payable thereunder before such payment is applied to any
other indebtedness of such Obligor.
ARTICLE IX.
SECURITY INTEREST
9.01 Grant of Security Interest. To secure the prompt payment and
performance of all Obligations of Seller arising in connection with this
Agreement, the Certificate and each other Transaction Document, whether now or
hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, all Indemnified Amounts, all Earned
Return, payments on account of Collections received or
-51-
<PAGE> 59
deemed to be received and fees, Seller hereby assigns and grants to Purchaser a
first priority security interest in all of Seller's right, title and interest
in, to and under all of the following, whether now or hereafter existing: (a)
all Receivables, all Related Security and all Collections related thereto, (b)
all of Seller's rights, remedies, powers and privileges under, or in respect
of, the Purchase and Contribution Agreement, (c) all Lockbox Accounts, the Bank
Accounts, all funds on deposit in each of the foregoing accounts and all
certificates and instruments, if any, from time to time evidencing such
accounts and funds on deposit therein, all investments made with such funds,
all claims thereunder or in connection therewith, and all interest, dividends,
moneys, instruments, securities and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the foregoing, and (d) all proceeds and amounts received or receivable by
Seller under any or all of the foregoing. This Agreement shall constitute a
security agreement under applicable law with regard to the security interest
granted pursuant to this Section 9.01.
9.02 Further Assurances. The provisions of Section 8.06 shall apply
to the security interest granted under Section 9.01 as well as to the Purchases
and all Undivided Interests hereunder.
9.03 Remedies. Upon the occurrence of and during the continuance of
a Liquidation Event, Purchaser shall have, with respect to the collateral
granted pursuant to Section 9.01, and in addition to all other rights and
remedies available to Purchaser or the Agent under this Agreement or other
applicable law, (a) the right to apply Collections to payment of the
obligations referred to in Section 9.01 and (b) all the rights and remedies of
a secured party upon default under the UCC.
ARTICLE X.
LIQUIDATION EVENTS
10.01 Liquidation Events. The following events shall be "Liquidation
Events" hereunder:
(a) (i) Servicer or Seller shall fail to make when due
any payment or deposit of any Earned Return, Investment, Program Fee,
Commitment Fee, Servicer's Fee (if Union is not Servicer) or other
amount required to be paid by it hereunder or to be deposited by it
hereunder in the Agent's Account, including the amount of any deemed
Collection or
-52-
<PAGE> 60
(ii) Servicer or Seller shall fail to make when due any other
payment or deposit to be made by it hereunder; or
(b) Servicer (if Union) shall (i) fail to deliver any
Periodic Report on the date when such Periodic Report is due or shall
fail to deliver any other report that it is required to deliver
hereunder and such failure shall continue to be unremedied for a
period of five days after such Periodic Report was due, or (ii) fail
to perform or observe in any material respect any term, covenant or
agreement hereunder on its part to be performed or observed (other
than as referred to in clause (a) or (b)(i) above) and such failure
shall remain unremedied for a period of 30 days after written notice
thereof shall have been given to the Servicer by the Agent; or
(c) Any representation or warranty made or deemed to be
made by Servicer, Union or Seller under or in connection with
any Transaction Document (including any Periodic Report or other
information or report delivered pursuant hereto) shall prove to have
been false or incorrect in any material respect when made or deemed
made; or
(d) Seller or Union shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement or any
other Transaction Document on its part to be performed or observed and
any such failure shall remain unremedied for 30 days after written
notice thereof from the Agent; or
(e) (i) A default shall have occurred in the payment when
due (after giving effect to any applicable grace period and the giving
of any required notice), whether by acceleration or otherwise, of (A)
any Indebtedness (other than any Obligation constituting Indebtedness)
of, (B) any reimbursement obligation in respect of any letter of
credit issued for the account of, or (C) any payment obligation in
respect of any Guaranty issued by Union, which Indebtedness,
reimbursement obligation or payment obligation is in a principal
amount, individually at any time in excess of ten million dollars
($10,000,000), or (ii) a default shall occur in the performance or
observance of any material obligation or condition with respect to
such Indebtedness, any such letter of credit or any such Guaranty if
the effect of such default described in this clause (ii) is (A) to
accelerate the maturity of any such Indebtedness or any obligation
which is supported by any such Guaranty or (B) to require the advance
payment or cash collateralization of any such letter of credit
reimbursement obligation; or
-53-
<PAGE> 61
(f) An Event of Bankruptcy shall have occurred and remain
continuing with respect to Seller, Union or FTL;
(g) Either (i) the Aggregate Undivided Interest Amount
shall at any time exceed the sum of (x) the Net Pool Balance and (y)
the Net Liquidation Account Balance, and such condition shall continue
for five Business Days or (ii) the Aggregate Investment shall at any
time exceed the Facility Limit, and such condition shall continue for
five Business Days; or
(h) The arithmetic mean of the Delinquency Ratio for the
prior three consecutive Fiscal Months shall exceed 8.0%; or
(i) The arithmetic mean of the Default Ratio for the
prior three consecutive Fiscal Months shall exceed 5.0%; or
(j) The arithmetic mean of the Dilution Ratios for the
prior three consecutive Fiscal Months shall exceed 10%; or
(k) (i) The Internal Revenue Service shall file notice of
a lien pursuant to Section 6323 of the Internal Revenue Code with
regard to any of the assets of Seller or Union or (ii) the Pension
Benefit Guaranty Corporation shall file notice of a lien pursuant to
Section 4068 of ERISA with regard to any of the assets of Seller or
Union, and in each case, such lien shall not have been released within
15 Business Days; or
(l) Seller shall have failed to comply with Section
7.03(f)(i), (ii) or (iii) and such failure shall remain unremedied for
three Business Days; or
(m) The Purchase and Sale Termination Date shall have
occurred at the option of the Company or all of the Originators, or
the Facility shall have terminated; or
(n) A Change in Control shall have occurred; or
(o) (i) Any Transaction Document, or any security
interest granted thereunder, shall (except in accordance with its
terms), in whole or in part, terminate, cease to be effective or cease
to be the legally valid, binding and enforceable obligation of Seller,
Servicer or an Originator, or (ii) Seller, Servicer or an Originator
shall, directly or indirectly, contest in any manner such
effectiveness, validity, binding nature or enforceability; or (iii)
any security interest securing any Obligation shall not attach or
shall, in whole or in part, cease to be a perfected first
-54-
<PAGE> 62
priority security interest, subject only to those exceptions
expressly permitted herein; or
(p) The cessation of, or failure to create, a valid first
priority ownership interest of Purchaser, to the extent of the
Aggregate Undivided Interest in the Receivables Pool, Related
Security, Collections and other security contemplated hereby; or
(q) The long-term debt rating of FTL shall be withdrawn
by either S&P or Moody's or shall be lowered by either S&P or Moody's
to a rating below BB or Ba2 respectively; or
(r) Seller's Tangible Net Worth shall decrease to less
than $20,000,000; or
(s) Seller shall have completed or attempted to complete
any Merger.
10.02 Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation
Event (other than a Liquidation Event described in subsection (f) of Section
10.01), the Agent shall, at the request (or may with the consent) of Purchaser,
by notice to Seller, declare the Commitment Termination Date to have occurred.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation
Event described in subsection (f) of Section 10.01, the Commitment Termination
Date shall be deemed to have occurred automatically upon the occurrence of such
event; provided, however, that with respect to any proceeding instituted
against Seller pursuant to 11 U.S.C. Section 303 (an "Involuntary Federal
Proceeding"), the settlement procedures described in Section 3.03 shall become
applicable upon the commencement of such Involuntary Federal Proceeding or
event and no further Purchases or Reinvestments of Collections shall be made;
and provided, further, that if such Involuntary Federal Proceeding is dismissed
within 60 days after its commencement, and if no other Liquidation Event has
occurred, then following such dismissal, the Commitment shall be reinstated as
if the Commitment Termination Date had not occurred upon the commencement of
such Involuntary Federal Proceeding.
(c) Additional Remedies. Upon any termination of the Commitment
pursuant to this Section 10.02, Purchaser and the Agent shall have, in addition
to all other rights and remedies under this Agreement or otherwise, all other
rights and remedies provided under the UCC of each applicable jurisdiction and
other applicable laws, which rights shall be cumulative. Without
-55-
<PAGE> 63
limiting the foregoing or the general applicability of Article XIII hereof, the
occurrence of a Liquidation Event shall not deny to Purchaser or the Agent any
remedy in addition to termination of the Commitment to which any such Person
may be otherwise appropriately entitled, whether at law or in equity.
ARTICLE XI.
THE AGENT
11.01 Authorization and Action. Purchaser hereby appoints SG as its
Agent under and for purposes of each Transaction Document, and authorizes the
Agent to act on its behalf under each Transaction Document and to exercise such
powers hereunder and thereunder as are delegated to the Agent by the terms
hereof and thereof, together with such powers as may be reasonably incidental
thereto.
11.02 Exculpation. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted
to be taken by it in good faith under or in connection with this Agreement
(including, without limitation, the servicing, administering or collecting
Receivables pursuant to Section 8.01), except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, the Agent: (a) may consult with legal counsel (including internal
counsel and counsel for Seller and Servicer), independent certified public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (b) makes no warranty or
representation to Purchaser or any other holder of any interest in Receivables
and shall not be responsible to Purchaser or any such other holder for any
statements, warranties or representations made in or in connection with any
Transaction Document; (c) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions
of any Transaction Document on the part of Seller or Servicer or to inspect the
property (including the books and records) of Seller or Servicer; (d) shall not
be responsible to Purchaser or any other holder of any interest in Receivables
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Transaction Document; and (e) shall incur no
liability under or in respect of any Transaction Document by acting upon any
notice (including notice by telephone), consent, certificate or other
instrument or writing (which may be by facsimile or telex) believed by it in
good faith to be genuine and signed or sent by the proper party or parties.
-56-
<PAGE> 64
11.03 Agent and Affiliates. SG and any of its Affiliates may accept
deposits, lend money to and generally engage in any kind of business with
Seller, an Originator or any Obligor, any of their respective Affiliates and
any Person who may do business with or own securities of Seller, an Originator
or any Obligor or any of their respective Affiliates, all as if SG were not the
Agent and without any duty to account therefor to Purchaser or any other holder
of an interest in Receivables.
ARTICLE XII.
ASSIGNMENT OF PURCHASER'S INTEREST
12.01 Restrictions on Assignments.
(a) None of Union, Seller or Purchaser may assign its rights
hereunder or any interest herein without the prior written consent of the
Agent, and Purchaser may not assign any Undivided Interest (or portion thereof)
to any Person without the prior written consent of Seller; provided, however,
that Purchaser may assign and grant a security interest in any interest in, to
and under any Undivided Interest, this Agreement and any other Transaction
Documents to the Collateral Agent, and any successor in such capacity, to
secure Barton's obligations under or in connection with the Commercial Paper
Notes, the Stand-by Purchase Agreement, the Enhancement Agreement and any
letter of credit issued thereunder, and certain other obligations of Purchaser
incurred in connection with the funding of the Purchases and Reinvestments
hereunder, which assignment and grant of a security interest shall not be
considered an "assignment" for purposes of Section 12.01(b) or Section 12.03
or, prior to the enforcement of such security interest, for purposes of any
other provision of this Agreement.
