AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BRAZOS SPORTSWEAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
2396
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 91-1770931
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3860 VIRGINIA AVENUE
CINCINNATI, OHIO 45227
(513) 272-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
F. CLAYTON CHAMBERS
CHIEF FINANCIAL OFFICER
BRAZOS SPORTSWEAR, INC.
3860 VIRGINIA AVENUE
CINCINNATI, OHIO 45227
(513) 272-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
RICHARD L. WYNNE
PORTER & HEDGES, L.L.P.
700 LOUISIANA, 35TH FLOOR
HOUSTON, TEXAS 77002-2764
(713) 226-0600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment, please check the following box. [ ]
If any of the securities being registered on this form are to be offered in
connection with the termination of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PER UNIT(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/2% Senior Notes Due 2007.......... $100,000,000 100% $100,000,000 $30,304
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
BRAZOS SPORTSWEAR, INC.
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2007 FOR
10 1/2% SENIOR NOTES DUE 2007 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
Brazos Sportswear, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal") relating to the Exchange Offer, to exchange $1,000
principal amount of its 10 1/2% Senior Notes due 2007 (the "Exchange Notes"),
which has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for $1,000 principal amount of its outstanding 10 1/2%
Senior Notes due 2007 (the "Notes"), of which an aggregate of $100,000,000 in
principal amount is outstanding as of the date of this Prospectus. The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Notes.
Interest on the Exchange Notes will be payable semi-annually on January 1
and July 1 of each year, commencing January 1, 1998. The Company will not be
required to make any mandatory redemption or sinking fund payments with respect
to the Exchange Notes before maturity. The Exchange Notes are redeemable on or
after July 1, 2002 at the option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, to the date of redemption. In
addition, at any time on or before July 1, 2000, the Company may redeem up to
35% of the aggregate principal amount of the Exchange Notes originally issued
with the net proceeds of one or more Public Equity Offerings (as defined
herein), at a redemption price of 110.5% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date, provided that after giving effect to such redemption at least $65 million
of the aggregate principal amount of the Exchange Notes originally issued remain
outstanding.
If a Change of Control (as defined herein) occurs, holders of the Exchange
Notes will have the right to require the Company to purchase their Exchange
Notes, in whole or in part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the date of purchase. There can be no assurance that the Company will have
the financial resources necessary to purchase the Exchange Notes if a Change of
Control occurs.
The Exchange Notes will be senior unsecured obligations of the Company and
will be unconditionally guaranteed on a senior unsecured basis (the "Subsidiary
Guarantees") by the Subsidiary Guarantors (as defined herein). The Exchange
Notes and each Subsidiary Guarantee will rank PARI PASSU with all other
unsecured and unsubordinated indebtedness of the Company and the applicable
Subsidiary Guarantor, respectively, but will be effectively subordinated to
secured indebtedness of the Company and the Subsidiary Guarantors. As of July 2,
1997, the Company and the Subsidiary Guarantors had (i) no unsecured and
unsubordinated indebtedness outstanding other than the Notes and (ii) $30.8
million of secured indebtedness outstanding. Subject to certain limitations, the
Company and its subsidiaries (including the Subsidiary Guarantors) may incur
additional secured and unsecured indebtedness.
The Company will accept for exchange any and all validly tendered Notes on
or prior to 5:00 p.m., New York City time, on , 1997, unless
extended (if and as extended, the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued
to third parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than broker-dealers, as set
forth below, and any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder has no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes. Any holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Holders of Notes wishing to
accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met.
Each broker-dealer (other than an affiliate of the Company) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." Any broker-dealer who is an affiliate
of the Company may not rely on such no-action letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BEFORE TENDERING NOTES IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (No 333- ) under the Securities Act, with respect to the Exchange
Notes offered hereby (the "Registration Statement"). This Prospectus does not
contain all the information set forth in the Registration Statements and the
exhibits and schedules thereto. For further information with respect to the
Company and the Exchange Notes, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements made in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by reference to such
exhibit. The Registration Statement, including exhibits and schedules thereto,
is on file at the offices of the Commission and may be inspected without charge.
Copies of such material may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement (with exhibits), as well as such reports,
proxy statements and other information, can be inspected and copied at the
public reference facilities maintained by the Commission at (i) its principal
offices at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, (ii)
its regional offices at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60601 and 7 World Trade Center, 13th Floor, New
York, New York 10007, and (iii) its site on the World Wide Web at
http://www.sec.gov. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Company's common stock is listed on the National Market tier of the
Nasdaq Stock Market, Inc. ("Nasdaq") and material filed by the Company can be
inspected at the offices of Nasdaq at 1735 K Street, N.W., Washington, D.C.
20006.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND HISTORICAL AND PRO FORMA
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCE TO THE "COMPANY"
REFERS TO BRAZOS SPORTSWEAR, INC. AND ITS CONSOLIDATED SUBSIDIARIES, OR BSI
HOLDINGS, INC. ON A HISTORICAL BASIS PRIOR TO ITS MERGER WITH SUN SPORTSWEAR,
INC. EFFECTIVE MARCH 14, 1997 (SEE "THE COMPANY -- ACQUISITIONS -- SUN
SPORTSWEAR, INC."). PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "RISK FACTORS" PRIOR TO MAKING AN INVESTMENT IN
THE EXCHANGE NOTES.
THE COMPANY
The Company is a leading designer, manufacturer and marketer of decorated
sportswear in the United States. The Company offers extensive and diversified
product lines of licensed, proprietary and private label sportswear consisting
of T-shirts, fleecewear (sweatshirts) and other casual apparel products. Many of
the Company's licensed products include creative enhancements of classic cartoon
characters, including Disney's Mickey Mouse, Disney's Winnie the Pooh and
various Warner Bros. Looney Tunes characters such as Bugs Bunny and the
Tasmanian Devil. The Company has entered into license agreements with Disney
Enterprises, Inc. ("Disney"), Warner Bros., Chic by H.I.S., Major League
Baseball and most major colleges for the use of their characters and logos in
developing the Company's products. The Company uses its in-house merchandising,
design and art staff to create innovative designs for the Company's proprietary
product lines under numerous Company-owned brand names and labels, including
Brazos Sportswear, Morning Sun, Top Stitch and Thank Goodness for Kids. In
addition, the Company designs private label products for its larger retail
customers that are sold under particular customers' labels. The Company sells
its products to a diverse customer base including (i) department stores such as
J.C. Penney, May Co., Federated Department Stores and Mercantile, (ii) mass
merchandising stores such as Wal-Mart, Kmart and Target, (iii) specialty stores
such as Kids "R" Us and Garden Ridge and (iv) other regional and national
retail chains.
The Company believes it maintains a competitive advantage because of
several factors, including its (i) extensive and diversified lines of licensed,
proprietary and private label products, (ii) award winning in-house
merchandising and design staff, (iii) unique sales and marketing programs
tailored to the needs of specific customers and markets, (iv) diverse customer
base, (v) flexible and efficient manufacturing capabilities and (vi) commitment
to a low cost structure.
The Company believes growth in the decorated sportswear market may result
from: (i) an increased preference for comfortable apparel selections; (ii) more
flexible dress codes, including greater acceptance of casual wear in the
workplace; (iii) a heightened emphasis on physical fitness including increased
participation in sports; (iv) improved characteristics that have enhanced
consumer appeal, including improvements in fabric weight, blends and
construction, and increased offerings of size, color and style; (v) the
enhancement of screenprinted graphics and embroidered designs primarily
resulting from more advanced manufacturing equipment and processes; and (vi) the
increased use of "attitude" apparel. For example, the Company believes that
more people are using apparel as a way to express themselves or show affinity
with a group, cause or idea. The Company believes that these trends should
continue to drive industry growth.
BUSINESS STRATEGY
The Company intends to enhance its market position and to increase its net
sales by pursuing the following business strategies:
EXTENSIVE LINES OF QUALITY PRODUCTS. The Company offers extensive and
diversified product lines of licensed, proprietary and private label products.
Licensed products are decorated with classic cartoon characters and logos that
the Company's artists vary and refine using different lettering, poses,
activities or dress. The Company develops its proprietary product lines for its
exclusive use under numerous Company-
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owned brand names and labels. The Company also designs private label product
lines by working closely with its larger retail customers to create unique
decorated sportswear lines that are sold under particular customers' labels. The
Company believes its extensive and diversified product lines position it well to
capitalize on retailers' desire to reduce the number of suppliers in order to
minimize purchasing and administrative costs.
INNOVATIVE MERCHANDISING AND DESIGN STAFF. The Company employs 14 in-house
merchandising and design personnel and a staff of approximately 70 artists who
work closely with customers to create innovative designs for the Company's
sportswear lines. The Company's award winning merchandising and design staff has
been recognized for its achievements by licensors and customers, and has
received a number of awards, including the Graphic Excellence Award from Disney,
the Vendor of the Year Award from J.C. Penney's Women's Department, the Bugsy
Award from Warner Bros. and the Vendor of the Year Award for Girls 4-14 from
Target.
UNIQUE COMBINATION OF SALES AND MARKETING PROGRAMS. The Company uses a
unique combination of sales and marketing programs designed to address the
differing needs of its diverse customer base. Key sales programs include:
BOOKING PROGRAM. The Company works with its larger retail customers
to custom design and merchandise a spring and fall product line of
"fashion-basic," longer lead time products. The Company books orders
under this program prior to committing to overseas production. Production
lead times vary by product but typically range from 60 to 120 days.
CALENDAR GRAPHICS PROGRAM. The Company offers a calendar graphics
program designed to provide customers with an extensive selection of
graphics and a wide variety of garments and size mixes but with shorter
lead times than under the booking program. Under the calendar graphics
program, graphics designs are printed and available on a pre-scheduled
basis throughout the year. The Company batches orders from numerous
customers to gain production economies of scale to keep product costs
competitive. Production lead times generally range from three to four
weeks.
SHELF STOCK PROGRAM. The Company also offers a shelf stock program
that consists of preprinted inventory it delivers to customers on short
lead times, typically within five days of receipt of an order. Products are
sold through this program by approximately 100 independent sales
representatives who call on individual customer stores. In addition, the
Company uses an electronic data interchange system ("EDI") through which
customers place orders to replenish their stock with weekly shipments of
products that are selling well.
The Company's marketing programs have enabled it to improve sales and more
efficiently manage its inventory, production, distribution and other costs while
providing its customers with exceptional service and support.
DIVERSE CUSTOMER BASE. Unlike many of the Company's competitors that
concentrate marketing efforts on a limited segment of the sportswear market, the
Company sells its decorated sportswear products to a diverse customer base
including department stores, mass merchandising stores and specialty and other
stores. This marketing strategy allows the Company to cover a large portion of
the retail market while reducing its exposure to any one market segment. In
addition, the Company believes that the breadth of its customer base provides a
competitive advantage in obtaining new licenses from licensors seeking to
introduce their products through multiple distribution channels.