(b) Seller agrees to advise the Agent within five Business Days
after notice to Seller of any proposed assignment by Purchaser of any Undivided
Interest (or portion thereof), not otherwise permitted under subsection (a) of
this Section 12.01, of Seller's consent or non-consent to such assignment. If
Seller does not consent to such assignment, Purchaser may upon five days'
notice to Seller assign such Undivided Interest (or portion thereof) to SG, any
Bank or any Affiliate of SG or any Bank. All of the aforementioned assignments
shall be upon such terms and conditions as Purchaser and the assignee may
mutually agree.
12.02 Rights of Assignee. Upon the assignment by Purchaser of any
Undivided Interest (or portion thereof) in accordance with this Article XII,
the assignee receiving such assignment shall
-57-
<PAGE> 65
have all of the rights of Purchaser hereunder with respect to such Undivided
Interest (or such portion thereof).
12.03 Evidence of Assignment; Endorsement on Certificate. Any
assignment of any Undivided Interest (or portion thereof) to any Person may be
evidenced by an instrument of assignment in the form of Exhibit 12.04 or by
such other instrument(s) or document(s) as may be satisfactory to Purchaser,
the Agent and the assignee. Purchaser authorizes the Agent to, and the Agent
agrees that it shall, endorse the Certificate to reflect any assignments made
pursuant to this Article XII or otherwise.
12.04 Rights of the Banks and Collateral Agent. Seller hereby agrees
that, upon notice to Seller, the Collateral Agent may exercise all the rights
of the Agent hereunder, with respect to all Undivided Interests (or portions
thereof), and Collections with respect thereto, which are owned by Purchaser,
and all other rights and interests of Purchaser in, to or under this Agreement
or any other Transaction Document. Without limiting the foregoing, upon such
notice Collateral Agent may request Servicer to segregate Purchaser's and the
Banks' allocable shares of Collections from Seller's allocable share, and from
each other's allocable share, may give a Successor Notice pursuant to Section
8.01(a), may give or require the Agent to give notice to the Lockbox Banks and
Account Banks in accordance with Section 8.03(b), and may direct the Obligors
of Receivables to make payments in respect thereof directly to an account
designated by them, in each case, to the same extent as the Agent might have
done.
ARTICLE XIII.
INDEMNIFICATION
13.01 Indemnity by Seller.
(a) General Indemnity. Without limiting any other rights which
any such Person may have hereunder or under applicable law, Seller hereby
agrees to indemnify each of Purchaser, the Agent, the Banks, Enhancement Bank,
SG, and each of their respective Affiliates, successors, transferees,
participants and assigns and all officers, directors, shareholders, controlling
persons, employees and agents of any of the foregoing (each of the foregoing
Persons being individually called an "Indemnified Party"), forthwith on demand,
from and against any and all damages, losses, claims, liabilities and related
costs and expenses, including reasonable attorneys' fees and disbursements (all
of the foregoing being collectively called "Indemnified Amounts") awarded
against or incurred by any of them arising out
-58-
<PAGE> 66
of or relating to any Transaction Document or the transactions contemplated
thereby or the use of proceeds therefrom, including (without limitation) in
respect of the ownership or funding of any Undivided Interest or in respect of
any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to
the extent determined by a court of competent jurisdiction to have resulted
from gross negligence or willful misconduct on the part of such Indemnified
Party, or (b) non-payment by any Obligor of an amount due and payable with
respect to a Receivable due to the credit of such Obligor (except as otherwise
specifically provided in this Agreement). Without limiting the foregoing,
Seller agrees to indemnify each Indemnified Party for Indemnified Amounts
arising out of or relating to:
(i) the transfer by Seller of any interest in any
Receivable other than an Undivided Interest to Purchaser pursuant to
this Agreement and the grant of a security interest to Purchaser
pursuant to Section 9.01;
(ii) the breach of any representation or warranty made by
Seller (or any of its officers) under or in connection with this
Agreement or any other Transaction Document, any Periodic Report or
any other information or report delivered by Seller or Servicer
pursuant hereto, which shall have been false or incorrect in any
material respect when made or deemed made;
(iii) the failure by Seller to comply with any applicable
law, rule or regulation with respect to any Receivable or the related
Contract, or the nonconformity of any Receivable or the related
Contract with any such applicable law, rule or regulation;
(iv) the failure to vest and maintain vested in Purchaser
an undivided fractional ownership interest, to the extent of each
Undivided Interest owned by it hereunder, in the Pool Receivables in,
or purporting to be in, the Receivables Pool, free and clear of any
Adverse Claim, other than an Adverse Claim arising solely as a result
of an act of Purchaser or the Agent, any assignee from Purchaser or
the Agent, whether existing at the time of any Purchase or
Reinvestment of such Undivided Interest or at any time thereafter;
(v) the failure to file, or any delay in filing,
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivables in, or purporting to be in, the Receivables
Pool, whether at the time of any Purchase or Reinvestment or at any
time thereafter;
-59-
<PAGE> 67
(vi) to the extent not otherwise reimbursed as a deemed
collection pursuant to Section 3.04(a), any dispute, claim, offset or
defense (other than discharge in bankruptcy) of the applicable Obligor
to the payment of any Receivable in, or purporting to be in, the
Receivables Pool (including, without limitation, a defense based on
such Receivable's or the related Contract's not being a legal, valid
and binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the sale
of the merchandise or services related to such Receivable or the
furnishing or failure to furnish such merchandise or services;
(vii) any claim involving products liability or
environmental liability that arises out of or relates to merchandise
or services that are the subject of any Receivable; or
(viii) any tax or governmental fee or charge, and all
interest and penalties thereon or with respect thereto, and all
out-of-pocket costs and expenses, including the reasonable fees and
expenses of counsel in defending against the same, which may arise by
reason of the purchase or ownership of any Undivided Interest, or any
other interest in the Receivables or in any goods which secure any
such Receivables.
(b) Indemnity by Union. Without limiting any other rights which
any such person may have hereunder under applicable law, Union hereby agrees to
indemnify each Indemnified Party, forthwith on demand, from and against any and
all Indemnified Amounts awarded against or incurred by any of them arising out
of or relating to:
(i) any representation or warranty made by Union under or
in connection with any Transaction Document in its capacity as
Servicer or any information or report delivered by or on behalf of
Union in its capacity as Servicer pursuant hereto, which shall have
been false, incorrect or misleading in any material respect when made
or deemed made;
(ii) the failure by Union, in its capacity as Servicer, to
comply with any applicable law, rule or regulation (including truth in
lending, fair credit billing, usury, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy) with
respect to any Pool Receivable or other related Contract; or
(iii) any failure of Union to perform its duties, covenants
and obligations in accordance with the applicable provisions of this
Agreement.
-60-
<PAGE> 68
(c) Contribution. If for any reason the indemnification provided
above in this Section 13.01 is unavailable to an Indemnified Party or is
insufficient to hold an Indemnified Party harmless, then Seller or Union or
both, as applicable, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by such Indemnified Party, on the one hand, and Seller or Union or both, as
applicable, on the other hand, but also the relative fault of such Indemnified
Party as well as any other relevant equitable considerations.
(d) Promptly after the receipt by an Indemnified Party or Parties
of a notice of the commencement of any action, suit, proceeding, investigation
or claim against such Indemnified Party or Parties as to which it proposes to
demand indemnification from the Seller or Union (either or both such parties,
as applicable, the "Indemnifying Party" or "Parties") pursuant to this Section
13.01, such Indemnified Party or Parties shall notify the Indemnifying Party or
Parties in writing of the commencement thereof; but the failure so to notify
the Indemnifying Party or Parties will not relieve such Indemnifying Party or
Parties from any liability which such Indemnifying Party or Parties may have to
such Indemnified Party or Parties pursuant to this Section 13.01 unless to the
extent that such failure results in the forfeiture by any such Indemnifying
Party or Parties of substantive rights and defenses. After such notice, if (i)
an Indemnifying Party or Parties shall acknowledge in writing to such
Indemnified Party or Parties that such Indemnifying Party or Parties shall be
obligated to indemnify such Indemnified Party or Parties under this Section
13.01 with respect to such action, suit, proceeding, investigation or claim,
(ii) the defendants in, or targets of, any such action, suit, proceeding,
investigation or claim include both the Indemnifying Party or Parties and any
such Indemnified Party or Parties, and (iii) no Liquidation Event of Unmatured
Liquidation Event shall have occurred and be continuing, the Indemnifying Party
or Parties, to the extent that it or they shall wish, jointly with such
Indemnified Party or Parties, shall be entitled to participate therein in
defense of such action, suit, proceeding or investigation, and the Indemnifying
Party or Parties and such Indemnified Party or Parties shall cooperate in the
defense thereof and shall retain counsel reasonably satisfactory to the
Indemnifying Party or Parties and such Indemnified Party or Parties to
undertake the joint defense of such Indemnifying Party or Parties and such
Indemnified Party or Parties at such Indemnifying Party's or Parties' cost,
risk and expense. If (i) in the reasonable opinion of such Indemnified Party
or Parties, the engagement of such counsel would present a conflict of interest
that would prevent such counsel from effectively undertaking such joint
defense, (ii) such Indemnified Party or Parties reasonably
-61-
<PAGE> 69
conclude that there may be legal defenses available to it or them that are
different from or in addition to those available to such Indemnifying Party or
Parties, (iii) such Indemnifying Party or Parties fail to employ counsel
reasonably satisfactory to such Indemnified Party or Parties in a timely
manner, or (iv) if a Liquidation Event or Unmatured Liquidation Event shall
have occurred and be continuing, then such Indemnified Party or Parties may
employ separate counsel to represent or defend it or them in any such action,
suit, proceeding or investigation and such Indemnifying Party or Parties shall
pay all fees, expenses and disbursements of such counsel; provided, however,
that in no event shall such Indemnifying Party or Parties be liable for the
fees, expenses and disbursements of more than one counsel representing all
Indemnified Parties that are parties to the same action, suit, proceeding,
investigation or claim.
(e) No Indemnifying Party shall (i) without the prior written
consent of the relevant Indemnified Party or Parties (which consent shall not
be unreasonably withheld or delayed) settle or compromise or consent to the
entry of any judgment with respect to any pending action, suit, proceeding,
investigation or claim in respect to which indemnification or contribution may
be sought hereunder (whether or not the relevant Indemnified Party or Parties
are actual or potential parties to such claim) unless such settlement,
compromise or consent includes an unconditional release of each relevant
Indemnified Party from all liability arising out of such action, suit,
proceeding, investigation or claim or (ii) be liable for any settlement of any
such action affected without its written consent (which consent shall not be
unreasonably withheld or delayed), but if settled with its written consent or
if there be a final judgment of the plaintiff in any action, the Indemnifying
Parties agree to indemnify and hold harmless any Indemnified Party from and
against any indemnified amounts relating thereto.
In the event of any dispute between any Indemnified Party or Parties,
on the one hand, and any Indemnifying Party, on the other hand, as to whether
such Indemnifying Party is acting reasonably in objecting to any proposed
settlement, compromise or consent, such dispute shall be resolved through
binding arbitration in Chicago, Illinois in accordance with the commercial
arbitration rules of the American Arbitration Association. There shall be a
single arbitrator to be selected by mutual agreement of such Indemnified Party
or Parties and such Indemnifying Party or Parties (or if such parties cannot
agree on an arbitrator, by an arbitrator selected by a federal or state court
located in the City of Chicago). Any such arbitration must be commenced not
later than 30 days after the date such dispute arose.