EXPANSION AND ENHANCEMENT OF CUSTOMER RELATIONSHIPS. The expansion of the
Company's product lines and license portfolio has provided significant
cross-selling opportunities by increasing the number of departments within a
retailer that may sell the Company's products. For example, the Company is
targeting sales of its women's sportswear to retail customers that traditionally
have sold only the Company's men's and boys' sportswear. In addition, the
Company maintains a staff of 14 in-house account executives and
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<PAGE>
approximately 100 independent sales representatives to pursue additional large
customers. The Company also has established a telemarketing program to market
its products to local and regional retailers.
FLEXIBLE AND EFFICIENT MANUFACTURING. Many of the Company's competitors do
not operate production facilities of their own and, therefore, must contract
with third parties to provide the value-added decorating process. The Company
believes that operating its own production facilities provides the Company with
a competitive advantage through (i) increased manufacturing and production
efficiencies, (ii) the flexibility to shift production among various facilities
and (iii) better control over quality, delivery and costs. In addition, the
Company's shelf stock and calendar graphics programs could not be implemented as
effectively without in-house production capabilities.
COMMITMENT TO LOW COST STRUCTURE. The Company is committed to controlling
costs and improving operating efficiencies. The Company's recent acquisitions
have resulted in significant improvements in the Company's purchasing power and
its ability to realize certain economies of scale associated with manufacturing,
marketing, distribution and administration. In addition, the Company
concentrates on the high value-added production processes of custom design,
screen printing and embroidery at its manufacturing facilities and outsources
the capital intensive process of manufacturing undecorated garments ("blank
garments") to a network of domestic and foreign manufacturers. This outsourcing
allows the Company to maintain flexibility, low fixed costs and low levels of
capital expenditures.
INTERNATIONAL OPPORTUNITIES. The Company recently obtained a license from
Walt Disney Enterprises of Japan, Ltd. to export and distribute Disney's classic
cartoon character products directly to Japan, and the Company believes that it
is the only domestic sportswear manufacturer to hold such a license. The
Company's current marketing plans include sales to several major retail outlets
in Japan representing approximately 3,000 stores. The Company is also evaluating
opportunities to sell its products in other countries.
STRATEGIC ACQUISITIONS. The Company maintains an acquisition strategy
focused on acquiring businesses that provide products or services that
complement those offered by the Company. The criteria for identifying an
attractive acquisition candidate is not limited to the revenue potential of the
acquisition target, but also include such factors as (i) expanding the Company's
product lines, (ii) increasing manufacturing, production and other cost
efficiencies, (iii) diversifying and expanding the Company's customer base and
(iv) gaining access to the talents of key management, sales and design
personnel. The Company has made eight acquisitions since 1989 that have brought
significant strategic advantages to its business.
RECENT ACQUISITIONS
In July 1997, the Company acquired all the outstanding capital stock of
SolarCo, Inc., the parent of Morning Sun, Inc. ("Morning Sun") for (i) $29.3
million in cash (the "Morning Sun Cash Consideration"), (ii) 73,171 shares of
the Company's common stock and (iii) the assumption of certain indebtedness and
contractual obligations of Morning Sun. Morning Sun is a leading designer,
manufacturer and marketer of moderately-priced imprinted and embroidered tops
for women age 40 and over. Morning Sun sells its products under proprietary
brand names and various private labels to (i) major department store chains such
as J.C. Penney, May Co. and Federated Department Stores, (ii) catalogue
companies such as Orvis and National Wildlife Federation and (iii) specialty
stores. The Company used a portion of the proceeds of the Note Offering to fund
the Morning Sun Cash Consideration and repay the assumed indebtedness and
contractual obligations.
Also in July 1997, the Company acquired all the assets of Premier Sports
Group, Inc. ("Premier") for (i) $2.0 million in cash (the "Premier Cash
Consideration"), (ii) a $1.5 million non-interest bearing subordinated note due
2004, that is convertible into and payable only through the issuance of 136,364
shares of the Company's common stock, (iii) a 7%, seven-year, subordinated
"earnout" obligation in the principal amount of $4.0 million and (iv) the
assumption of certain indebtedness of Premier. Premier is an
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importer of high quality, low cost "fashion fleece" and other garments for
domestic distributors and provides merchandising, design and sourcing services
for apparel companies, including the Company. Through established relationships
with overseas manufacturing and production facilities, principally in the Far
East, Premier purchases blank garments in large quantities at prices that are
typically lower than those charged by domestic mills for similar products. In
addition, apparel makers, including the Company, use Premier's services to
source decorated fleece products in significant quantities. The Company used a
portion of the proceeds of the Note Offering to pay the Premier Cash
Consideration and repay the assumed indebtedness.
The acquisitions of Morning Sun and Premier are hereinafter referred to as
the "Morning Sun Acquisition" and the "Premier Acquisition," respectively,
or are collectively referred to as the "Acquisitions."
The Company's principal executive offices are located at 3860 Virginia
Avenue, Cincinnati, Ohio 45227, and its telephone number is (513) 272-3600.
THE NOTE OFFERING
The Notes........................ The Notes were sold by the Company on
July 2, 1997, and were subsequently
resold to qualified institutional
buyers pursuant to Rule 144A under
the Securities Act, to institutional
investors that are accredited
investors in a manner exempt from
registration under the Securities Act
and to certain persons in
transactions outside the United
States in reliance on Regulation S
under the Securities Act (the "Note
Offering").
Registration Rights Agreement.... In connection with the Note Offering,
the Company entered into the
Registration Rights Agreement, which
grants holders ("Holders") of the
Notes certain exchange and
registration rights. The Exchange
Offer is intended to satisfy such
exchange and registration rights,
which generally terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered............... $100,000,000 aggregate principal
amount of 10 1/2% Senior Notes due
2007.
The Exchange Offer............... $1,000 principal amount of the
Exchange Notes in exchange for each
$1,000 principal amount of Notes. As
of the date hereof, $100,000,000
aggregate principal amount of Notes
are outstanding. The Company will
issue the Exchange Notes to holders
on or promptly after the Expiration
Date.
Based on an interpretation by the
staff of the Commission set forth in
no-action letters issued to third
parties, the Company believes that
Exchange Notes issued pursuant to the
Exchange Offer in exchange for Notes
may be offered for resale, resold and
otherwise transferred by any Holder
thereof (other than any such Holder
which is an "affiliate" of the
Company within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such
Exchange Notes are acquired in the
ordinary course of such Holder's
business and that such Holder does
not intend to participate and has no
arrangement or understanding with any
person to participate in the
distribution of such Exchange Notes.
6
<PAGE>
Each broker-dealer that receives
Exchange Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a
prospectus in connection with any
resale of such Exchange Notes. The
Letters of Transmittal state that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of
the Securities Act. This Prospectus,
as it may be amended or supplemented
from time to time, may be used by a
broker-dealer in connection with
resales of Exchange Notes received in
exchange for Notes where such Notes
were acquired by such broker-dealer
as a result of market-making
activities or other trading
activities. The Company has agreed
that for a period of 90 days after
the Expiration Date, it will make
this Prospectus available to any
broker-dealer for use in connection
with any such resale.
Any Holder who tenders in the
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of
the Exchange Notes could not rely on
the position of the staff of the
Commission enunciated in Exxon
Capital Holdings Corporation
(available April 13, 1989), Morgan
Stanley & Co., Inc. (available June
5, 1991) or similar no-action letters
and, in the absence of an exemption
therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the
Exchange Notes. Failure to comply
with such requirements in such
instance may result in such Holder
incurring liability under the
Securities Act for which the Holder
is not indemnified by the Company.
Expiration Date.................. 5:00 p.m., New York City time, on
, 1997, unless the
Exchange Offer is extended, in which
case the term "Expiration Date"
means the latest date and time to
which the Exchange Offer is extended.
Interest on the Exchange Notes and
the Notes...................... The Exchange Notes will bear interest
from July 2, 1997, the date of
issuance of the Notes that are
tendered in exchange for the Exchange
Notes (or the most recent Interest
Payment Date (as defined below in the
Summary of Terms of Exchange Notes)
to which interest on such Notes has
been paid). Accordingly, Holders of
Notes that are accepted for exchange
will not receive interest on the
Notes that is accrued but unpaid at
the time of tender, but such interest
will be payable on the first Interest
Payment Date after the Expiration
Date.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to
certain customary conditions, which
may be waived by the Company.
Procedures for Tendering Notes... Each Holder of Notes wishing to
accept the Exchange Offer must
complete, sign and date the relevant
accompanying Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Notes and any other
required documentation to the
Exchange Agent at the address set
forth in the Letter of Transmittal.
By executing the Letter of
Transmittal, each Holder will
represent to the Company that, among
other things, the Holder or the
person receiving such Exchange Notes,
whether or not such person is the
Holder, is acquiring the Exchange
Notes in the ordinary course of
business and that neither the Holder
nor any such other person has any
arrangement or understanding with any
person to participate in the
distribution of
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<PAGE>
such Exchange Notes. In lieu of
physical delivery of the certificates
representing Notes, tendering Holders
may transfer Notes pursuant to the
procedure for book-entry transfer as
set forth under "The Exchange
Offer -- Procedures for Tendering."
Special Procedures for Beneficial
Owners......................... Any beneficial owner whose Notes are
registered in the name of a broker,
dealer, commercial bank, trust
company or other nominee and who
wishes to tender should contact such
registered Holder promptly and
instruct such registered Holder to
tender on such beneficial owner's
behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such beneficial owner must,
prior to completing and executing the
Letter of Transmittal and delivering
its Notes, either make appropriate
arrangements to register ownership of
the Notes in such beneficial owner's
name or obtain a properly completed
bond power from the registered
holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery Procedures... Holders of Notes who wish to tender
their Notes and whose Notes are not
immediately available or who cannot
deliver their Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent (or comply with
the procedures for book-entry
transfer) prior to the Expiration
Date must tender their Notes
according to the guaranteed delivery
procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights................ Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City
time, on the Expiration Date pursuant
to the procedures described under
"The Exchange Offer -- Withdrawals
of Tenders."
Acceptance of Notes and Delivery
of Exchange Notes.............. The Company will accept for exchange
any and all Notes that are properly
tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange
Notes issued pursuant to the Exchange
Offer will be delivered promptly
following the Expiration Date.
Federal Income Tax Consequences of
the Exchange Offer............. The issuance of the Exchange Notes to
Holders of the Notes pursuant to the
terms set forth in this Prospectus
will not constitute an exchange for
federal income tax purposes.
Consequently, no gain or loss would
be recognized by Holders of the Notes
upon receipt of the Exchange Notes.
See "Certain Federal Income Tax
Consequences of the Exchange Offer."
Effect on Holders of Notes....... As a result of the making of this
Exchange Offer, the Company will have
fulfilled certain of its obligations
under the Registration Rights
Agreement, and Holders of Notes who
do not tender their Notes will
generally not have any further
registration rights under the
Registration Rights Agreement or
otherwise. Such Holders will continue
to hold the untendered Notes and will
be entitled to all the rights and
subject to all the limitations
applicable thereto under the
Indentures, except to the extent such
rights or limitations, by their
terms, terminate or cease to have
further effectiveness as a result of
the Exchange Offer. All untendered
Notes will continue to be subject to
certain restrictions on transfer.
Accordingly, if any Notes are
tendered and accepted in the Exchange
Offer, the trading market for the
untendered Notes could be adversely
affected.
8
<PAGE>
Exchange Agent................... Norwest Bank Minnesota, National
Association (the "Exchange Agent").
THE EXCHANGE NOTES
Securities Offered............... $100,000,000 principal amount of
10 1/2% Exchange Notes due 2007.
Maturity Date.................... July 1, 2007
Interest Rate and Payment Dates.. The Exchange Notes will bear interest
at a rate of 10 1/2% per annum.
Interest on the Exchange Notes will
accrue from the date of issuance
thereof and will be payable
semi-annually in cash in arrears on
January 1 and July 1 of each year,
commencing January 1, 1998.
Optional Redemption.............. The Exchange Notes will be redeemable
at the option of the Company, in
whole or in part, at any time on or
after July 1, 2002, at the redemption
prices set forth herein, together
with accrued and unpaid interest and
liquidated Damages, if any, to the
date of redemption. If the Company
consummates a Public Equity Offering
(as defined herein) on or before July
1, 2000, the Company may at its
option use all or a portion of the
proceeds from such offering to redeem
up to 35% of the aggregate principal
amount of the Exchange Notes
originally issued at a redemption
price equal to 110.5% of the
aggregate principal amount thereof,
together with accrued and unpaid
interest and Liquidated Damages, if
any, to the date of redemption,
provided that after giving effect to
such redemption at least $65 million
of the aggregate principal amount of
Exchange Notes originally issued
remains outstanding. See
"Description of Exchange
Notes -- Optional Redemption."
Ranking; Subsidiary Guarantees... The Exchange Notes will be senior
unsecured obligations of the Company
and will be unconditionally
guaranteed on a senior unsecured
basis by the Subsidiary Guarantors.
The Exchange Notes and each
Subsidiary Guarantee will rank PARI
PASSU in right of payment with
existing and future unsecured and
unsubordinated Indebtedness of the
Company and the applicable Subsidiary
Guarantor, respectively, and senior
to all Subordinated Indebtedness of
the Company and the applicable
Subsidiary Guarantor, respectively,
but will be effectively subordinated
to secured indebtedness of the
Company and the Subsidiary
Guarantors. At July 2, 1997, the
Company and the Subsidiary Guarantors
had (i) no unsecured and
unsubordinated indebtedness
outstanding other than the Exchange
Notes and (ii) $30.8 million of
secured indebtedness outstanding.
Subject to certain limitations, the
Indenture (as defined herein) will
permit the Company and its Restricted
Subsidiaries (as defined herein) to
incur additional secured and
unsecured Indebtedness. See
"Description of Exchange
Notes -- Ranking" and
"-- Subsidiary Guarantees."
Change of Control................ If a Change of Control (as defined
herein) occurs, each Holder of
Exchange Notes will have the right to
require the Company to purchase all
or a portion of such Holder's
Exchange Notes at a price equal to
101% of the aggregate principal
amount thereof, together
9
<PAGE>
with accrued and unpaid interest and
Liquidated Damages, if any, to the
date of purchase. See "Description
of Exchange Notes -- Certain
Covenants -- Change of Control."
Certain Covenants................ The Indenture will contain certain
covenants, including covenants that
limit: (i) incurrence of additional
Indebtedness; (ii) issuance of
preferred stock by a Restricted
Subsidiary; (iii) Restricted Payments
(as defined herein); (iv) issuances
and sales of capital stock of
Restricted Subsidiaries; (v)
sale/leaseback transactions; (vi)
transactions with affiliates; (vii)
liens; (viii) asset sales; (ix)
dividend and other payment
restrictions affecting Restricted
Subsidiaries; (x) conduct of
business; and (xi) mergers,
consolidations and sales of assets.
See "Description of Exchange
Notes -- Certain Covenants" and
"-- Merger, Consolidation and Sale
of Assets."
Registration Rights; Liquidated
Damages........................ Pursuant to the Registration Rights
Agreement, the Company has agreed to
file this Registration Statement. If
(i) the Exchange Offer is not
permitted by applicable law, (ii) the
Exchange Offer is not consummated
within 165 days following the date of
original issuance of the Notes, (iii)
the Initial Purchasers so request
within six months after consummation
of the Note Offering with respect to
Notes not eligible to be exchanged
for Exchange Notes in the Exchange
Offer and held by them following
consummation of the Exchange Offer or
(iv) any Holder (other than certain
broker-dealers) is not eligible to
participate in the Exchange Offer or,
in the case of any Holder (other than
certain broker-dealers) that partici-
pates in the Exchange Offer, that
Holder does not receive freely
tradable Exchange Notes pursuant to
the Exchange Offer and such Holder
notifies the Company within six
months of such date, the Company will
be required to file a shelf
registration statement (the "Shelf
Registration Statement") to register
resales of certain Notes or Exchange
Notes by the Holders thereof. If the
Company fails to comply with certain
of its obligations under the
Registration Rights Agreement,
Liquidated Damages will be payable to
Holders of the Senior Notes. See
"Description of Senior
Notes -- Registration Rights."
For additional information regarding the Exchange Notes, see "Certain
Federal Income Tax Consequences of an Investment in the Exchange Notes" and
"Description of the Exchange Notes."
RISK FACTORS
Holders of Notes should consider carefully all of the information set forth
in this Prospectus and, in particular, the information set forth under "Risk
Factors" before making any decision regarding tendering their Notes pursuant to
the Exchange Offer and receiving Exchange Notes.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information for the fiscal years
1992 through 1996 has been derived from the audited financial statements of the
Company. The statement of operations data for fiscal 1996 includes the results
of operations of Plymouth Mills, Inc. ("Plymouth") from its date of
acquisition, August 2, 1996. The information presented for the thirteen weeks
ended March 30, 1996 and March 29, 1997 has been derived from the unaudited
financial statements of the Company. The statement of operations data for the
thirteen weeks ended March 29, 1997 includes the results of operations of Sun
Sportswear, Inc. ("Sun Sportswear") from the date of the merger of the Company
with Sun Sportswear (the "Sun Merger"), March 14, 1997.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
-------------------------------------------------------- --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MAR. 30, MAR. 29,
1992 1993 1994 1995(A) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $ 48,069 $ 60,850 $ 76,754 $131,020 $169,452 $ 30,132 $ 34,907
Cost of goods sold................... 39,376 51,640 64,846 106,576 127,845 22,761 26,520
-------- -------- -------- -------- -------- -------- --------
Gross profit..................... 8,693 9,210 11,908 24,444 41,607 7,371 8,387
Operating expenses................... 7,511 7,285 10,221 25,549 32,529 6,341 8,602
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).......... 1,182 1,925 1,687 (1,105) 9,078 1,030 (215)
Interest expense..................... 1,056 1,153 1,663 3,695 4,491 811 1,145
Other expense (income), net.......... 80 89 -- (22) (234) (233) 125
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary gain......... 46 683 24 (4,778) 4,821 452 (1,485)
Provision (benefit) for income
taxes.............................. 87 254 99 (338) 789 -- (609)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary gain............. (41) 429 (75) (4,440) 4,032 452 (876)
Extraordinary gain................... -- -- -- 500 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................ (41) 429 (75) (3,940) 4,032 452 (876)
Dividends and accretion on preferred
stock.............................. -- -- -- -- 245 -- 165
-------- -------- -------- -------- -------- -------- --------
Net income (loss) available for
common shareholders............ $ (41) $ 429 $ (75) $ (3,940) $ 3,787 $ 452 $ (1,041)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common and
common equivalent share............ $ (.01) $ .14 $ (.02) $ (1.30) $ .90 $ .11 $ (.27)
======== ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding...... 2,797,788 3,032,656 3,029,803 3,029,803 4,198,907 4,113,580 3,889,538
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges... 1.04 1.50 1.01 (b) 1.89(c) (b)(c)
======== ======== ======== ======== ======== ========
</TABLE>
AS OF
MAR. 29,
1997
--------
BALANCE SHEET DATA:
Working capital...................... $ 12,067
Total assets......................... 113,816
Total long-term obligations,
including current maturities....... 25,766
Mandatorily redeemable preferred
stock.............................. 898
Mandatorily redeemable convertible
preferred stock (dividends
payable-in-kind)................... 7,836
Shareholders' equity................. 9,799
- ------------
(a) For further discussion of the Company's loss in 1995, see "The
Company -- Acquisitions -- Velva Sheen" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Fiscal year ended December 30, 1995 compared with fiscal year
ended December 31, 1994."
(b) For the year ended December 30, 1995 and the thirteen weeks ended March 29,
1997, earnings, as defined, were inadequate to cover fixed charges. The
deficiencies were approximately $4.8 million and $1.5 million for the year
ended December 30, 1995 and the thirteen weeks ended March 29, 1997,
respectively.
(c) On a pro forma basis after giving effect to the Exchange Offer, the
Acquisitions, the Sun Merger, and the acquisition of Plymouth, as if such
transactions occurred at the beginning of fiscal 1996, the ratio of earnings
to fixed charges for the year ended December 28, 1996 would have been 1.47
and the deficiency for the thirteen weeks ended March 29, 1997 would have
been approximately $4.9 million.
11
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
EXCHANGE NOTES OFFERED BY THIS PROSPECTUS, INCLUDING INFORMATION UNDER
"DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged and has significant debt service
requirements. At July 2, 1997, the total consolidated indebtedness of the
Company was $135.6 million. The degree to which the Company is leveraged will
have important consequences to holders of the Exchange Notes, including: (i) the
ability of the Company to obtain additional financing, whether for working
capital, capital expenditures, or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
for debt service, thereby reducing funds available to the Company for its
operations; (iii) the Company's flexibility in planning for or reacting to
changes in market conditions may be limited; (iv) the Company may be more
vulnerable upon a downturn in its business; and (v) to the extent that the
Company incurs any indebtedness at variable rates, including under the Credit
Facility (as defined herein), the Company will be vulnerable to increases in
interest rates.
Based on current operations, the Company expects that it will be able to
meet the debt service requirements on its indebtedness, meet its working capital
needs and fund its capital expenditures and other operating expenses out of cash
flow from operations and available borrowings under the Credit Facility.
However, there can be no assurance that the Company's business will generate
cash flow at levels sufficient to meet these requirements. If the Company is
unable to generate sufficient cash flow from operations to service its debt
obligations and to meet other cash requirements, it may be required to sell
assets, reduce capital expenditures, refinance all or a portion of its existing
debt (including the Exchange Notes) or obtain additional financing. There can be
no assurance that any such asset sales or refinancing would be possible or that
any additional financing would be available, if at all, on terms acceptable to
the Company. The Company's ability to meet its debt service obligations will be
dependent upon its future performance which, in turn, will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
HOLDING COMPANY STRUCTURE
The Company holds substantially all of its assets and conducts
substantially all of its operations through its subsidiaries. Therefore, the
Company derives substantially all of its operating income and cash flow from its
subsidiaries and must rely upon earnings, cash flow, distributions, advances or
other inter-company transfers from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal premium,
interest and Liquidated Damages on the Exchange Notes. Although the Indenture
generally will prohibit the Company from permitting its Restricted Subsidiaries
(as defined herein) to restrict their ability to pay dividends and other amounts
to the Company, any such restrictions could materially and adversely affect the
ability of the Company to service and repay its existing debt, including the
Exchange Notes.