-62-
<PAGE> 70
ARTICLE XIV.
MISCELLANEOUS
14.01 Amendments, etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Seller or Union therefrom shall
in any event be effective unless the same shall be in writing and signed by (a)
Seller, Union, Purchaser and the Agent (with respect to an amendment) or (b)
Purchaser and the Agent (with respect to a waiver or consent by them) or Seller
or Union (as applicable) (with respect to a waiver or consent by it), as the
case may be, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
14.02 Notices, etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage prepaid, by overnight courier, or by facsimile, to the intended
party at the address or facsimile number of such party set forth under its name
on the signature pages of this Agreement (or the Purchase and Contribution
Agreement) or at such other address or facsimile number as shall be designated
by such party in a written notice given to the other parties hereto in
accordance with this Section 14.02. All such notices and communications shall
be effective, (a) if personally delivered, when received, (b) if sent by
certified mail, three Business Days after having been deposited in the mail,
postage prepaid, (c) if sent by overnight courier, two Business Days after
having been given to such courier unless sooner received by the addressee, (d)
if transmitted by facsimile, when sent, receipt confirmed by telephone or
electronic means, except that notices and communications pursuant to Article I
shall not be effective until received.
14.03 No Waiver; Remedies. No failure on the part of the Agent, any
Affected Party, any Indemnified Party, Purchaser or any other holder of any
Undivided Interest to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law. Without limiting the foregoing,
SG is hereby authorized by Seller and Union at any time and from time to time
after the occurrence and during the continuance of a Liquidation Event, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, SG and such Bank to or for the
credit or the account of
-63-
<PAGE> 71
Seller or Union, against any Obligation (including, if a Liquidation Period has
occurred and is continuing, all Obligations with respect to the then current
Settlement Period that are not yet due and payable) now or hereafter existing
under this Agreement, to the Agent, any Affected Party, any Indemnified Party
or Purchaser, or their respective successors and assigns.
14.04 Binding Effect; Survival. This Agreement shall be binding upon
and inure to the benefit of Seller, Union, Purchaser, the Agent and their
respective successors and assigns, and the provisions of Section 4.02 and
Article XIII shall inure to the benefit of the Affected Parties and the
Indemnified Parties, respectively, and their respective successors and assigns;
provided, however, that nothing in the foregoing shall be deemed to authorize
any assignment not permitted by Section 12.01. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such time, after the
Commitment Termination Date, as all Undivided Interests shall have been reduced
to zero and all Obligations shall have been finally and fully paid and
performed. The rights and remedies with respect to any breach of any
representation and warranty made by Seller or Union pursuant to Article VI and
the indemnification and payment provisions of Article XIII and Sections 4.02,
14.05, 14.06 and 14.07 shall be continuing and shall survive any termination of
this Agreement.
14.05 Costs, Expenses and Taxes.
In addition to their obligations under Article XIII, Seller agrees to
pay on demand:
(i) all reasonable costs and expenses (including, without
limitation, the reasonable fees and expenses of counsel of Purchaser,
the Agent, SG and their respective Affiliates) in connection with (A)
the preparation, execution and delivery of this Agreement, the other
Transaction Documents and the Stand-by Purchase Agreement (and, in
each case, all related certificates and other documents), (B) the
preparation, execution and delivery of any waiver, amendment or other
modification to this Agreement, the Stand-by Purchase Agreement, any
of the Transaction Documents and, to the extent caused by any such
waiver, amendment or modification, any waiver, amendment or other
modification to the Enhancement Agreement or the Stand-by Purchase
Agreement, and, in each case, all related certificates and other
documents (provided, that Seller shall be obligated to make such
payment whether or not any of the foregoing are executed and
delivered), and (C) the enforcement of this Agreement, the Certificate
and the other Transaction Documents or any claim of breach of
contract,
-64-
<PAGE> 72
breach of warranty or any other breach of this Agreement, the
Certificate or any of the other Transaction Documents or any tort
claim relating to any of the foregoing; and
(ii) all stamp and other similar taxes and fees payable or
determined to be payable in connection with the execution, delivery,
filing and recording of this Agreement, the Certificate or the other
Transaction Documents, and agrees to indemnify each Indemnified Party
against any liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
14.06 No Proceedings. Each of Seller, Union and SG (individually and
as the Agent) hereby agrees that it will not institute against Purchaser, or
join any other Person in instituting against Purchaser, any insolvency
proceeding (namely, any proceeding of the type referred to in the definition of
Event of Bankruptcy) so long as any Commercial Paper Notes issued by Purchaser
shall be outstanding or there shall not have elapsed one year plus one day
since the last day on which any such Commercial Paper Notes shall have been
outstanding.
14.07 Confidentiality.
(a) Each party hereto acknowledges that SG regards the Fee Letter
to be proprietary, and each such party severally agrees that:
(i) it (A) will not disclose without the prior consent of
SG (other than to its Representatives (as defined below)) (1) any
information regarding, or copies of, the Fee Letter, or (2) any
information regarding Purchaser or SG, which information is furnished
by Purchaser or SG to such party and which, at the time of delivery,
is designated by Purchaser or SG to such party in writing or otherwise
as confidential or not otherwise available to the general public (the
information referred to in clauses (1) and (2) is collectively
referred to as the "SG Information") and (B) will inform its
Representatives of the confidential nature of the SG Information and
the terms of this Section 14.07; provided, however, that such party
may disclose any such SG Information (v) to any other party to this
Agreement for the purposes contemplated hereby, (w) as may be required
by any municipal, state, federal or other regulatory body having or
claiming to have jurisdiction over such party, (x) in order to comply
with any law, order, regulation, regulatory request or ruling
applicable to such party, or (y) subject to subsection (b) below, in
the event such party is legally compelled (by interrogatories,
requests for information or copies, subpoena, civil investigative
demand or similar process) to disclose any such SG Information;
-65-
<PAGE> 73
(ii) it will use the SG Information solely for the
purposes of evaluating, administering and enforcing the transactions
contemplated by this Agreement and the other Transaction Documents and
making any necessary business judgments with respect thereto; and
(iii) it will, upon demand, return (and cause each of its
Representatives to return) to SG all documents or other written
material received from SG in connection with clause (a)(i)(A)(2) above
and all copies thereof made by such party which contain the SG
Information.
(b) In the event that any party or anyone to whom such party or
its Representatives transmits the SG Information is requested or becomes
legally compelled (by interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any of the
SG Information, such party will
(i) provide SG with prompt written notice so that SG may
seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Section 14.07;
(ii) unless SG waives compliance by such party with the
provisions of this Section 14.07, make a timely objection to the
request or confirmation to provide such SG Information on the basis
that such SG Information is confidential and subject to the agreements
contained in this Section 14.07; and
(iii) take such action as is necessary to preserve such
confidentiality, such as seeking a protective order or other
appropriate remedy.
In the event that a protective order or other remedy is not obtained, or SG
waives compliance with the provisions of this Section 14.07, such party will
furnish only that portion of the SG Information which is legally required to be
furnished and will exercise such party's best efforts to obtain reliable
assurance that confidential treatment will be accorded to the SG Information.
(c) Purchaser and the Agent acknowledge that FTL and the
Originators regard certain information provided, and to be provided, by any of
them to Purchaser and the Agent in connection with the transactions
contemplated by the Transaction Documents to be confidential, and each of
Purchaser and the Agent agrees that:
-66-
<PAGE> 74
(i) it (A) will not disclose without the prior written
consent of Union (other than to each Affected Party and its
Representatives (as defined below)) any information regarding FTL or
any of its subsidiaries (or any Affiliate thereof) that is furnished
by FTL or any Originator (or any Affiliate thereof) to Purchaser or
the Agent and which, at the time of delivery, is designated by FTL or
any Originator (or such Affiliate) in writing or otherwise as
confidential or not otherwise available to the general public (such
information is collectively referred to as "FTL Group Information")
and (B) will inform its Representatives and each Affected Party (who
shall be obligated to inform its Representatives) of the confidential
nature of the FTL Group Information and the terms of this Section
14.07; provided, however, that Purchaser, the Agent, and any Affected
Party and their respective Representatives may disclose any such FTL
Group Information to the extent permitted in the proviso to clause (i)
of subsection (a) above with the term "SG Information" replaced by the
term "FTL Group Information" and the reference to subsection (b)
replaced by a reference to subsection (d) below and to commercial
paper rating agencies and commercial paper placement agents and
dealers and investors or potential investors in Commercial Paper
Notes; and
(ii) it will use the FTL Group Information solely for the
purposes of evaluating, administering, enforcing and funding the
transactions contemplated by this Agreement and the other Transaction
Documents and making any necessary business judgments with respect
thereto.
(d) In the event Purchaser, the Agent, or any Affected Party or
any of their respective Representatives to whom FTL Group Information is
transmitted is requested or becomes legally compelled (by interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any of the FTL Group Information, it will comply
with the provisions of subsections (b)(i), (ii) and (iii) of this Section 14.07
with all references to "SG" replaced by references to "FTL Group".
(e) The term "Representatives," when used in this Section 14.07,
means in subsections (a) and (b) above, the directors, employees, auditors,
counsel or affiliates of any party; and means in subsections (c) and (d) the
directors, employees, auditors, counsel or affiliates of the Agent, Purchaser
or any Affected Party.
(f) This Section 14.07 shall be inoperative as to such portions of
the SG Information or the FTL Group Information which are or become generally
available to the public or such Person on
-67-
<PAGE> 75
a nonconfidential basis from a source other than SG or Union (or any Affiliate
thereof), respectively, or were known to such Person on a nonconfidential
basis prior to its disclosure to such Person by SG or Union (or any Affiliate
thereof), respectively.
(g) This Section 14.07 shall survive termination of this
Agreement.
14.08 Captions and Cross References. The various captions
(including, without limitation, the table of contents) in this Agreement are
provided solely for convenience of reference and shall not affect the meaning
or interpretation of any provision of this Agreement. Unless otherwise
indicated, references in this Agreement to any Section, Appendix, Schedule or
Exhibit are to such Section of or Appendix, Schedule or Exhibit to this
Agreement, as the case may be, and references in any Section, subsection, or
clause to any subsection, clause or subclause are to such subsection, clause or
subclause of such Section, subsection or clause.
14.09 Integration. This Agreement and the other Transaction
Documents contain a final and complete integration of all prior and
contemporaneous expressions by the parties hereto with respect to the subject
matter hereof and thereof and shall together constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof,
superseding all prior and contemporaneous oral or written understandings.
14.10 Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES
OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE
INTERESTS OF PURCHASER IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
14.11 Waiver of Jury Trial. SELLER AND UNION EACH HEREBY EXPRESSLY
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE CERTIFICATE, ANY OTHER TRANSACTION
DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY
BE IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR
RELATING TO ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, THE CERTIFICATE OR ANY OTHER TRANSACTION DOCUMENT AND AGREE THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY TRIAL.
14.12 Consent to Jurisdiction; Waiver of Immunities. EACH OF SELLER
AND UNION HEREBY ACKNOWLEDGES AND AGREES THAT:
-68-
<PAGE> 76
(a) IT IRREVOCABLY (i) SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION, FIRST, OF ANY FEDERAL COURT, AND SECOND, IF FEDERAL
JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER
CASE SITTING IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
(ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
SHALL BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL
COURT AND NOT IN ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM
TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL
PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO
JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH
THIS AGREEMENT.