RANKING
The Exchange Notes will be senior unsecured obligations of the Company and
will be unconditionally guaranteed on a senior unsecured basis by the Subsidiary
Guarantors. The Exchange Notes and each Subsidiary Guarantee will rank PARI
PASSU with all other unsecured and unsubordinated indebtedness of the Company
and the applicable Subsidiary Guarantor, respectively, but will be effectively
subordinated to secured indebtedness of the Company and the Subsidiary
Guarantors. See "Description of Credit Facility and Certain Other
Indebtedness" and "Description of Exchange Notes -- Ranking."
RESTRICTIONS IMPOSED BY CERTAIN COVENANTS
The Credit Facility and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, incur liens on
12
<PAGE>
property or assets, repay other indebtedness, pay dividends, enter into certain
investments or transactions, repurchase or redeem capital stock, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the Company's ability
to finance its future operations or capital needs or engage in other business
activities that may be in the interest of the Company. In addition, the Credit
Facility will also require the Company to maintain compliance with certain
financial ratios. The ability of the Company to comply with such ratios may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the required financial
ratios could result in a default under the Credit Facility. If any such default
occurs, the lenders under the Credit Facility could elect to declare all
borrowings outstanding under the Credit Facility, together with accrued interest
and other fees, to be due and payable. If the Company were unable to repay any
such borrowings when due, the lenders under the Credit Facility could proceed
against their collateral. If the indebtedness under the Credit Facility or the
Exchange Notes were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay such indebtedness in full. Since the
Company is dependent on the Credit Facility to fund seasonal borrowing needs,
any such default may have a material adverse effect on the Company's financial
condition and results of operation. See "Description of Credit Facility and
Certain Other Indebtedness" and "Description of Exchange Notes."
SEASONALITY AND CYCLICALITY
The Company's sales are seasonal, with higher sales occurring during the
second half of its fiscal year (July to December), primarily due to (i) sales of
higher priced products, primarily fleecewear, in the fall season and (ii)
increased holiday and "back to school" sales to retail customers during this
period. In addition, the apparel industry is cyclical and may be negatively
affected by changing retailer and customer demand and downturns in consumer
spending.
DEPENDENCE ON LICENSING ARRANGEMENTS
Many of the Company's licenses are for a term of one to two years but can
be terminated on 30 days' notice. Typically, the licensor may terminate the
license if specified minimum levels of annual net sales for licensed products
are not met or for a failure of the Company to comply with the material terms of
the license. In the ordinary course of its business, the Company continues to
produce products under expired licenses based on letter agreements or oral
representations from licensors to the effect that continued production will be
permitted pending negotiation of new licenses. The loss of one or more of the
Company's material licenses, or the decline in popularity of certain licensed
cartoon character images, could have a material adverse effect on the Company's
financial condition and results of operations. On a pro forma basis, after
giving effect to the Acquisitions, the Sun Merger, and the acquisition of
Plymouth, as if such transactions occurred at the beginning of fiscal 1996,
approximately 47% of the Company's net sales during 1996 were of licensed
products.
DEPENDENCE ON MAJOR CUSTOMERS
On a pro forma basis, after giving effect to the Acquisitions, the Sun
Merger, and the acquisition of Plymouth, as if such transactions occurred at the
beginning of fiscal 1996, approximately 51.8% of the Company's sales were made
to its ten largest customers. Sales to Wal-Mart, J.C. Penney, Target, and Kmart
represented approximately 16.9%, 15.0%, 5.9% and 4.9%, respectively, of the
Company's total sales for 1996 on a pro forma basis as described above. The
Company believes that sales to major customers will continue to account for a
significant percentage of the Company's total revenues. The loss or material
adverse change in the financial condition of one or more of these customers
could have a material adverse effect on the Company's financial condition and
results of operations.
MANUFACTURERS AND FOREIGN SOURCING
For its decorated sportswear needs, the Company purchases a significant
portion of its blank garments, such as undecorated T-shirts and sweatshirts,
from independent manufacturers, both domestic and foreign. The inability of a
supplier to ship its products to the Company in a timely manner or to meet the
Company's
13
<PAGE>
quality standards could adversely affect its ability to meet customer delivery
requirements. As is typical in the industry, the Company generally does not
enter into long-term contracts with its suppliers. Although the Company believes
that the loss of any one or more suppliers is not likely to have a long-term
material adverse effect on the Company's business because either new or existing
manufacturers likely would be available to fulfill its requirements, the failure
of any key supplier to perform or the loss of any key supplier could have a
short-term material adverse effect on the Company's results of operations.
The Company believes that the Premier Acquisition will increase the
importance of foreign sourcing in its operations. To the extent foreign sources
grow in importance, the Company's operations may be adversely affected by, among
other things, political instability resulting in disruption of trade from
foreign countries in which the Company's suppliers are located; the imposition
of additional regulations and restrictions related to imports and duties, taxes
and other charges on imports, and bilateral trade agreements; any significant
fluctuation in the value of the dollar against foreign currencies; and
restrictions on the transfer of foreign currencies. An adverse change in any of
the foregoing could have a short-term material adverse effect on the Company's
financial condition and results of operations.
INTEGRATION OF ACQUIRED OPERATIONS
The Company's growth in recent years has been attributable in part to
strategic business acquisitions. See "The Company -- Acquisitions." In
connection with making these acquisitions and in evaluating other potential
acquisition transactions, the Company makes certain assumptions regarding the
future combined results of the existing and acquired operations. In certain
acquisition transactions, the acquisition analysis includes assumptions
regarding the consolidation of operations and improved operating cost structures
for the combined operations. There can be no assurance, however, that such
consolidations or improved cost structures will be achieved on the assumed time
schedule, if at all. Any failure to integrate the operations of an acquired
business or significant delay in such integration could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, the Company expects to continue to evaluate and, where appropriate,
pursue acquisition opportunities that provide products or services that
complement those offered by the Company. There can be no assurance, however,
that suitable acquisition candidates will be identified in the future, or that
the Company will be able to finance such acquisitions on favorable terms.
Further, there can be no assurances that any future acquisitions will be
integrated successfully into the Company's operations or will achieve desired
financial objectives.
SUBSTANTIAL COMPETITION
The apparel industry is highly competitive. The Company competes with
numerous apparel vendors, including those with their own retail stores,
department stores, specialty stores, retail chains and mass merchandisers who
sell apparel under their own labels and whose merchandise displays licensed
cartoon characters and logos of professional sports teams, colleges and
universities. Competitive factors include product quality, access to popular
licenses, price, ability to meet delivery requirements and other aspects of
customer service, changes in styles and consumer preferences, and the limited
availability of customer shelf and rack space.
DEPENDENCE ON EXISTING MANAGEMENT
The operations of the Company depend to a significant degree upon a
relatively small group of senior management personnel and other key employees.
Although the Company has entered into employment agreements with certain members
of senior management, the continued employment of such persons cannot be
assured. The loss of the services of senior management personnel or other key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROL BY PRINCIPAL STOCKHOLDERS
Equus II Incorporated ("Equus") beneficially owns approximately 56.3% of
the Company's common stock. Consequently, for so long as such level of ownership
is maintained, Equus will have the ability to control the election of the
Company's directors and the outcome of other issues submitted to the Company's
14
<PAGE>
stockholders for approval. Additionally, Messrs. Hale and Lehmann, both of whom
are members of the Company's Board of Directors, are also officers of Equus.
CHANGE OF CONTROL
If a Change of Control occurs, the Company will be required to offer to
repurchase all of the outstanding Exchange Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
date of repurchase. There can be no assurance that the Company will have the
financial resources necessary or be permitted by its other debt agreements to
repurchase the Exchange Notes upon the occurrence of a Change of Control. The
inability to repurchase all of the tendered Exchange Notes would constitute an
Event of Default (as defined herein) under the Indenture. See "Description of
Exchange Notes -- Certain Covenants -- Change of Control."
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES; RESTRICTIONS ON RESALE
There is no existing trading market for the Exchange Notes, and there can
be no assurance regarding the future development of a market for the Exchange
Notes, the ability of the Holders of the Exchange Notes to sell their notes or
the price at which such Holders may be able to sell their notes. If a market for
the Exchange Notes develops, the Exchange Notes could trade at prices that may
be higher or lower than the original offering price depending on many factors,
including prevailing interest rates, the Company's operating results and credit
rating and the market for similar securities. Dillon, Read & Co., Inc. and SBC
Warburg Inc. (the "Initial Purchasers") currently make a market in the Notes
and have advised the Company that they intend to make a market in the Exchange
Notes. The Initial Purchasers are not obligated to do so, however, and any
market making with respect to the Exchange Notes may be discontinued at any time
without notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the Exchange Notes or that an active trading market for the
Exchange Notes will develop. The Company does not intend to apply for listing or
quotation of the Exchange Notes on any securities exchange or stock market.
However, the Exchange Notes will continue to be eligible for trading in the
PORTAL market.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The Subsidiary Guarantees may be subject to review under fraudulent
transfer or similar laws. To the extent that a court were to find that (i)(1) a
Subsidiary Guarantee was incurred by any Subsidiary Guarantor with intent to
hinder, delay or defraud any present or future creditor, (2) a Subsidiary
Guarantor contemplated insolvency with a design to prefer one or more creditors
to the exclusion in whole or in part of others, or (3) any Subsidiary Guarantor
did not receive fair consideration or reasonably equivalent value for issuing
its Subsidiary Guarantee; and (ii) that Subsidiary Guarantor (1) was insolvent,
(2) was rendered insolvent by reason of the issuance of its Subsidiary
Guarantee, (3) was engaged or about to engage in a business or transaction for
which the remaining assets of that Subsidiary Guarantor constituted unreasonably
small capital or (4) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, a court could avoid or
subordinate the Subsidiary Guarantee in favor of that Subsidiary Guarantor's
creditors and direct the return of amounts paid with respect to such Subsidiary
Guarantee. If a Subsidiary Guarantee is avoided or subordinated, payments of
principal and interest on the Exchange Notes generally would be subject to the
prior payment in full of all indebtedness of the relevant Subsidiary Guarantor.
Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the relevant
Subsidiary Guarantor as a result of the issuance by the Company of the Exchange
Notes. The extent to which a particular Subsidiary Guarantor may be deemed to
have received such benefits may depend on the Company's use of the proceeds of
the Note Offering, including the extent to which such proceeds or benefits
therefrom are contributed to the Subsidiary Guarantor. The measure of insolvency
for purposes of the foregoing will vary depending on the law of the applicable
jurisdiction. Generally, however, an entity would be considered insolvent if the
sum of its debts, including contingent or unliquidated debts, is greater than
all of its property at a fair valuation or if the present fair saleable value of
its assets is less than the amount that will be required to pay its probable
liability under its existing debts as such debts become absolute and matured.
Based upon financial and other information currently available to it, the
Company presently believes that
15
<PAGE>
the Subsidiary Guarantees are being incurred for proper purposes and in good
faith, and that each Subsidiary Guarantor (i) is solvent and will continue to be
solvent after issuing its Subsidiary Guarantee, (ii) will have sufficient
capital for carrying on its business after such issuance and (iii) will be able
to pay its debts as they mature. There can be no assurance, however, that a
court would necessarily agree with these conclusions, or determine that any
particular Subsidiary Guarantor received fair consideration or reasonably
equivalent value for issuing its Subsidiary Guarantee.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to a broad range of federal, state and
local environmental laws and requirements. The Company has made, and will
continue to make, expenditures to comply with such laws and requirements. The
Company believes that it is currently in substantial compliance with all
applicable environmental laws and requirements and that the Company will not
require material capital expenditures to maintain its environmental compliance
during fiscal 1997 or in the foreseeable future. However, future events, such as
changes in existing laws and regulations or the discovery of contamination at
the Company's facilities, may give rise to additional compliance or remediation
costs that could have a material adverse effect on the Company's results of
operations or financial condition. Moreover, the nature of the Company's
business exposes it to some risk of claims with respect to environmental
matters, and there can be no assurance that material costs or liabilities will
not be incurred in connection with any such claims.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Those statements include, among other things, the discussions of the Company's
business strategy and expectations concerning market position, future
operations, margins, profitability, liquidity and capital resources, and
statements concerning the integration of the operations to be acquired pursuant
to the Acquisitions and achievement of certain benefits in connection therewith.
Forward Looking Statements are included in the sections captioned "Summary,"
"Risk Factors," "The Company," "Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus. Although the
Company believes that the expectations reflected in such Forward Looking
Statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, projected or anticipated benefits from acquisitions made by
or to be made by the Company (including the Acquisitions), or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures or other aspects of operating results. The operations of the
Company are subject to a number of uncertainties, risks and other influences,
many of which are outside the control of the Company and any one of which, or a
combination of which, could materially affect the results of the Company's
operations and whether the Forward Looking Statements made by the Company
ultimately prove to be accurate. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
"Risk Factors" and elsewhere in this Prospectus.
16
<PAGE>
THE COMPANY
HISTORY
The Company began operations in 1974 as a distributor of blank garments,
primarily T-shirts and sweatshirts. In 1989, Equus acquired majority control of
Gulf Coast Sportswear, Inc., the predecessor of the Company. Since that time,
the Company has completed eight acquisitions that have brought significant
strategic advantages to the Company's business. These acquisitions have
broadened the Company's product lines, expanded and diversified its customer
base, generated significant purchasing power and allowed the Company to realize
certain economies of scale in manufacturing, marketing, distribution and
administration.
ACQUISITIONS
A description of each of the Company's acquisitions is set forth below.
CC CREATIONS. In September 1990, the Company purchased the operating
assets of CC Creations, its then largest contract screen printer, to improve
costs and control the quality of the Company's screen printing operations. CC
Creations was founded by J. Ford Taylor, the current president and chief
executive officer of the Company. CC Creations operates under the trade names
Red Oak Sportswear and CC Creations. The Company uses the CC Creations facility
primarily to produce collegiate logo products marketed to mass merchandisers.
The CC Creations facility also sells custom designed products to various other
markets, including schools and corporations.
CAPITAL INDUSTRIES, INC. In July 1991, the Company merged with Capital
Industries, Inc. ("Capital Industries") to enter the athletic uniform and
specialty products business. The Capital Industries facility operates under the
trade names Red Fox and Lady Fox.
VELVA SHEEN. In November 1994, the Company purchased the assets of Velva
Sheen, an operating division of American Marketing Industries, Inc. ("Velva
Sheen"), to enter the licensed cartoon character market and expand and
diversify its decorated sportswear business. Through its Velva Sheen facility,
the Company sells licensed cartoon character products, including products
decorated with Disney's Mickey Mouse and Winnie the Pooh, to department stores
and specialty retailers.
Before being acquired by the Company, Velva Sheen's financial performance
was deteriorating. Velva Sheen's net sales decreased 16.1% from $60.4 million in
1993 to $50.7 million in 1994. After the acquisition, the Company developed a
plan to improve Velva Sheen's operating efficiency and profitability. The plan
included: (i) reducing facility personnel and related costs, particularly senior
and mid-level management personnel to levels commensurate with other Company
operating locations; (ii) streamlining the facility's product development and
manufacturing processes in order to increase production and improve on-time
delivery, which included relocating the facility's non-licensed character
business to another more suitable Company facility and closing Velva Sheen's
retail outlet store operations; (iii) eliminating unprofitable licenses and
reducing the number of product offerings to focus Velva Sheen on its core
product line of licensed cartoon character products; (iv) reducing inventory
levels and the number of inventory types and styles to levels commensurate with
the Company's expectations for Velva Sheen's sales levels; (v) implementing the
Company's shelf stock sales and marketing program in order to increase inventory
turns and stimulate sales; and (vi) realigning Velva Sheen's sales commission
structure for in-house and outside sales personnel to more properly incentivize
and compensate those personnel for their individual contributions. The
successful execution of this business plan, which was implemented in late 1995,
has resulted in significant improvements in financial performance, with net
sales increasing from $53.0 million in fiscal 1995 to $74.9 million in fiscal
1996.
NEEDLEWORKS, INC. In December 1995, Brazos Embroidery, Inc. ("Brazos
Embroidery"), a wholly-owned subsidiary of the Company, acquired the assets of
Needleworks, Inc. ("Needleworks"), a contract embroidery operation, to improve
costs and control quality in the Company's growing embroidery product line.
17
<PAGE>
PLYMOUTH MILLS, INC. In August 1996, the Company purchased the assets of
Plymouth to enter the proprietary and private label markets. The acquisition
strengthened the Company's sales, marketing and sourcing capabilities.
SUN SPORTSWEAR, INC. On March 14, 1997, the Company completed the Sun
Merger. Sun Sportswear designs, sources, prints and markets licensed sportswear
primarily to mass merchandising stores. The Company believes the Sun Merger
provides a number of key strategic benefits, including (i) an expanded portfolio
of licensed cartoon character products and license agreements through the
addition of a more extensive Winnie the Pooh license, new Looney Tunes character
licenses and new film property licenses, such as The Little Mermaid, 101
Dalmatians and Anastasia, (ii) increased purchasing power with suppliers on a
company-wide basis, (iii) strengthened distribution to the mass merchant retail
segment and (iv) enhanced production capacity and flexibility with Sun
Sportswear's state-of-the-art facility, strategically located on the west coast
to facilitate the import of goods from suppliers and exports to customers in the
Far East.
Sun Sportswear's financial performance had been deteriorating significantly
during the three fiscal years prior to the Sun Merger. Net sales of Sun
Sportswear declined from $113.2 million in 1994 to $94.0 million in 1995 and
$65.5 million in 1996, an approximate 42% decrease from 1994 to 1996. The
Company believes that the principal reasons for the substantial decreases in net
sales from 1994 to 1996 were (i) an unsuccessful change in Sun Sportswear's
business strategy away from its traditional licensed cartoon character business
in an effort to build a line of private label and proprietary products, (ii) a
significant decrease in licensed product sales to the men's and boys' market
segment resulting from the loss of key divisional management and sales personnel
in 1994, (iii) excess inventory due to the combined effects of mismanagement of
blank garment purchasing, maintenance of unprofitable product offerings and
overall reductions in net sales and (iv) a production and corporate overhead
staff that exceeded levels required to operate Sun Sportswear at reduced
business volumes.
Prior to consummation of the Sun Merger, the Company established and began
implementing a restructuring plan designed to increase sales and return Sun
Sportswear's operations to profitability. This plan consisted of a variety of
operational improvements intended to realign Sun Sportswear's operating costs
with existing business levels and certain strategic changes in Sun Sportswear's
sales and marketing efforts. The Company's restructuring plan for Sun Sportswear
contained many of the same elements that the Company successfully implemented to
improve the financial performance of Velva Sheen following its acquisition in
late 1994.
Key elements of the Company's restructuring plan for Sun Sportswear that
have been implemented since the fourth fiscal quarter of 1996 include (i) a
significant reduction in facility personnel, including the elimination of Sun
Sportswear's four senior executives and approximately 115 middle management and
production employees, providing aggregate annual cost savings of $3.2 million,
(ii) price increases on most of Sun Sportswear's more popular product offerings,
(iii) the elimination of unprofitable and non-core product offerings, including
a reduction of inventory from $19.4 million at September 30, 1996, to $12.0
million at March 29, 1997 and (iv) discontinuation of unprofitable license
agreements.
The principal components of the Company's plan to increase sales volumes at
Sun Sportswear consist of (i) refocusing sales and marketing efforts on Sun
Sportswear's core licensed cartoon character product offerings, (ii) expanding
successful licenses, such as Winnie the Pooh, in an effort to broaden Sun
Sportswear's markets and product offerings, (iii) targeting all phases of
product development, production and marketing of the Sun Sportswear facility to
its traditional strengths in the mass merchant retail segment by shifting a
substantial majority of its licensed character business distributed to
department stores to the Company's Velva Sheen facility and (iv) integrating Sun
Sportswear's sales force with the Company's other operations, primarily Velva
Sheen and Plymouth, to provide a coordinated marketing effort for the Company's
entire licensed cartoon character product line. The Company had originally
anticipated completion of its integrated sales and marketing plan for its
licensed character business in advance of its spring 1997 selling season.
However, since the closing of the Sun Merger occurred later than originally
anticipated, the planned sales and marketing integration was completed
subsequent to the Company's spring
18
<PAGE>
1997 product offering. The delay created confusion among certain customers and
licensors and hindered the Company's ability to develop and market a coordinated
line of licensed cartoon character products for its spring offering. The Company
has now effectively transitioned all of Sun Sportswear's customer accounts and
licensing relationships and realigned its sales and marketing personnel in a
manner in which it believes will enhance future sales opportunities. As a
result, the Company expects to begin realizing the benefits from its increased
sales efforts during the second half of 1997.
MORNING SUN. On July 2, 1997, the Company acquired Morning Sun for (i)
$29.3 million in cash, (ii) 73,171 shares of the Company's common stock and
(iii) the assumption of certain indebtedness and contractual obligations of
Morning Sun. Morning Sun is a leading designer, manufacturer and marketer of
moderately-priced imprinted and embroidered tops for women age 40 and over.
Morning Sun sells its products under proprietary brand names and various private
labels to (i) major department store chains such as J.C. Penney, May Co. and
Federated Department Stores, (ii) catalogue companies such as Orvis and National
Wildlife Federation and (iii) specialty stores. The Company used a portion of
the proceeds of the Note Offering to fund the Morning Sun Cash Consideration and
repay the assumed indebtedness and contractual obligations. The Morning Sun
Acquisition will significantly expand the Company's proprietary product line,
customer base and manufacturing capabilities.