14.13 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement.
14.14 Recourse to Directors or Officers. Each of Seller, Union and
Servicer hereby agrees that the directors and officers of Purchaser shall have
no liability with respect to Purchaser's obligations hereunder.
-69-
<PAGE> 77
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
FTL RECEIVABLES COMPANY
By: ______________________________
Name:
______________________________
Title:
______________________________
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
UNION UNDERWEAR COMPANY, INC.,
as initial Servicer
By: ______________________________
Name:
______________________________
Title:
______________________________
233 South Wacker Drive
Suite 5000
Chicago, Illinois 60606
Telephone No.: (312) 876-7000
Facsimile No.: (312) 993-1888
Attention: Brian J. Hanigan
BARTON CAPITAL CORPORATION,
as Purchaser
By: ______________________________
Name:
______________________________
Title:
______________________________
c/o Amacar Group, L.L.C.
6707-D Fairview Road
Charlotte, North Carolina 28210
Telephone No.: (704) 365-0569
Facsimile No.: (704) 365-1362
Attention: Douglas K. Johnson
<PAGE> 78
SOCIETE GENERALE,
as the Agent
By: ______________________________
Name:
______________________________
Title:
______________________________
By: ______________________________
Name:
______________________________
Title:
______________________________
181 West Madison Street
Suite 3400
Chicago, Illinois 60602
Telephone No.: (312) 578-5000
Facsimile No.: (312) 578-5099
Attention: Asset Securitization Group
<PAGE> 79
APPENDIX A
DEFINITIONS
This is Appendix A to (i) the Purchase and Contribution Agreement (as
hereinafter defined) and (ii) the Receivables Purchase Agreement, dated as of
December 18, 1996, among FTL RECEIVABLES COMPANY, UNION UNDERWEAR COMPANY,
INC., BARTON CAPITAL CORPORATION and SOCIETE GENERALE, as Agent (as amended,
supplemented or otherwise modified from time to time, the "Receivables Purchase
Agreement").
A. Defined Terms. As used in the Purchase and Contribution
Agreement or the Receivables Purchase Agreement, as the case may be (unless the
context requires a different meaning), the following terms have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
"Account Agreement" means the Liquidation Account Agreement and the
Collection Account Agreement.
"Account Banks" means the Collection Account Bank and the Liquidation
Account Bank.
"Acquiring Person" means any Person who or which, together with all
Affiliates of such Person, shall acquire, directly or indirectly, the right to
vote, or dispose of, or "beneficial ownership" (as defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) of, more than fifty percent (50%) of the shares of the voting stock of
FTL then outstanding, but shall not include any Exempt Person.
"Adjusted Average Maturity" means, on any day, the sum of (i) 10 (or
such greater number not exceeding 30 chosen by the Agent in its reasonable
discretion) days plus (ii) the Average Maturity for such day.
"Adverse Claim" means a lien, security interest, charge, encumbrance,
or similar claim of any Person.
"Affected Party" means each of Purchaser, the Agent, each Bank, any
permitted assignee of Purchaser or any Bank, and Enhancement Bank, and any
assignee of any of Enhancement Bank or SG.
A-1
<PAGE> 80
"Affiliate" when used with respect to a Person means any other Person
controlling, controlled by, or under common control with, such Person.
"Agent" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Agent's Account" means that certain account #700800 maintained at
Societe Generale, Chicago, Illinois which account shall be in the name and
under the exclusive dominion and control of the Agent.
"Aggregate Investment" at any time means the aggregate Dollar amount
of all Investments outstanding at such time.
"Aggregate Undivided Interest" means, at any time, the sum of all of
the Undivided Interests owned by Purchaser at such time.
"Aggregate Undivided Interest Amount" means, at any time, the sum of
all of the numerators used in the calculation of all Undivided Interests at
such time.
"Aggregate Undivided Interest Limit" has the meaning set forth in
Section 1.02(b) of the Receivables Purchase Agreement.
"Alternate Base Rate" means, on any date, a fluctuating rate of
interest per annum equal to the higher of
(a) the rate of interest most recently announced by SG at its
branch office in New York, New York as its reference rate; and
(b) the Federal Funds Rate (as defined below) most recently
determined by SG plus 1.0% per annum.
For purposes of this definition, "Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal (for each day during such period) to
(i) the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York; or
(ii) if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by SG from three federal funds brokers of
recognized standing selected by it.
A-2
<PAGE> 81
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by SG in connection with extensions of credit.
"Anniversary Date" means the anniversary of date of the Receivables
Purchase Agreement.
"Average Maturity" means, on any day, that time period (expressed in
days) equal to the weighted average maturity of the Receivables as shall be
calculated by Servicer, as set forth in the most recent Periodic Report in
accordance with the provisions thereof. If the Agent shall disagree with any
such calculation, the Agent may recalculate the Average Maturity for such day,
which calculation shall, absent manifest error, be binding upon Servicer,
Seller and Purchaser.
"Bank" means any one of, and "Banks" means all of, SG and the other
commercial lending institutions that are at any time parties to the Stand-by
Purchase Agreement.
"Bank Accounts" means the Collection Account and the Liquidation
Account.
"Bank Rate" for any Yield Period for the related Undivided Interest
means an interest rate per annum equal to the sum of (a) .50% per annum, plus
(b) the Eurodollar Rate (Reserve Adjusted) for such Yield Period; provided,
however, that if (i) it shall become unlawful for the Agent, any Bank or
Enhancement Bank to obtain funds in the offshore interbank eurodollar market in
order to fund any Purchase or to maintain any Undivided Interest, or if such
funds shall not be reasonably available to the Agent, any Bank or Enhancement
Bank, or (ii) there shall not be time prior to commencement of an applicable
Yield Period to determine a Eurodollar Rate in accordance with its terms, or
(iii) the Seller shall have so requested, then the "Bank Rate" for any Yield
Period for such Undivided Interest shall be equal to the Alternate Base Rate.
"Barton" means Barton Capital Corporation, a Delaware corporation.
"Business Day" means a day on which both (a) the Agent is open for
business at its principal office in Chicago, Illinois and (b) commercial banks
in New York City or Chicago, Illinois are not authorized or required to be
closed for business.
"Capital Lease" means any lease that, in accordance with GAAP, would
be deemed a capital lease.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights in or other
A-3
<PAGE> 82
equivalents (however designated) of such Person's capital stock and any rights
(other than debt securities convertible into or exchangeable for capital
stock), warrants or options exchangeable for or convertible into such capital
stock.
"Certificate" means a certificate of assignment, by Seller to the
Agent, in the form of Exhibit 5.01(a) to the Receivables Purchase Agreement,
evidencing each Undivided Interest owned by Purchaser or an assignee thereof,
as the same may be amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with the Receivables Purchase
Agreement.
"Change in Control" means
(i) Union or any of its Affiliates shall fail to own,
collectively, one hundred percent (100%) of the issued and outstanding
shares of capital stock (including all warrants, options, conversion
rights, and other rights to purchase or convert into such stock) of
Seller; or
(ii) any Person shall become an Acquiring Person.
"Charged-Off Receivable" means a Receivable which has been written off
as uncollectible by Servicer, any Originator or Seller or which, consistent
with the Credit and Collection Policy, should be written off as uncollectible
by Servicer, any Originator or Seller.
"Collateral Agent" means SG in its capacity as collateral agent under
the Security Agreement, dated as of December 6, 1991, as amended as of August
1, 1993, as the same may be further amended, supplemented, amended and restated
or otherwise modified from time to time between SG and Barton.
"Collections" means, with respect to any Receivable, all funds which
either (a) are received by an Originator, Seller, Servicer from or on behalf of
the related Obligors in payment of any amounts owed (including, without
limitation, invoice prices, finance charges, interest and all other charges) in
respect of such Receivable, or applied to such amounts owed by such Obligors
(including, without limitation, insurance payments that an Originator or
Servicer applies in the ordinary course of its business to amounts owed in
respect of such Receivable and net proceeds of sale or other disposition of
repossessed goods or other collateral or property of the Obligor or any other
party directly or indirectly liable for payment of such Receivable), or (b) are
deemed to have been received by any Person as a Collection pursuant to Section
3.04 of the Receivables Purchase Agreement.
A-4
<PAGE> 83
"Collection Account" means that certain bank account with the number,
and maintained at the location, set forth on Schedule 7.03(d) to the
Receivables Purchase Agreement, which is (i) in Seller's name, and (ii) pledged
on a first-priority basis to Purchaser pursuant to Section 9.01 of the
Receivables Purchase Agreement.
"Collection Account Agreement" means a letter agreement, substantially
in the form of Exhibit 5.01(h)(ii) to the Receivables Purchase Agreement, among
Seller, Union, the Agent and the Collection Account Bank, as the same may be
amended, supplemented, amended and restated, or otherwise modified from time to
time in accordance with the Receivables Purchase Agreement.
"Collection Account Bank" means the bank holding the Collection
Account.
"Commercial Paper Notes" means short-term promissory notes issued or
to be issued by Purchaser to fund its investments in accounts receivable or
other financial assets.
"Commercial Paper Rate" for any Yield Period for the related Undivided
Interest means a rate per annum equal to the sum of (i) the rate or, if more
than one rate, the weighted average of the rates per annum (determined by
converting to an interest-bearing equivalent rate per annum the discount rate
(or rates)) at which Commercial Paper Notes having a term equal to such Yield
Period and to be issued to fund the Purchase of or to maintain such Undivided
Interest (or portion thereof) by Barton (including, without limitation,
Investment and accrued and unpaid Earned Return) may be sold by any placement
agent or commercial paper dealer selected by the Agent, as agreed between each
such agent or dealer and the Agent, plus (ii) the commissions and other charges
charged by such placement agent or commercial paper dealer with respect to such
Commercial Paper Notes expressed as a percentage of the face amount of such
Commercial Paper Notes and converted to an interest-bearing equivalent rate per
annum.
"Commitment" has the meaning set forth in Section 1.01 of the
Receivables Purchase Agreement.
"Commitment Fee" has the meaning set forth in the Fee Letter.
"Commitment Termination Date" has the meaning set forth in Section
1.05(a) of the Receivables Purchase Agreement.
"Concentration Limit" has the meaning set forth in Section 2.03(b) of
the Receivables Purchase Agreement.
A-5
<PAGE> 84
"Conditions Precedent" and "Condition Precedent" have the meanings set
forth in Section 5.02 of the Receivables Purchase Agreement.
"Consolidated Net Worth" means with respect to any Person, the total
amount shown on the balance sheet of such Person and its consolidated
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of such Person ending at least 45
days prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of such Person plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit, (B) any amounts attributable to
Redeemable Stock and (C) any amounts attributable to Exchangeable Stock,
excluding, where applicable, any adjustments in respect of foreign currency
translation.
"Contract" means with respect to a Receivable, any and all contracts,
understandings, instruments, agreements, invoices or other writings pursuant to
which such Receivable arises or which evidences such Receivable or under which
an Obligor becomes or is obligated to make payment in respect of such
Receivable.
"Contractual Obligation" means as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Advance" means a drawing under a letter of credit issued
pursuant to the Enhancement Agreement for the account of Purchaser, a loan to
Purchaser under the Enhancement Agreement or any other advance or disbursement
of funds to Purchaser or for Purchaser's account pursuant to the Enhancement
Agreement or any such letter of credit, in each case to the extent such
drawing, loan, advance or disbursement has not been repaid or reimbursed to
Enhancement Bank in accordance with the Enhancement Agreement.