PREMIER. Also on July 2, 1997, the Company acquired all the assets of
Premier for (i) $2.0 million in cash, (ii) a $1.5 million non-interest bearing
subordinated note due 2004, that is convertible into and payable only through
the issuance of 136,364 shares of the Company's common stock, (iii) a 7%, seven-
year, subordinated "earnout" obligation in the principal amount of $4.0
million and (iv) the assumption of certain indebtedness of Premier. Premier is
an importer of high quality, low cost "fashion fleece" and other garments for
domestic distributors and provides merchandising, design and sourcing services
for apparel companies. Through established relationships with overseas
manufacturing and production facilities, principally in the Far East, Premier
purchases blank garments in large quantities at prices that are typically lower
than those charged by domestic mills for similar products. In addition, apparel
makers use Premier's services to source decorated fleece products in significant
quantities. The Company used a portion of the proceeds of the Note Offering to
pay the Premier Cash Consideration and repay the assumed indebtedness. The
Premier Acquisition will enhance the Company's merchandising, design and foreign
sourcing capabilities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company has calculated the ratio of earnings to fixed charges pursuant
to Item 503 of Regulation S-K as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
-------------------------------------------------------- --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MAR. 29,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges 1.04 1.50 1.01 (a) 1.89(b) (a)(b)
</TABLE>
- ------------
(a) For the year ended December 30, 1995 and the thirteen weeks ended March 29,
1997, earnings, as defined, were inadequate to cover fixed charges. The
deficiencies were approximately $4.8 million and $1.5 million for the year
ended December 30, 1995 and the thirteen weeks ended March 29, 1997,
respectively.
(b) On a pro forma basis after giving effect to the Exchange Offer, the
Acquisitions, the Sun Merger and the acquisition of Plymouth, as if such
transactions occurred at the beginning of fiscal 1996, the ratio of earnings
to fixed charges for fiscal 1996 would have been 1.47 and the deficiency for
the thirteen weeks ended March 29, 1997 would be approximately $4.9 million.
19
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of (i) the
Company as of March 29, 1997 and (ii) the Company on a pro forma basis after
giving effect to the Acquisitions and the Note Offering and the application of
the net proceeds therefrom as if those transactions had occurred on March 29,
1997. This information should be read in conjunction with "Pro Forma Financial
Information" and the notes thereto and the consolidated financial statements of
the Company and the notes thereto included elsewhere herein.
AS OF MARCH 29, 1997
-----------------------
(UNAUDITED)
ACTUAL PRO FORMA
--------- ---------
(IN THOUSANDS)
Bank Credit Facility:(1)
Revolving line of credit(2)..... $ 36,273 $ 9,585
Term debt, including current
maturities..................... 11,600 --
Capital lease obligations............ 1,436 1,436
Other long-term debt, including
current maturities................. 12,104 --
Exchange Notes offered hereby, net of
discount of $760................... -- 99,240
7% subordinated earnout obligation... -- 4,000
Convertible subordinated note........ -- 1,500
--------- ---------
Total debt................. 61,413 115,761
Mandatorily redeemable preferred
stock.............................. 898 --
Mandatorily redeemable convertible
preferred stock(3)(4).............. 7,836 7,836
Shareholders' equity................. 9,799 10,227
--------- ---------
Total capitalization....... $ 79,946 $ 133,824
========= =========
- ------------
(1) On July 2, 1997, the Company entered into the Credit Facility. See
"Description of Certain Indebtedness -- Credit Facility."
(2) The pro forma amount reflects the use of $1.2 million of proceeds received
upon the exercise of options to acquire common stock of SolarCo, Inc. prior
to closing of the Morning Sun Acquisition.
(3) The Company, the holders of a majority of the Company's common stock and the
holders of the preferred stock have agreed to amend the terms of the
preferred stock, conditioned upon the completion of the Note Offering. Under
the amended terms, the mandatory redemption date will be extended to the
earlier to occur of (i) December 31, 2008, or (ii) consummation of a Major
Transaction (as defined in the certificate of designation relating to the
preferred stock). The Company believes that any Major Transaction would also
result in a Change of Control. See "Description of Exchange
Notes -- Certain Covenants -- Change of Control."
(4) Amount shown is net of an original issue discount of $1,529 to give effect
to the estimated fair value of certain stock purchase warrants issued
concurrently with the preferred stock.
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements have been
derived from the financial statements of the Company, Plymouth, Sun Sportswear,
Morning Sun and Premier and are presented to show (i) the acquisition of
Plymouth as of August 2, 1996, (ii) the Sun Merger, which was a reverse
acquisition of Sun Sportswear effected on March 14, 1997, (iii) the
Acquisitions, which include the Morning Sun and Premier acquisitions, and (iv)
the Note Offering and the application of the net proceeds therefrom. These
acquisitions are accounted for under the purchase method of accounting pursuant
to which the purchase price is allocated based on the fair value of the assets
acquired and the liabilities assumed. The pro forma financial information is
presented for the year ended December 28, 1996, and as of and for the thirteen
weeks ended March 29, 1997.
The following is a summary of the purchase price and estimated goodwill for
the Morning Sun Acquisition as if the acquisition had taken place on March 29,
1997:
Purchase price
Cash............................... $ 29,250
Company common stock............... 750
Contingent consideration........... 1,600
---------
Total consideration to be paid.......... 31,600
Estimated transaction costs............. 125
---------
Purchase price including estimated
transaction costs..................... 31,725
Net assets acquired..................... (3,877)
Proceeds from exercise of Morning Sun
stock options prior to closing........ (1,200)
Expected tax benefit generated by the
exercise of non-qualified stock
options by Morning Sun................ (1,600)
---------
Estimated goodwill................. $ 25,048
=========
The following is a summary of the purchase price and estimated goodwill for
the Premier Acquisition as if the acquisition had taken place on March 29, 1997:
Purchase price
Cash............................... $ 2,000
7% subordinated earnout
obligation........................ 4,000
Convertible subordinated note...... 1,500
---------
Total consideration to be paid.......... 7,500
Estimated transaction costs............. 125
---------
Purchase price including estimated
transaction costs..................... 7,625
Net assets acquired..................... (10)
---------
Estimated goodwill................. $ 7,615
=========
21
<PAGE>
The following is a summary of the uses of the proceeds after giving effect
to the Acquisitions and the Note Offering and the application of the net
proceeds therefrom as if those transactions had occurred on March 29, 1997:
Morning Sun Acquisition:
Purchase of common stock........... $ 29,250
Repay short-term debt.............. 2,822
Repay assumed indebtedness and
other obligations................. 4,983
Premier Acquisition:
Purchase of Net assets............. 2,000
Repay short-term debt.............. 2,717
Repay assumed indebtedness......... 106
The Company:
Repay short-term debt.............. 25,488
Repay term debt.................... 11,600
Repay other long term debt and
other obligations................. 15,376
Redeem preferred stock............. 898
Payment of Initial Purchasers'
discount and offering transaction
and expenses...................... 4,000
---------
Total uses.................... $ 99,240
=========
The unaudited pro forma condensed combined statements of operations for the
year ended December 28, 1996, and the thirteen weeks ended March 29, 1997, give
effect to the transactions referred to above as if each had occurred on the
first day of fiscal 1996.
The unaudited pro forma condensed combined balance sheet as of March 29,
1997 gives effect to the Acquisitions and the Note Offering and the application
of the net proceeds therefrom as if each had occurred on such date.
The actual entries for the Acquisitions are subject to the completion of
purchase accounting and will be based upon more precise appraisals, evaluations
and estimates of fair value, which are not currently complete, and may differ
substantially from the pro forma adjustments.
The pro forma results are not indicative of the results of operations had
the Acquisitions taken place at the beginning of the respective periods or of
future results, primarily because the Acquisitions and related purchase prices
were based on financial terms and conditions that existed on the acquisition
dates, and not as of the beginning of the respective periods discussed above.
The pro forma operating results for the thirteen weeks ended March 29, 1997
are not indicative of the results that are expected for the fiscal year 1997,
due in part to the seasonal nature of the business, the negative impact of which
appears predominantly in the first quarter. The Company believes that the
Acquisitions amplify this seasonal effect due to the nature of their individual
product lines. See "The Company -- Acquisitions" " -- Sun Sportswear, Inc."
for additional discussion on the operating performance of Sun Sportswear.
The unaudited pro forma condensed combined financial statements and the
accompanying notes should be read in conjunction with the historical financial
statements of the Company, Sun Sportswear, Plymouth and Morning Sun and related
notes thereto appearing elsewhere herein.
22
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
SUN MORNING FORMA
THE COMPANY(1) PLYMOUTH(2) SPORTSWEAR SUN PREMIER ADJUSTMENTS
-------------- ----------- ---------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 169,452 $25,860 $ 65,535 $54,754 $35,631 $ (11,510)(3)
Cost of goods sold................... 127,845 16,707 57,680 39,506 29,761 (18,416)(4)
-------------- ----------- ---------- ------- ------- -----------
Gross profit..................... 41,607 9,153 7,855 15,248 5,870 6,906
Operating expenses................... 32,529 4,636 13,151 10,661 3,219 2,889(5)
-------------- ----------- ---------- ------- ------- -----------
Operating income (loss).......... 9,078 4,517 (5,296) 4,587 2,651 4,017
Interest expense..................... 4,491 165 584 669 532 6,396(6)
Other expense (income), net.......... (234) 62 (37) 53 (14) --
-------------- ----------- ---------- ------- ------- -----------
Income (loss) before income
taxes.......................... 4,821 4,290 (5,843) 3,865 2,133 (2,379)
Provision (benefit) for income
taxes.............................. 789 434 (7) 1,357 -- (690)(7)
-------------- ----------- ---------- ------- ------- -----------
Net income (loss)................ 4,032 3,856 (5,836) 2,508 2,133 (1,689)
Dividends and accretion on preferred
stock.............................. 245 -- -- -- -- 686(8)
-------------- ----------- ---------- ------- ------- -----------
Net income (loss) available for
common shareholders............ $ 3,787 $ 3,856 $ (5,836) $2,508 $ 2,133 $ (2,375)
============== =========== ========== ======= ======= ===========
Earnings per common and common
equivalent share................... $ .90
==============
Shares used in computing earnings per
common and common equivalent
share.............................. 4,198,907
==============
</TABLE>
PRO
FORMA
---------
Net sales............................ $ 339,722
Cost of goods sold................... 253,083
---------
Gross profit..................... 86,639
Operating expenses................... 67,085
---------
Operating income (loss).......... 19,554
Interest expense..................... 12,837
Other expense (income), net.......... (170)
---------
Income (loss) before income
taxes.......................... 6,887
Provision (benefit) for income
taxes.............................. 1,883
---------
Net income (loss)................ 5,004
Dividends and accretion on preferred
stock.............................. 931
---------
Net income (loss) available for
common shareholders............ $ 4,073
=========
Earnings per common and common
equivalent share................... $ .80
=========
Shares used in computing earnings per
common and common equivalent
share.............................. 5,103,056
=========
23
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL:
(1) Includes the results of operations of Plymouth from the date of
acquisition, August 2, 1996, through December 28, 1996.
(2) Includes the results of operations of Plymouth from January 1, 1996, to the
date of acquisition, August 2, 1996.
ACQUISITION AND NOTE OFFERING ADJUSTMENTS:
<TABLE>
<CAPTION>
SUN MORNING NOTE
PLYMOUTH SPORTSWEAR SUN PREMIER OFFERING TOTAL
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(3) Elimination of intercompany sales
to the Company..................... $ -- $-- $ -- $(11,510) $ -- $(11,510)
========= =========== ======== ======== ======== ========
(4) Elimination of cost of goods sold
on inter-company sales to the
Company. Such amount is equal to
the amount of sales in pro forma
adjustment (3) above............... $ -- $-- $ -- $(11,510) $ -- $(11,510)
Reclassification of royalty expense
to operating expenses to conform
with the Company's financial
reporting practices................ -- (5,917) -- -- -- (5,917)
Decrease in depreciation of fixed
assets based on their
post-acquisition allocated fair
values............................. -- (913) (76 ) -- -- (989)
--------- ----------- -------- -------- -------- --------
$ -- $(6,830) $ (76 ) $(11,510) $ -- $(18,416)
========= =========== ======== ======== ======== ========
(5) Reclassification of royalty expense
from cost of goods sold to conform
with the Company's financial
reporting practices................ $ -- $ 5,917 $ -- $ -- $ -- $ 5,917
Increase (decrease) in depreciation
of fixed assets based on their
post-acquisition allocated fair
values............................. 3 (810) (41 ) (24) -- (872)
Amortization of intangible assets,
including goodwill, over periods
ranging from 15 to 40 years........ 285 (4) 628 190 -- 1,099
Increase (decrease) in compensation
expense to reflect compensation
levels on a post-acquisition basis
pursuant to post-acquisition
employment and advisory
agreements......................... 139 -- (1,740 ) (309) -- (1,910)
Elimination of non-recurring
expenses such as board of directors
fees and other fees charged to
Morning Sun by its former majority
shareholder........................ -- -- (295 ) -- -- (295)
Elimination of Sun Merger
acquisition expenses............... -- (956) -- -- -- (956)
Elimination of duplicate letter of
credit fees........................ -- -- -- (94) -- (94)
--------- ----------- -------- -------- -------- --------
$ 427 $ 4,147 $(1,448 ) $ (237) $ -- $ 2,889
========= =========== ======== ======== ======== ========
24
<PAGE>
<CAPTION>
SUN MORNING NOTE
PLYMOUTH SPORTSWEAR SUN PREMIER OFFERING TOTAL
--------- ----------- -------- -------- -------- --------
(6) Net increase in interest expense
related to increased net
indebtedness as follows:
<CAPTION>
WEIGHTED
AMOUNT AVG. RATE
-------- ---------
Interest on Exchange Notes...... $100,000 10.58% $ -- $-- $ -- $ -- $10,576
Interest on Premier
subordinated obligation....... 4,000 7% -- -- -- -- 280
Interest on estimated
average indebtedness.......... 16,338 8% -- -- -- -- 1,309
Reversal of interest expense on debt repaid............. (165 ) (584) (669 ) (532) (4,424)
Amortization of deferred financing costs over the
respective lives of the related debt obligations........ 184 46 -- -- 375
--------- ----------- -------- -------- --------
$ 19 $ (538) $ (669 ) $ (532) $ 8,116
========= =========== ======== ======== ========
Interest on Exchange Notes...... $ 10,576
Interest on Premier
subordinated obligation....... 280
Interest on estimated
average indebtedness.......... 1,309
Reversal of interest expense on (6,374)
Amortization of deferred financi
respective lives of the related 605
--------
$ 6,396
========
(7) Incremental income tax effects
for pro forma adjustments,
S-Corporation income, and Sun
Sportswear's losses at an
effective tax rate of 40%....... $ -- $-- $ -- $ -- $ (690 ) $ (690)
========= =========== ======== ======== ======== ========
(8) Dividends on 8% paid-in-kind
convertible preferred stock..... $ 329 $ 165 $ -- $ -- $ -- $ 494
Accretion of discount related to
fair value allocated to common
stock purchase warrants......... 38 154 -- -- -- 192
--------- ----------- -------- -------- -------- --------
$ 367 $ 319 $ -- $ -- $ -- $ 686
========= =========== ======== ======== ======== ========
</TABLE>
25
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUN MORNING PRO FORMA PRO
THE COMPANY(1) SPORTSWEAR(2) SUN PREMIER ADJUSTMENTS FORMA
-------------- -------------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 34,907 $ 9,190 $ 6,239 $2,469 $ (586)(3) $ 52,219
Cost of goods sold...................... 26,520 8,785 5,078 1,942 (2,164)(4) 40,161
-------------- -------------- -------- ------- ----------- --------
Gross profit........................ 8,387 405 1,161 527 1,578 12,058
Operating expenses...................... 8,602 2,215 4,354 735 (1,947)(5) 13,959
-------------- -------------- -------- ------- ----------- --------
Operating loss...................... (215) (1,810) (3,193 ) (208 ) 3,525 (1,901)
Interest expense........................ 1,145 72 94 36 1,508(6) 2,855
Other expense (income), net............. 125 (15) 9 (3 ) -- 116
-------------- -------------- -------- ------- ----------- --------
Loss before income taxes............ (1,485) (1,867) (3,296 ) (241 ) 2,017 (4,872)
Benefit for income taxes................ 609 -- 1,155 -- 184(7) 1,948
-------------- -------------- -------- ------- ----------- --------
Net loss............................ (876) (1,867) (2,141 ) (241 ) 2,201 (2,924)
Dividends and accretion on preferred
stock................................. 165 -- -- -- 81(8) 246
-------------- -------------- -------- ------- ----------- --------
Net loss available for common
shareholders...................... $ (1,041) $ (1,867) $(2,141 ) $ (241 ) $ 2,120 $ (3,170)
============== ============== ======== ======= =========== ========
Loss per common and common equivalent
share................................. $ (.27) $ (.71)
============== ========
Shares used in computing loss per common
and common equivalent share........... 3,889,538 4,453,725
============== ========
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL
(1) Includes the results of operations of Sun Sportswear from the Sun Merger
date, March 14, 1997, through March 29, 1997.
(2) Includes the results of operations of Sun Sportswear from January 1, 1997,
to the Sun Merger date, March 14, 1997.
ACQUISITION AND NOTE OFFERING ADJUSTMENTS
<TABLE>
<CAPTION>
SUN MORNING NOTE
SPORTSWEAR SUN PREMIER OFFERING TOTAL
----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(3) Elimination of intercompany
sales to the Company............ $-- $ -- $ (586) $ -- $ (586)
=========== ======== ======== ======== =======
(4) Elimination of cost of goods
sold on inter-company sales to
the Company. Such amount is
equal to the amount of sales in
pro forma adjustment (3)
above........................... $-- $ -- $ (586) $ -- $ (586)
Reclassification of royalty
expense to operating expenses to
conform with the Company's
financial reporting practices... (833) -- -- -- (833)
Decrease in depreciation of
fixed assets based on their
post-acquisition allocated fair
values............................... (180) (12 ) -- -- (192)
Elimination of non-recurring
charges to dispose of certain
inventory types and styles,
commensurate with the Company's
business plan for Sun
Sportswear...................... (553) -- -- -- (553)
----------- -------- -------- -------- -------
$(1,566) $ (12 ) $ (586) $ -- $(2,164)
=========== ======== ======== ======== =======
(5) Reclassification of royalty
expense from cost of goods sold
to conform with the Company's
financial reporting practices... $ 833 $ -- $-- $ -- $ 833
Decrease in depreciation of
fixed assets based on their
post-acquisition allocated fair
values............................... (159) (3 ) (5) -- (167)
Amortization of goodwill over 40
years........................... (1) 155 47 -- 201
Decrease in compensation expense
to reflect compensation levels
on a post-acquisition basis
pursuant to post-acquisition
employment and advisory
agreements...................... -- (2,500 ) -- -- (2,500)
Elimination of non-recurring
expenses such as board of
directors fees and other fees
charged to Morning Sun by its
former majority shareholder..... -- (57 ) -- -- (57)
Elimination of Sun Merger
acquisition expenses............ (233) -- -- -- (233)
Elimination of duplicate letter
of credit fees.................. -- -- (24) -- (24)
----------- -------- -------- -------- -------
$ 440 $(2,405 ) $ 18 $ -- $(1,947)
=========== ======== ======== ======== =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SUN MORNING NOTE
SPORTSWEAR SUN PREMIER OFFERING TOTAL
----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(6) Net increase in interest expense
related to increased net
indebtedness as follows:
<CAPTION>
WEIGHTED
AMOUNT AVG. RATE
-------- ---------
Interest on Exchange Notes...... $100,000 10.58% $-- $-- $ -- $ 2,644 $ 2,644
Interest on Premier
subordinated obligation....... 4,000 7% -- -- -- 70 70
Interest on estimated
average indebtedness.......... 1,000 8% -- -- -- 20 20
Reversal of interest expense on debt repaid............. (72) (94) (36 ) (1,128 ) (1,330)
Amortization of deferred financing costs over the
respective lives of the related debt obligations........ 10 -- -- 94 104
----------- -------- ------- -------- -------
$ (62) $ (94) $ (36 ) $ 1,700 $ 1,508
=========== ======== ======= ======== =======
(7) Incremental income tax effects
for pro forma adjustments,
S-Corporation income, and Sun
Sportswear's losses at an
effective tax rate of 40%....... $-- $-- $ -- $ 184 $ 184
=========== ======== ======= ======== =======
(8) Dividends on 8% paid-in-kind
convertible preferred stock..... $ 43 $-- $ -- $ -- $ 43
Accretion of discount related to
fair value allocated to common
stock purchase warrants......... 38 -- -- -- 38
----------- -------- ------- -------- -------
$ 81 $-- $ -- $ -- $ 81
=========== ======== ======= ======== =======
</TABLE>
28
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 29, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
THE COMPANY MORNING SUN PREMIER ADJUSTMENTS PRO FORMA
----------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................ $ 357 $ 77 $ 61 $ -- $ 495
Accounts receivable, net........ 29,390 2,740 902 -- 33,032
Inventories..................... 47,838 6,279 1,817 -- 55,934
Prepaid expenses and other...... 4,529 525 1,084 -- 6,138
Income tax receivable........... 1,817 1,155 -- 1,600(1) 4,572
----------- ------------ ------- ------------ ----------
Total current assets....... 83,931 10,776 3,864 1,600 100,171
Property, plant and equipment, net... 6,471 3,110 212 -- 9,793
Other noncurrent assets.............. 435 30 72 -- 537
Intangible assets.................... 22,979 751 -- 36,413(2) 60,143
----------- ------------ ------- ------------ ----------
Total assets............... $ 113,816 $ 14,667 $ 4,148 $ 38,013 $170,644
=========== ============ ======= ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt.......................... $ 2,612 $ 831 $ 10 $ (3,453)(3) $ --
Capital leases.................. 358 -- -- -- 358
Short-term debt................. 36,273 2,822 2,717 (32,227)(3) 9,585
Accounts payable and accrued
liabilities................... 32,621 5,485 1,192 (3,850)(4) 35,448
----------- ------------ ------- ------------ ----------
Total current
liabilities................ 71,864 9,138 3,919 (39,530) 45,391
Long-term debt, net of current
maturities......................... 9,000 1,652 96 88,492(3) 99,240
Capital leases, net of current
maturities......................... 1,078 -- -- -- 1,078
Subordinated debt due to related
parties.............................. 12,092 -- -- (8,092)(3) 4,000
Convertible subordinated debt........ -- -- -- 1,500(3) 1,500
Deferred income taxes................ 954 -- -- -- 954
Other................................ 295 -- 123 -- 418
----------- ------------ ------- ------------ ----------
Total liabilities.......... 95,283 10,790 4,138 42,370 152,581
Mandatorily redeemable preferred
stock.............................. 898 -- -- (898)(5) --
Mandatorily redeemable convertible
preferred stock.................... 7,836 -- -- -- 7,836
Shareholders' equity:
Common stock.................... 4 1,073 2 (1,075)(6) 4
Additional paid-in capital...... 10,539 7 10 733(7) 11,289
Retained earnings (deficit)..... (744) 2,797 (2) (3,117)(8) (1,066)
----------- ------------ ------- ------------ ----------
Total shareholders'
equity..................... 9,799 3,877 10 (3,459) 10,227
----------- ------------ ------- ------------ ----------
Total liabilities and
shareholders' equity.... $ 113,816 $ 14,667 $ 4,148 $ 38,013 $170,644
=========== ============ ======= ============ ==========
</TABLE>
29
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Adjustment to reflect the tax
benefit generated by the
exercise of non-qualified stock
options prior to the Morning Sun
Acquisition..................... $ 1,600
=========
(2) Adjustment to reflect the effects of goodwill and deferred financing costs
as follows:
INTANGIBLE AMORTIZATION
ASSET PERIOD
----------- -------------
Morning Sun.......................... $ 25,048 40 years
Premier.............................. 7,615 40 years
Note Offering expenses............... 3,750 10 years
-----------
$ 36,413
===========
(3) To record a net increase in debt from the issuance of $100,000 of the Note
Offering net of a discount of $760, a $4,000, 7% subordinated obligation
and a $1,500 convertible subordinated note pursuant to the Note Offering
and the Acquisitions, net of the repayment of certain debt obligations of
the Company, Morning Sun and Premier as follows:
ISSUANCES REPAYMENTS NET ADJUSTMENT
---------- ----------- --------------
Current maturities of long-term
debt.............................. $ -- $ (3,453) $ (3,453)
Short-term debt................... -- (32,227) (32,227)
Long-term debt, net............... 99,240 (10,748) 88,492
Subordinated debt................. 4,000 (12,092) (8,092)
Convertible subordinated debt..... 1,500 -- 1,500
---------- ----------- --------------
$ 104,740 $ (58,520) $ 46,220
========== =========== ==============
The above repayment of short-term debt includes the following:
Morning Sun.......................... $ (2,822)
Premier.............................. (2,717)
The Company revolver, net............ (26,688)
-----------
$ (32,227)
===========
(4) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier and the Note Offering as follows:
Payment of an earnout related to the
acquisition of Plymouth............ $(2,950)
Payment of certain assumed
contractual obligations of Morning
Sun................................ (2,500)
Contingent consideration related to
the tax benefit generated by the
exercise of non-qualified stock
options prior to the Morning Sun
Acquisition........................ 1,600
-------------
$(3,850)
=============
(5) Adjustment to reflect redemption of the Company's Series A-1 and A-2
preferred stock with a portion of the proceeds from the Note Offering.