"Credit and Collection Policy" means those credit and collection
policies and practices relating to Contracts and Receivables of the Originators
described in Schedule 7.01(f) to the Receivables Purchase Agreement, as
modified without violating Section 7.03(c) of the Receivables Purchase
Agreement.
"Debts" means all liabilities, whether matured or unmatured,
liquidated or unliquidated, absolute, fixed or contingent.
"Default Rate" means the Alternate Base Rate, plus two percent (2%) per
annum.
A-6
<PAGE> 85
"Default Ratio" means the ratio (expressed as a percentage) computed
as of the last day of each month by dividing (x) the aggregate Unpaid Balance
of all Receivables that became Defaulted Receivables during such month by (y)
the Total Revenues for the third preceding month.
"Defaulted Receivable" means a Receivable: (a) as to which any
payment, or part thereof, remains unpaid for more than 60 days from the
original due date for such payment, (b) with regard to the Obligor of which a
matured or unmatured Event of Bankruptcy has occurred or (c) which has been
written off as uncollectible by Servicer or which, consistent with the Credit
and Collection Policy, should be written off as uncollectible by Servicer.
"Delinquency Ratio" means the ratio (expressed as a percentage)
computed as of the last day of each month by dividing (x) the aggregate Unpaid
Balance of all Receivables that became Delinquent Receivables during such month
by (y) the Total Revenues with respect to the second preceding month.
"Delinquent Receivable" means a Receivable (i) (other than a Defaulted
Receivable) as to which any payment, or part thereof, remains unpaid for more
than 30 days from the original due date for such payment, or (ii) that would be
classified as delinquent by the Servicer pursuant to the Credit and Collection
Policy.
"Designated Obligor" means, at any time, all Obligors of the
Originators except any such Obligor as to which the Agent, in its reasonable
business judgment based upon the Agent's reasonable estimation of the credit
quality of such Obligor, has given notice to Seller that such Obligor shall not
be considered a Designated Obligor, such notice to become effective three
Business Days following the giving of such notice.
"Dilution Ratio" means, on any date, the ratio (expressed as a
percentage) computed as of the last day of each month by dividing (i) an amount
equal to the net reductions in the Unpaid Balance of the Receivables Pool on
account of any defective, rejected or returned goods or services, any cash
discounts, incorrect billings or other adjustments, and any reductions or
cancellations, whether by reason of setoff, dispute, rebate or refund, for the
month then ended by (ii) the aggregate Unpaid Balance of the Receivables in the
Receivables Pool as of the last day of the preceding month.
"Dividend" means any dividend or distribution (in cash, property or
obligations) on any shares of any class of Seller's capital stock or any
warrants, options or other rights with respect to shares of any class of
Seller's capital stock.
A-7
<PAGE> 86
"Dollars" means dollars in lawful money of the United States of
America.
"Earned Return" has the meaning set forth in Section 2.05 of the
Receivables Purchase Agreement.
"Eligible Receivable" means, at any time, a Receivable:
(a) which represents a bona fide obligation resulting from
a sale of goods and services in the ordinary course of business of an
Originator as conducted on the date of the initial Purchase;
(b) which, (i) if the perfection of Purchaser's undivided
ownership interest therein is governed by the laws of a jurisdiction
where the Uniform Commercial Code -- Secured Transactions is in force,
constitutes an "account," "general intangible" or "chattel paper" as
defined in the Uniform Commercial Code as in effect in such
jurisdiction, and (ii) if the perfection of Purchaser's undivided
ownership interest therein is governed by the law of any jurisdiction
where the Uniform Commercial Code -- Secured Transactions is not in
force, Seller has furnished to the Agent such opinions of counsel and
other evidence as has reasonably been requested, establishing to the
reasonable satisfaction of the Agent that Purchaser's undivided
ownership interest and other rights with respect thereto are not
significantly less protected and favorable than such rights under the
Uniform Commercial Code;
(c) the Obligor of which is a Designated Obligor;
(d) that is not of an Obligor with regard to which a
matured or unmatured Event of Bankruptcy has occurred;
(e) as to which no more than 25% of the Unpaid Balance of
all the Receivables owed by such Receivable's Obligor are, at any
time, Defaulted Receivables; provided, however, this clause (e) shall
not apply if the aggregate Unpaid Balance of all Receivables owed by
such Obligor does not exceed $100,000;
(f) is not a Defaulted Receivable;
(g) with regard to which the warranty of Seller in
Section 6.01(k) of the Receivables Purchase Agreement is true and
correct;
(h) the assignment of which (including, without
limitation, the sale of which to Seller and the sale of an
A-8
<PAGE> 87
Undivided Interest in which to Purchaser) does not contravene
or conflict with any law, rule or regulation or any contractual or
other restriction, limitation or encumbrance, and the sale or
assignment of which does not require the consent of the Obligor
thereof;
(i) which is denominated and payable only in Dollars in
the United States;
(j) which arises under a Contract that has been duly
authorized and that, together with such Receivable, is in full force
and effect and constitutes the legal, valid and binding obligation of
the Obligor of such Receivable enforceable against such Obligor in
accordance with its terms and is not subject to a reduction,
cancellation, rebate or refund or any dispute, offset, counterclaim or
defense whatsoever (except the discharge in bankruptcy of such Obligor
prior to the occurrence thereof);
(k) which, together with the Contract related thereto,
conforms in all material respects with any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, truth in lending, fair credit billing,
fair credit reporting, equal credit opportunity, fair debt collection
practices and privacy) and with respect to which no party to the
Contract related thereto is in violation of any such law, rule or
regulation in any material respect if such violation would impair the
collectibility of such Receivable;
(l) which satisfies all applicable requirements of the
Credit and Collection Policy;
(m) which arises under a Contract (i) the performance of
which has been completed by the related Originator and by all other
parties thereto other than the Obligor, to the extent of the amount of
the related Receivable, (ii) which has been invoiced by Union or the
related Originator and (iii) which requires such Receivable to be paid
in full within 30 days or less of the original billing date therefor;
provided, however, that with respect to this clause (iii), a
Receivable, the Contract with respect to which requires such
Receivable, to be paid in full within not less than 31 days nor more
than 180 days shall also be an Eligible Receivable, if, when the
Unpaid Balance of such Receivable is added to the aggregate Unpaid
Balance of all other Eligible Receivables payable in full within not
less than 31 days nor more than 180 days, the aggregate Unpaid Balance
of all such Eligible Receivables does not exceed
A-9
<PAGE> 88
fifty (50%) percent of the aggregate Unpaid Balance of all
Eligible Receivables;
(n) as to which each of Seller's and Purchaser's first
priority interest, respectively, has been perfected under the
applicable UCC; and
(o) the Obligor of which is a United States resident, is
not an Affiliate of Seller or the Originator and is not a government
or a governmental subdivision or agency.
"Enhancement Agreement" means and includes (a) the Enhancement
Agreement, dated as of December 6, 1991, as amended as of August 1, 1993,
between Barton and SG and (b) any other agreement (other than the Stand-by
Purchase Agreement) hereafter entered into by Barton providing for the issuance
of one or more letters of credit for the account of Barton, the making of loans
to Barton or any other extensions of credit to or for the account of Barton to
support all or any part of Barton's payment obligations under its Commercial
Paper Notes or to provide an alternate means of funding Barton's investments in
accounts receivable or other financial assets, in each case as amended,
supplemented or otherwise modified from time to time.
"Enhancement Bank" means and includes SG, as lender to Barton and as
issuer of a letter of credit for Barton's account, under the Enhancement
Agreement, and any other or additional bank or other financial institution now
or hereafter extending credit or having a commitment to extend credit to or for
the account of Barton under the Enhancement Agreement.
"Environmental Laws" means any and all foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of
Law regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may at any
time hereafter be in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with any
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Eurodollar Rate (Reserve Adjusted)" means, with respect to any Yield
Period for any related Undivided Interest (or portion thereof), a rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined
pursuant to the following formula:
A-10
<PAGE> 89
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1-Eurodollar
Reserve Percentage
where:
"Eurodollar Rate" means, with respect to any Yield Period for
any related Undivided Interest (or portion thereof), the rate per
annum at which Dollar deposits in immediately available funds are
offered to the Eurodollar Office of the Agent two Eurodollar Business
Days prior to the beginning of such period by prime banks in the
interbank eurodollar market at or about 10:00 a.m., London time for
delivery on the first day of such Yield Period, for the number of days
comprised therein and in an amount equal or comparable to the amount
of the related Investment in such Undivided Interest (or such portion)
for such Yield Period.
"Eurodollar Business Day" means a day (i) on which dealings in Dollars
are carried on in the eurodollar interbank market of the Agent's
Eurodollar Office and (ii) which is neither a Saturday or Sunday nor a
legal holiday on which banks are required or authorized to be closed
in New York.
"Eurodollar Office" shall mean such office or offices through which
the Agent determines the Eurodollar Rate. A Eurodollar Office of the
Agent may be, at the option of the Agent, either a domestic or foreign
office.
"Eurodollar Reserve Percentage" means, with respect to any Yield
Period, the then applicable percentage (expressed as a decimal)
prescribed by the Federal Reserve Board for determining reserve
requirements applicable to "Eurocurrency Liabilities" pursuant to
Regulation D.
"Event of Bankruptcy" shall be deemed to have occurred with respect to
a Person if either:
(a) a case or other proceeding shall be commenced, without
the application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding
up, or composition or readjustment of debts of such Person, the
appointment of a trustee, receiver, custodian, liquidator, assignee,
sequestrator or the like for such Person or all or any substantial
part of its assets, or any similar action with respect to such Person
under any law relating to bankruptcy, insolvency, reorganization,
winding up or composition or adjustment of debts, and such case or
proceeding shall continue undismissed, or unstayed and in effect, for
a period of 30 consecutive days; or an order for relief in
A-11
<PAGE> 90
respect of such Person shall be entered in an involuntary case
under the federal bankruptcy laws or other similar laws now or
hereafter in effect; or
(b) such Person shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency,
reorganization, debt arrangement, dissolution or other similar law now
or hereafter in effect, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) for, such Person
or for any substantial part of its property, or shall make any general
assignment for the benefit of creditors, or shall fail to, or admit in
writing its inability to, pay its debts generally as they become due,
or, if a corporation or similar entity, its board of directors shall
vote to implement any of the foregoing.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of FTL which is
neither Exchangeable Stock nor Redeemable Stock).
"Exempt Person" means William Farley, a resident of the State of
Illinois, and any person that William Farley controls. For the purposes of
this definition, "Controls" shall mean the ownership, directly or indirectly,
of more than fifty percent (50%) of the voting rights associated with a
Person's outstanding securities.
"Facility" has the meaning set forth in Section 1.1 of the Purchase
and Contribution Agreement.
"Facility Limit" has the meaning set forth in Section 1.02(a) of the
Receivables Purchase Agreement.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"Fee Letter" has the meaning set forth in Section 4.01(a) of the
Receivables Purchase Agreement.
"Financial Officer" has the meaning set forth in Section 7.02(a) of
the Receivables Purchase Agreement.
"FTL" means Fruit of the Loom, Inc., a Delaware corporation.
"FTL Group Information" has the meaning set forth in Section 14.07 of
the Receivables Purchase Agreement.
A-12
<PAGE> 91
"FTL Note" has the meaning set forth in Section 3.1 of the Purchase
and Contribution Agreement.
"GAAP" means generally accepted accounting principles in the United
States.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of government.
"Guaranty" means any agreement, undertaking or arrangement by which
any Person guarantees, endorses, agrees to purchase or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other
Person.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of FTL, any qualification or exception to such opinion or
certification:
(i) which is of a "going concern" or similar nature; or
(ii) which relates to the limited scope of examination of
matters relevant to such financial statement (other than any standard
qualification of such nature).
"Indebtedness" means, with respect to any Person, at the time any
determination is to be made, without duplication (i) all Indebtedness for Money
Borrowed of that Person, (ii) that portion of obligations with respect to
Capital Leases which is properly classified as a liability on a balance sheet
of that Person in conformity with GAAP, (iii) notes payable of that Person and
drafts accepted by that Person representing extensions of credit whether or not
representing obligations for borrowed money (other than such notes or drafts
for the deferred purchase price of assets or services which does not constitute
Indebtedness pursuant to clause (vi) below), (iv) all indebtedness secured by
any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person, (v) all Guaranties of that
Person not paid when due or no longer contingent, other than commercial or
stand by letters of credit or the functional equivalent thereof issued in
A-13
<PAGE> 92
connection with performance, bid or advance payment incurred in the ordinary
course of business, including, without limitation, performance requirements
under workers compensation or similar laws and (vi) the deferred and unpaid
balance of the purchase price of assets or services which purchase price is (y)
due more than six months from the date of incurrence of the obligation in
respect thereof or (z) evidenced by a note or similar written instrument;
provided, however, that Indebtedness shall not include trade payables, accrued
expenses, accrued income taxes, in each case arising in the ordinary course of
business.
"Indebtedness for Money Borrowed" means, with respect to any Person,
at the time any determination is to be made (i) all Indebtedness of such
Person, current or funded, secured or unsecured, incurred in connection with
borrowings (including the sale of debt securities) or the making available of
credit or funds to or on behalf of another Person, (ii) all Indebtedness of
such Person issued, incurred or assumed in respect of the purchase price of
property and (iii) all Capital Leases of such Person.
"Indemnified Amounts" has the meaning set forth in Section 13.01 of
the Receivables Purchase Agreement.
"Indemnified Party" has the meaning set forth in Section 13.01 of the
Receivables Purchase Agreement.
"Independent Director" has the meaning set forth in Section 7.01(h) of
the Receivables Purchase Agreement.
"Initial Closing Date" means the date on which the first purchases
under the Purchase and Contribution Agreement shall occur.
"Insolvent" means with respect to any Person, that the present
saleable value of the assets of such Person is less than the amount that will
be required to pay the probable liability on existing Debts of such Person or
such Person is unable to pay its Debts, as such Debts become absolute and
unmatured.
"Investment" has the meaning set forth in Section 2.02 of the
Receivables Purchase Agreement.
"Involuntary Federal Proceeding" has the meaning set forth in Section
10.02(b) of the Receivables Purchase Agreement.
"Lien" means, with respect to any Person, any mortgage, pledge,
security interest, encumbrance, lien, option or charge of any kind (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof, any sale of receivables with recourse (in whole or
in part)
A-14
<PAGE> 93
against the seller or any other Person except the account debtors, any filing
or agreement to file a financing statement as debtor under the UCC or any
similar statute other than to reflect the ownership by a third party of
property leased to such Person or any of its Subsidiaries under a lease which
is not in the nature of a conditional sale or title retention agreement, or any
subordination agreement in favor of another Person).
"Liquidation Account" means that certain bank account with the number,
and maintained at the location, set forth on Schedule 7.03(d) to the
Receivables Purchase Agreement, which is (i) in Seller's and Agent's name, and
(ii) pledged on a first-priority basis to Purchaser pursuant to Section 9.01 of
the Receivables Purchase Agreement.
"Liquidation Account Agreement" means a letter agreement,
substantially in the form of Exhibit 5.01(h)(iii) to the Receivables Purchase
Agreement, among Seller, Union, the Agent and the Liquidation Account Bank, as
the same may be amended, supplemented, amended and restated, or otherwise
modified from time to time in accordance with the Receivables Purchase
Agreement.
"Liquidation Account Bank" means the Bank holding the Liquidation
Account.
"Liquidation Commencement Date" means, in the event a Condition
Precedent is not satisfied, the date designated by notice from the Agent to
Seller.
"Liquidation Day" for any Undivided Interest means any of (a) each day
which occurs on or after the Liquidation Commencement Date and on or before the
Liquidation Termination Date, if any, (b) each day which occurs on or after the
Commitment Termination Date, or (c) each day which occurs on or after the day
Seller shall have given written notice to the Agent that it no longer wishes to
sell Undivided Interests to Purchaser.
"Liquidation Event" has the meaning set forth in Section 10.01 of the
Receivables Purchase Agreement.
"Liquidation Period" means one or more successive Liquidation Days.
"Liquidation Return" has the meaning set forth in Section 2.05(c) of
the Receivables Purchase Agreement.
"Liquidation Servicer's Fee" has the meaning set forth in Section
2.06(c) of the Receivables Purchase Agreement.
A-15
<PAGE> 94
"Liquidation Termination Date" means the date, if any, that occurs
after a Liquidation Commencement Date and is designated as the "Liquidation
Termination Date" by the Agent (in its sole discretion) on at least one
Business Day's notice to Seller.
"Lockbox Accounts" means those certain bank accounts with the numbers,
and maintained at those certain locations, set forth on Schedule 6.01(n) to the
Receivables Purchase Agreement, each of which is pledged on a first-priority
basis to Purchaser pursuant to Section 9.01 of the Receivables Purchase
Agreement; and any bank account that is hereafter created in accordance with,
and to perform the function contemplated for "Lockbox Accounts" in, the
Receivables Purchase Agreement.
"Lockbox Agreement" means a letter agreement, in substantially the
form of Exhibit 5.01(h) to the Receivables Purchase Agreement, among Seller,
Union, the Agent and any Lockbox Bank.
"Lockbox Bank" means any of the banks holding one or more Lockbox
Accounts for receiving Collections from Receivables.
"Loss Horizon Ratio" means, on any date the ratio (expressed as a
percentage) computed as of the last day of each month by dividing (i) the sum
of the aggregate Unpaid Balance of the Receivables generated during each of the
preceding four months then ended (without regard to any Collections with
respect thereto) by (ii) the Net Pool Balance on such day.
"Loss Ratio" means the highest of the three month rolling averages of
the Default Ratios for the prior 12 months.
"Material Adverse Effect" means, with respect to any event or
circumstance, a material adverse effect on:
(i) the assets, operations, business or financial
condition of Seller or FTL and its Subsidiaries, taken as a whole; or
(ii) the ability of Servicer, Seller or an Originator to
perform its obligations under the Receivables Purchase Agreement or
any other Transaction Document or the performance of any such
obligations; or
(iii) the validity or enforceability of, or collectibility
of amounts payable under, the Receivables Purchase Agreement or any
other Transaction Document; or
(iv) the status, existence, perfection or priority of
Purchaser's interest in the Receivables, including Purchaser's
unencumbered first priority interest therein; or
A-16
<PAGE> 95
(v) the validity, enforceability or collectibility of any
material portion of the Receivables or Contracts.
"Merger" means Seller shall:
(i) be a party to any merger or consolidation, or directly or
indirectly purchase or otherwise acquire, whether in one or a series
of transactions, all or substantially all of the assets or any stock
of any class of, or any partnership or joint venture interest in, any
other Person, or sell, transfer, assign, convey or lease any of its
property and assets (including, without limitation, any Receivable or
any interest therein) other than pursuant to the Receivables Purchase
Agreement;
(ii) make, incur or suffer to exist an investment in, equity
contribution to, loan, credit or advance to, or payment obligation in
respect of the deferred purchase price of property from, any other
Person, except for Permitted Investments; or
(iii) create any direct or indirect Subsidiary or otherwise
acquire direct or indirect ownership of any equity interests in any
other Person.
"Month End Date" means the last day of each calendar month.
"Moody's" means Moody's Investors Service, Inc.
"Net Liquidation Account Balance" means, at any time, the amount then
on deposit in the Liquidation Account minus all amounts on deposit therein with
respect to Earned Return deposited therein pursuant to Section 3.02 and 3.03.
"Net Pool Balance" has the meaning set forth in Section 2.03(a) of the
Receivables Purchase Agreement.
"Normal Concentration Percentage" has the meaning set forth in Section
2.03(b) of the Receivables Purchase Agreement.
"Obligations" means (i) all obligations of Seller, Servicer and the
Originators to Purchaser, the Agent, and their respective successors, permitted
transferees and assigns, arising in connection with the Transaction Documents,
and (ii) all obligations of Seller, Servicer and the Originators to any
Indemnified Party arising out of Section 13.01 of the Receivables Purchase
Agreement, in each case howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due.
A-17
<PAGE> 96
"Obligor" means with respect to any Receivable, the Person obligated
to make payments pursuant to the Contract relating to such Receivable.
"Officer's Certificate" means a certificate from a Person signed by
the President, any Vice President, the Chief Accounting Officer, Chief
Executive Officer, Secretary, Assistant Secretary, Treasurer or Assistant
Treasurer of such Person.
"Originator" means Union, Pro Player, Inc., a New York corporation,
and Salem Sportswear, Inc., a New Hampshire corporation, together with their
respective successors as permitted under the Purchase and Contribution
Agreement.
"Originator Assignment Certificate" means each assignment, in
substantially the form of Exhibit D to the Purchase and Contribution Agreement,
evidencing Seller's ownership of the Receivables generated by an Originator, as
the same may be amended, supplemented, amended and restated, or otherwise
modified from time to time in accordance with the Purchase and Contribution
Agreement.
"Payment Date" has the meaning set forth in Section 1.4 of the
Purchase and Contribution Agreement.
"Payment Terms Multiplier" means, as of any day of determination, a
ratio (expressed as a percentage) computed by dividing (i) the sum of (a) 90
days plus (b) the Weighted Average Payment Terms by (ii) 120 days.
"Periodic Report" means a report in substantially the form of Exhibit
3.05(a) to the Receivables Purchase Agreement.
"Permitted Investments" means any one or more of the following types
of investments:
(a) marketable obligations of the United States having a
maturity of not more than 30 days from the date of acquisition;
(b) marketable obligations directly and fully guaranteed by the
United States having a maturity of not more than 30 days from the date
of acquisition;
(c) bankers' acceptances and certificates of deposit and other
interest-bearing obligations denominated in Dollars and issued by any
bank with capital, surplus and undivided profits aggregating at least
$100,000,000, the short-term securities of which are rated at least as
highly as those of the Enhancement Bank by Moody's and S&P, in each
A-18
<PAGE> 97
case having a maturity of not more than 30 days from the date of
acquisition;
(d) repurchase obligations with a term of not more than ten days
for underlying securities of the types described in clauses (a), (b)
and (c) above entered into with any bank of the type described in
clause (c) above; and
(e) commercial paper having a maturity of not more than 30 days
(except for commercial paper issued by the Purchaser or any of its
Affiliates provided that the Agent (or any branch agency thereof)
shall not be deemed an Affiliate of the Purchaser) rated at least as
highly as the short-term securities of the Enhancement Bank by S&P and
by Moody's.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, government or any agency or political subdivision thereof or any other
entity.
"Pool Receivable" means a Receivable in the Receivables Pool. If,
with respect to any Undivided Interest, a Receivable is a Pool Receivable on or
prior to the Commitment Termination Date, such Receivable shall continue to be
considered a Pool Receivable with respect to such Undivided Interest at all
times thereafter.
"Program Fee" has the meaning set forth in the Fee Letter.
"Purchase" has the meaning set forth in Section 1.01(a) of the
Receivables Purchase Agreement.
"Purchase and Contribution Agreement" means that certain Purchase and
Contribution Agreement, dated as of December 18, 1996, among Seller, the
Originators and Servicer, as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time in accordance with the terms
thereof and with the Receivables Purchase Agreement.
"Purchase and Sale Indemnified Party" has the meaning set forth in
Section 10.1 of the Purchase and Contribution Agreement.
"Purchase and Sale Indemnified Amounts" has the meaning set forth in
Section 10.1 of the Purchase and Contribution Agreement.
"Purchase and Sale Termination Date" has the meaning set forth in
Section 1.4 of the Purchase and Contribution Agreement.
"Purchase Facility" has the meaning set forth in Section 1.1 of the
Purchase and Contribution Agreement.
A-19
<PAGE> 98
"Purchase Price" has the meaning set forth in Section 2.1 of the
Purchase and Contribution Agreement.
"Purchase Report" has the meaning set forth in Section 2.1 of the
Purchase and Contribution Agreement.
"Purchase Report Date" means (i) the Initial Closing Date and (ii) the
fifteenth Business Day of each calendar month following thereafter.
"Purchaser" has the meaning set forth in the preamble to the
Receivables Purchase Agreement.
"Purchaser Rate" for any Yield Period for any related Undivided
Interest (or portion thereof) means:
(a) in the case of an Undivided Interest (or portion
thereof) other than one referred to in clause (b), (c) or (d) of this
definition, the Commercial Paper Rate for such Undivided Interest (or
such portion) for such Yield Period;
(b) in the case of an Undivided Interest (or portion
thereof) funded pursuant to the Stand-by Purchase Agreement, the Bank
Rate for such Undivided Interest;
(c) in the case of an Undivided Interest (or portion
thereof) funded by a Credit Advance during the occurrence and
continuation of a Liquidation Event, a rate per annum equal for each
day during such Yield Period to the Alternate Base Rate in effect on
such day plus 2% per annum; and
(d) in the case of any Undivided Interest funded during
the continuance of a Liquidation Event, the Default Rate.
"Purchaser's Share" has the meaning set forth in Section 2.04 of the
Receivables Purchase Agreement.
"Receivable" means any right to payment from an Obligor that is a
United States resident and is not an Affiliate of the Seller, whether
constituting an account, chattel paper, instrument or a general intangible,
arising from the sale by an Originator of goods and services and includes the
right to payment of any interest or finance charges and other obligations of
such Obligor with respect thereto.
"Receivables Pool" means at any time all then outstanding Receivables
that existed and were owing on the Initial Closing Date and all Receivables
created from the Initial Closing Date to and including the Commitment
Termination Date.
A-20
<PAGE> 99
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of
the applicable Purchase and Sale Termination Date (as the same may be extended
pursuant to the terms of the Purchase and Contribution Agreement) or is
redeemable at the option of the holder thereof at any time on or prior to the
first anniversary of such applicable Purchase and Sale Termination Date.
"Regulation D" means Regulation D of the Federal Reserve Board, or any
other regulation of the Federal Reserve Board that prescribes reserve
requirements applicable to nonpersonal time deposits or "Eurocurrency
Liabilities" as presently defined in Regulation D, as in effect from time to
time.
"Regulatory Change" means, relative to any Affected Party
(a) any change in (or the adoption, implementation,
change in, phase-in or commencement of effectiveness of) any
(i) United States federal or state law or foreign
law applicable to such Affected Party;
(ii) regulation, interpretation, directive,
requirement or request (whether or not having the force of
law) applicable to such Affected Party of (A) any court,
government authority charged with the interpretation or
administration of any law referred to in clause (a)(i) or of
(B) any fiscal, monetary or other authority having
jurisdiction over such Affected Party; or
(iii) GAAP or regulatory accounting principles
applicable to such Affected Party and affecting the
application to such Affected Party of any law, regulation,
interpretation, directive, requirement or request referred to
in clause (a)(i) or (a)(ii) above; or
(b) any change in the application to such Affected Party
of any existing law, regulation, interpretation, directive,
requirement, request or accounting principles referred to in clause
(a)(i), (a)(ii) or (a)(iii) above.
"Reinvestment" has the meaning set forth in Section 1.01(b) of the
Receivables Purchase Agreement.
"Related Rights" has the meaning set forth in Section 1.1 of the
Purchase and Contribution Agreement.
A-21
<PAGE> 100
"Related Assets" means, with respect to any Receivable: (a) all of
Seller's (or, in the case of the Purchase and Contribution Agreement, the
applicable Originator's) interest in goods, including returned goods, if any,
relating to the sale which gave rise to such Receivable; (b) all other security
interests or liens and property subject thereto (including any rights arising
out of any financing statements related thereto) from time to time purporting
to secure payment of such Receivable, whether pursuant to the Contract related
to such Receivable or otherwise; and (c) all guarantees and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable whether pursuant to the Contract related to such
Receivable or otherwise.
"Related Security" means with respect to any Receivable: (a) all of
Seller's interest in the Related Rights with respect thereto; and (b) all of
Seller's rights and remedies with respect to such Receivable pursuant to the
Purchase and Contribution Agreement.
"Required Reserve" shall have the meaning set forth in Section 2.07 of
the Receivables Purchase Agreement.
"Requirement of Law" means as to any Person, any law (including common
law), treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, including without limitation, any
Environmental Law, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Reserve Percentage" has the meaning set forth in Section 2.07 of the
Receivables Purchase Agreement.
"Reserves" for any Undivided Interest means, at any time, the sum of
(i) the Servicer's Fee Reserve, (ii) the Required Reserve and (iii) the Yield
Reserve.
"Restricted Payment" has the meaning set forth in Section 7.03(f) of
the Receivables Purchase Agreement.
"S&P" means Standard & Poor's Ratings Services.
"Scheduled Commitment Termination Date" has the meaning set forth in
Section 1.05 of the Receivables Purchase Agreement.
"Seller" has the meaning set forth in the preamble to the Receivables
Purchase Agreement.
"Seller Common Stock" has the meaning set forth in Section 6.01(o) of
the Receivables Purchase Agreement.
A-22
<PAGE> 101
"Servicer" has the meaning set forth in Section 8.01(a) of the
Receivables Purchase Agreement.
"Servicer Transfer Event" has the meaning set forth in Section 8.01(b)
of the Receivables Purchase Agreement.
"Servicer's Fee" has the meaning set forth in Section 8.01(c) of the
Receivables Purchase Agreement.
"Servicer's Fee Reserve" has the meaning set forth in Section 2.06 of
the Receivables Purchase Agreement.
"Settlement Date" means the last day of each Settlement Period.
"Settlement Period" for any Undivided Interest means
(a) each period commencing on the first day of each Yield
Period for such Undivided Interest and ending on the last day of such
Yield Period; and
(b) on and after the Commitment Termination Date for such
Undivided Interest, such period (including, without limitation, a
daily period) as shall be selected from time to time by the Agent or,
in absence of any such selection, each period of 30 days from the next
preceding Settlement Date;
provided, however, that
(i) with respect to any Yield Period of one day (as
described in clause (ii) of the proviso of the definition of "Yield
Period"), the related Settlement Period shall be the first day
following such Yield Period;
(ii) any Settlement Period which would otherwise end on a
day which is not a Business Day shall be extended to the next
succeeding Business Day; and
(iii) the last Settlement Period shall end on the date on
which all Undivided Interests have been reduced to zero.
"SG" has the meaning set forth in the preamble of the Receivables
Purchase Agreement.
"SG Information" has the meaning set forth in Section 14.07 of the
Receivables Purchase Agreement.
"Specific Concentration Limit" has the meaning set forth in Section
2.03(b) of the Receivables Purchase Agreement.
A-23
<PAGE> 102
"Stand-by Purchase Agreement" means and includes (a) the Stand-by
Purchase Agreement among Barton, as borrower, SG, as Servicing Agent for Barton
and as Liquidity Agent, and the Banks supporting Barton's payment obligations
with respect to the Commercial Paper Notes issued to fund the purchase of
Undivided Interests hereunder, and (b) any other agreement hereafter entered
into by Barton providing for the sale by Barton of Undivided Interests (or
portions thereof), or the making of loans or other extensions of credit to
Barton secured by a security interest in specified Undivided Interests (or
portions thereof), to support all or part of Barton's payment obligations under
the Commercial Paper Notes or to provide an alternate means of funding Barton's
investments in accounts receivable or other financial assets, and under which
the amount available from such sale or such extension of credit is limited to
an amount calculated by reference to the value or eligible unpaid balance of
such accounts receivable or other financial assets or any portion thereof or
the level of credit enhancement available with respect thereto, in each case as
amended, supplemented or otherwise modified from time to time.
"Subscription Agreement" means the Subscription and Shareholder
Agreement dated as of December 18, 1996 between Union and Seller, as the same
may be amended, supplemented or otherwise modified from time to time.
"Subsidiary" means, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned by
such Person, by such Person and one or more other Subsidiaries of such Person,
or by one or more other Subsidiaries of such Person; provided, however, that
for so long as it is not a consolidated Subsidiary in accordance with GAAP,
neither Farley Metals Aviation, Inc. nor any of its Subsidiaries shall be
considered a subsidiary of FTL.
"Successor Notice" has the meaning set forth in Section 8.01(a) of the
Receivables Purchase Agreement.
"Tangible Net Worth" means, with respect to any Person, the net worth
of such Person after subtracting therefrom the aggregate amount of such
Person's intangible assets (other than Receivables), including, without
limitation, good will, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names.
A-24
<PAGE> 103
"Total Revenues" means with respect to any month, the aggregate
amounts payable by the Obligors with respect to the Receivables generated
during such month.
"Transaction Documents" means the Receivables Purchase Agreement, the
Fee Letter, the Certificate, the Originator Assignment Certificates, the
Purchase and Contribution Agreement, the FTL Notes, the Collection Account
Agreements, the Liquidation Account Agreement, the Lockbox Agreements, the
Subservicing Agreements and all other instruments, certificates, agreements,
reports or documents delivered under or in connection with the Receivables
Purchase Agreement or the Purchase and Contribution Agreement (except the
Enhancement Agreement and the Stand-by Purchase Agreement), as any of the
foregoing may be amended, supplemented, amended and restated, or otherwise
modified from time to time in accordance with the Purchase and Contribution
Agreement and the Receivables Purchase Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction or jurisdictions.
"Undivided Interest" has the meaning set forth in Section 2.01 of the
Receivables Purchase Agreement.
"Union" has the meaning set forth in the preamble to the Receivables
Purchase Agreement and includes any successors to Union.
"Unmatured Liquidation Event" means any event which, with the giving
of notice or lapse of time, or both, would become a Liquidation Event.
"Unpaid Balance" means (i) with respect to any Receivable at any time
the unpaid principal amount thereof and (ii) with respect to the Receivables
Pool means at any time the aggregate unpaid principal amount of all
Receivables in the Receivables Pool.
"Variance Factor" has the meaning set forth in Section 2.05(d) of the
Receivables Purchase Agreement.
"Wal-Mart Stores" means Wal-Mart Stores, Inc., including Sam's Clubs.
"Weighted Average Payment Terms" means, as of any day of
determination, the sum of the following calculation made with respect to each
Receivable:
A-25
<PAGE> 104
PT X UB
AUB
PT = the difference between the invoice date and the
payment date for such Receivable, expressed in number
of days.
UB = the Unpaid Balance of such Receivable at the time of
such computation.
AUB = the aggregate UB for all Receivables in the
Receivables Pool at the time of such computation.
"Wholly-Owned Subsidiary" means, with respect to any Person, any
Subsidiary of such Person, all of the outstanding shares of capital stock of
which (other than qualifying shares required to be owned by directors) are at
the time owned directly or indirectly by such Person and/or are or more
Wholly-Owned Subsidiaries of such Person.
"Yield Period" means with respect to any Undivided Interest (or
portion thereof):
(a) the period from (and including) the date of the
initial Purchase of such Undivided Interest (or such portion) to (but
excluding) the number of days (not to exceed 90 days) thereafter as
the Agent shall approve, pursuant and subject to Section 1.03 or of
the Receivables Purchase Agreement; and
(b) thereafter, each period from (and including) the last
day of the immediately preceding Yield Period for such Undivided
Interest (or such portion) to (but excluding) the day falling below
such number of days (not to exceed 90 days) thereafter as the Agent
shall approve pursuant and subject to Section 1.03 of the Receivables
Purchase Agreement.
provided, however, that
(i) any such Yield Period (other than a Yield Period
consisting of one day) which would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business Day
(unless the related Undivided Interest shall be accruing Earned Return
at a rate determined by reference to the Eurodollar Rate (Reserve
Adjusted), in which case if such succeeding Business Day is in a
different calendar month, such Yield Period shall instead be shortened
to the next preceding Business Day);
A-26
<PAGE> 105
(ii) in the case of Yield Periods of one day for any
Undivided Interest, (A) the initial Yield Period shall be the day of
the related Purchase; and (B) any subsequently occurring Yield Period
which is one day shall, if the immediately preceding Yield Period is
more than one day, be the last day of such immediately preceding Yield
Period, and if the immediately preceding Yield Period is one day,
shall be the next day following such immediately preceding Yield
Period; and
(iii) any Yield Period for any Undivided Interest which
commences before the Commitment Termination Date for such Undivided
Interest and would otherwise end on a date occurring after such
Commitment Termination Date, such Yield Period shall end on such
Commitment Termination Date and the duration of each such Yield Period
which commences on or after the Commitment Termination Date for such
Undivided Interest shall be of such duration as shall be selected by
the Agent.
The "related" Yield Period for any Undivided Interest at any time means the
Yield Period pursuant to which Earned Return is then accruing for such
Undivided Interest.
"Yield Reserve" has the meaning set forth in Section 2.05(a) of the
Receivables Purchase Agreement.
B. Other Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. All terms used in Article 9
of the UCC in the State of Illinois, and not specifically defined herein, are
used herein as defined in such Article 9.
C. Computation of Time Periods. Unless otherwise stated in the
Purchase and Contribution Agreement or the Receivables Purchase Agreement, as
the case may be, in the computation of a period of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each means "to but excluding".
A-27
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
FRUIT OF THE LOOM, INC.(1)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
---------------
<S> <C>
NWI Land Management Corporation............................. Delaware
Union Underwear Company, Inc................................ New York
SUBSIDIARIES OF UNION UNDERWEAR COMPANY, INC. (A NEW YORK
CORPORATION)
Aliceville Cotton Mill, Inc. ............................... Alabama
Apparel Outlet Stores, Inc. ................................ Delaware
Artex Manufacturing Co, Inc. ............................... Delaware
AVX Management Co., Inc. ................................... Kentucky
The B.V.D. Licensing Corporation............................ Delaware
Camp Hosiery Company, Inc. ................................. Tennessee
Fayette Cotton Mill, Inc. .................................. Alabama
FOL Caribbean Corporation................................... Delaware
Fruit of the Loom Arkansas, Inc. ........................... Arkansas
Fruit of the Loom Canada, Inc. ............................. Ontario
Fruit of the Loom Caribbean, Inc. .......................... Delaware
Fruit of the Loom, Inc...................................... New York
Fruit of the Loom Italy, S.r.1. ............................ Italy
Fruit of the Loom Texas, Inc. .............................. Texas
FTL Receivables Company..................................... Delaware
FTL Sales Company, Inc. .................................... New York
FTL Systems, Inc............................................ Tennessee
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
Superior Underwear Mill, Inc. .............................. New York
Union Sales, Inc. .......................................... Delaware
Union Yarn Mills, Inc. ..................................... Alabama
Whitmire Manufacturing, Inc. ............................... South Carolina
Winfield Cotton Mill, Inc. ................................. Alabama
Woodville Apparel Corporation............................... Mississippi
SUBSIDIARIES OF ARTEX MANUFACTURING CO., INC. (A DELAWARE
CORPORATION)
FTL Investments, Inc. ...................................... Delaware
SUBSIDIARIES OF FOL CARIBBEAN CORPORATION (A DELAWARE
CORPORATION)
FOL Holding, Ltd. .......................................... Cayman Islands
FTL Finance Ltd. ........................................... Cayman Islands
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
SUBSIDIARIES OF FOL HOLDING, LTD. (A CAYMAN ISLANDS CORPORATION)
Fruit of the Loom Operating Ltd............................................................ Cayman Islands
SUBSIDIARIES OF FRUIT OF THE LOOM OPERATING LTD. (A CAYMAN ISLANDS CORPORATION)
Confecciones Dos Caminos, S. De R.L. de C.V................................................ Honduras
El Porvenir Manufacturing, S. De R.L. de C.V............................................... Honduras
Gitano of Jamaica Company.................................................................. Jamaica
Manufacturas Villanueva S. De R.L. de C.V.................................................. Honduras
Productos San Jose, S. De R.L. de C.V...................................................... Honduras
Superior Acquisition Corporation........................................................... Cayman Islands
Textiles Lourdes Limitada.................................................................. El Salvador
SUBSIDIARIES OF SUPERIOR ACQUISITION CORPORATION (A CAYMAN ISLANDS CORPORATION)
Confecciones de Lourdes S.A. de C.V........................................................ El Salvador
Confecciones dos Caminos, S.A. de C.V...................................................... Honduras
SUBSIDIARIES OF FRUIT OF THE LOOM CANADA, INC. (AN ONTARIO CORPORATION)
FOL International.......................................................................... Republic of Ireland
SUBSIDIARIES OF FOL INTERNATIONAL (A REPUBLIC OF IRELAND CORPORATION)
FOL International GmbH..................................................................... Germany
FOL Ireland Limited........................................................................ Republic of Ireland
Fruit of the Loom AG....................................................................... Switzerland
Fruit of the Loom Benelux, S.A............................................................. Belgium
Fruit of the Loom France, S.a.r.1.......................................................... France
Fruit of the Loom Investments, Ltd......................................................... United Kingdom
Fruit of the Loom International Sp. Z.o.o.................................................. Poland
Fruit of the Loom-Maroc.................................................................... Morocco
Fruit of the Loom Nordic, AB............................................................... Sweden
Fruit of the Loom Nordic, ApS.............................................................. Denmark
Fruit of the Loom Spain, S.A............................................................... Spain
SUBSIDIARIES OF FOL IRELAND LIMITED (A REPUBLIC OF IRELAND CORPORATION)
Fruit of the Loom International Limited.................................................... Republic of Ireland
W.P. McCarter & Co., 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 FRUIT OF THE LOOM, INC. (A NEW YORK CORPORATION)
Fruit of the Loom GmbH..................................................................... Germany
SUBSIDIARIES OF FRUIT OF THE LOOM GMBH (A GERMAN CORPORATION)
Fruit of the Loom Distribution GmbH........................................................ Germany
SUBSIDIARIES OF FTL SALES COMPANY, INC. (A NEW YORK CORPORATION)
FTL Regional Sales Company, Inc. .......................................................... Delaware
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
SUBSIDIARIES OF GITANO FASHIONS LIMITED (A DELAWARE CORPORATION)
Dutton II Trading Limited.................................................................. Hong Kong
Noel of Jamaica Limited.................................................................... Jamaica
SUBSIDIARIES OF DUTTON II TRADING LIMITED (A HONG KONG CORPORATION)
P.S. Garment Limited....................................................................... Hong Kong
SUBSIDIARIES OF RUSSELL HOSIERY MILLS, INC. (A NORTH CAROLINA CORPORATION)
Leesburg Yarn Mills, Inc................................................................... Alabama
SUBSIDIARIES OF SALEM SPORTSWEAR CORPORATION (A DELAWARE CORPORATION)
All-Star Manufacturing, Inc................................................................ Alabama
Rienzi Manufacturing, Inc.................................................................. Mississippi
Rogersville Apparel, Inc................................................................... Alabama
Salem Screen South, Inc.................................................................... Alabama
Salem Sportswear, Inc...................................................................... New Hampshire
SUBSIDIARIES OF SALEM SPORTSWEAR, INC. (A NEW HAMPSHIRE CORPORATION)
Salem International, Inc. (FSC)............................................................ U.S. Virgin Islands
SUBSIDIARIES OF UNION SALES, INC. (A DELAWARE CORPORATION)
Fruit of the Loom Trading Company.......................................................... Delaware
SUBSIDIARIES OF 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 D.V. (A MEXICAN CORPORATION)
Distribuidora FTL, S.A. de C.V............................................................. Mexico
Distribuidora Fruit of the Loom, S.A. de C.V............................................... Mexico
Edificadora de Valle Hermoso, S.A. de C.V.................................................. Mexico
Fruit of the Loom De Mexico, S.A. de C.V................................................... Mexico
Inmobiliaria de Miguel Aleman, S.A. de C.V. ............................................... Mexico
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,
1996.
3
<PAGE> 1
EXHIBIT 23
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, 333-00039 and 333-09203
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, the 1995
Non-Employee Directors' Stock Plan and the 1996 Incentive Compensation Plan, the
registration of 800,000 shares of Class A Common Stock, the registration of
1,550,391 shares of Class A Common Stock, the registration of 1,800,000 shares
of Class A Common Stock and the registration of 1,000,000 shares of Class A
Common Stock and in the related Prospectuses of our report dated February 12,
1997, with respect to the consolidated financial statements and schedule of
Fruit of the Loom, Inc. and subsidiaries included in this Annual Report (Form
10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 1997
<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.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,700
<SECURITIES> 0
<RECEIVABLES> 187,900
<ALLOWANCES> 20,600
<INVENTORY> 618,000
<CURRENT-ASSETS> 842,100
<PP&E> 1,541,000
<DEPRECIATION> 641,100
<TOTAL-ASSETS> 2,547,000
<CURRENT-LIABILITIES> 326,700
<BONDS> 867,400
0
0
<COMMON> 477,300
<OTHER-SE> 587,500
<TOTAL-LIABILITY-AND-EQUITY> 2,547,000
<SALES> 2,447,400
<TOTAL-REVENUES> 2,447,400
<CGS> 1,717,400
<TOTAL-COSTS> 1,717,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,600
<INCOME-PRETAX> 185,300
<INCOME-TAX> 34,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,200
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
</TABLE>