(6) Adjustment to reflect the elimination of Morning Sun's and Premier's
historical common stock accounts.
30
<PAGE>
(7) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier as follows:
Elimination of Morning Sun's and
Premier's historical additional
paid-in capital accounts........... $ (17)
Stock issued related to the Morning
Sun Acquisition.................... 750
-------------
$ 733
=============
(8) Adjustment to reflect the effects of the acquisitions of Morning Sun and
Premier and the Note Offering as follows:
Elimination of Morning Sun's and
Premier's historical retained
earnings........................... $(2,795)
Effect of write-off of original issue
discount associated with the early
extinguishment of $3,500 face
amount of subordinated debt
pursuant to the Note Offering...... (322)
-------------
$(3,117)
=============
31
<PAGE>
SELECTED FINANCIAL DATA
The following summary historical financial information for the fiscal years
1992 through 1996 has been derived from the audited financial statements of the
Company. The statement of operations data for fiscal 1996 includes the results
of operations of Plymouth Mills, Inc. ("Plymouth") from its date of
acquisition, August 2, 1996. The information presented for the thirteen weeks
ended March 30, 1996 and March 29, 1997 has been derived from the unaudited
financial statements of the Company. The statement of operations data for the
thirteen weeks ended March 29, 1997 includes the results of operations of Sun
Sportswear, Inc. ("Sun Sportswear") from the date of the merger of the Company
with Sun Sportswear (the "Sun Merger"), March 14, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------------------------------- -----------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MAR. 30, MAR. 29,
1992 1993 1994 1995(A) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 48,069 $ 60,850 $ 76,754 $131,020 $169,452 $ 30,132 $ 34,907
Cost of goods sold...................... 39,376 51,640 64,846 106,576 127,845 22,761 26,520
-------- -------- -------- -------- -------- -------- --------
Gross profit........................ 8,693 9,210 11,908 24,444 41,607 7,371 8,387
Operating expenses...................... 7,511 7,285 10,221 25,549 32,529 6,341 8,602
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)............. 1,182 1,925 1,687 (1,105) 9,078 1,030 (215)
Interest expense........................ 1,056 1,153 1,663 3,695 4,491 811 1,145
Other expense (income), net............. 80 89 -- (22) (234) (233) 125
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary gain............ 46 683 24 (4,778) 4,821 452 (1,485)
Provision (benefit) for income taxes.... 87 254 99 (338) 789 -- (609)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary gain................ (41) 429 (75) (4,440) 4,032 452 (876)
Extraordinary gain...................... -- -- -- 500 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................... (41) 429 (75) (3,940) 4,032 452 (876)
Dividends and accretion on preferred
stock................................. -- -- -- -- 245 -- 165
-------- -------- -------- -------- -------- -------- --------
Net income (loss) available for common
shareholders.......................... $ (41) $ 429 $ (75) $ (3,940) $ 3,787 $ 452 $ (1,041)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common and common
equivalent share...................... $ (.01) $ .14 $ (.02) $ (1.30) $ .90 $ .11 $ (.27)
======== ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding......... 2,797,788 3,032,656 3,029,803 3,029,803 4,198,907 4,113,580 3,889,538
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges...... 1.04 1.50 1.01 (b) 1.89(c) (b)(c)
======== ======== ======== ======== ======== ========
<CAPTION>
AS OF
--------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MAR. 29,
1992 1993 1994 1995(A) 1996 1997
-------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital......................... $ 1,951 $ 1,409 $ 5,927 $ (1,592) $ 4,667 $12,067
Total assets............................ 23,092 20,565 45,049 47,070 82,682 113,816
Total long-term obligations, including
current maturities.................... 3,118 2,496 9,621 9,143 27,025 25,766
Mandatorily redeemable preferred
stock................................. -- -- -- 945 7,613 898
Mandatorily redeemable convertible
preferred stock (dividends
payable-in-kind)...................... -- -- -- -- -- 7,836
Shareholders' equity.................... 2,130 2,654 3,221 (689) 3,229 9,799
</TABLE>
- ------------
(a) For further discussion of the Company's loss in 1995, see "The
Company -- Acquisitions -- Velva Sheen" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Fiscal year ended December 30, 1995 compared with fiscal year
ended December 31, 1994."
(b) For the year ended December 30, 1995 and the thirteen weeks ended March 29,
1997, earnings, as defined, were inadequate to cover fixed charges. The
deficiencies were approximately $4.8 million and $1.5 million for the year
ended December 30, 1995 and the thirteen weeks ended March 29, 1997,
respectively.
(c) On a pro forma basis after giving effect to the Exchange Offer, the
Acquisitions, the Sun Merger, and the acquisition of Plymouth, as if such
transations had occurred at the beginning of fiscal 1996, the ratio of
earnings to fixed charges for fiscal 1996 would have been 1.47 and the
deficiency for the thirteen weeks ended March 29, 1997 would be
approximately $4.9 million.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE HEREIN. ON MARCH
14, 1997, SUN SPORTSWEAR MERGED WITH THE COMPANY AND WAS REINCORPORATED AS A
DELAWARE CORPORATION. THE SUN MERGER WAS ACCOUNTED FOR AS A PURCHASE, AND THE
FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS, EXCEPT FOR THE DISCUSSION OF THE
THIRTEEN WEEKS ENDED MARCH 29, 1997, RELATES ONLY TO THE OPERATIONS OF THE
COMPANY BEFORE THE SUN MERGER.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the Company's statements of operations expressed as a percentage of net
sales. In 1995, the Company changed its fiscal year from the calendar year ended
December 31 to a 52-53 week accounting period ending on the last Saturday of
December. Due to the seasonal nature of the Company's business, operating
results for the thirteen weeks ended March 30, 1996 and March 29, 1997 are not
indicative of the results that are expected for the full year period.
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
---------------------------------- ---------------------
DEC. 31, DEC. 30, DEC. 28, MAR. 30, MAR. 29,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................... 84.5 81.3 75.4 75.6 76.0
-------- -------- -------- -------- --------
Gross profit.................... 15.5 18.7 24.6 24.4 24.0
Operating expenses................... 13.3 19.5 19.2 21.0 24.6
-------- -------- -------- -------- --------
Operating income (loss)......... 2.2 (0.8) 5.4 3.4 (0.6)
Interest expense..................... 2.2 2.8 2.7 2.7 3.3
Other expense (income), net.......... 0.0 0.0 (0.1) (0.8) 0.4
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
gain.......................... 0.0 (3.6) 2.8 1.5 (4.3)
Provision (credit) for income
taxes................................ 0.1 (0.2) 0.4 0.0 (1.8)
-------- -------- -------- -------- --------
Net Income (loss) before
extraordinary gain............ (.1) (3.4) 2.4 1.5 (2.5)
Extraordinary gain on extinguishment
of debt............................ -- 0.4 -- -- --
-------- -------- -------- -------- --------
Net income (loss)............... (0.1)% (3.0)% 2.4% 1.5% (2.5)%
======== ======== ======== ======== ========
</TABLE>
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED WITH THIRTEEN WEEKS ENDED MARCH 30,
1996
The Company's net sales increased approximately $4.8 million, or 15.8%,
from $30.1 million in 1996 to $34.9 million in 1997. This increase was primarily
attributable to the acquisition of the assets of Plymouth on August 2, 1996 and
the Sun Merger on March 14, 1997. The Plymouth acquisition and the Sun Merger
contributed approximately $9.0 million of net sales during 1997. Excluding these
acquisitions, net sales declined approximately $4.2 million or 14%.
The sales decline was primarily attributable to lower licensed cartoon
character sales resulting from delays in realigning the Company's sales force
during the period in anticipation of the completion of the Sun Merger, as well
as certain other factors. The extended period before the closing of the Sun
Merger prohibited the Company from effectively integrating its sales and
marketing programs among the Company, Plymouth and Sun Sportswear. The delay
created confusion among certain customers and licensors and hindered the
Company's ability to effectively develop and market a coordinated line of
licensed character products for its 1997 spring offering. Subsequent to the
completion of the Sun Merger, the Company effectively transitioned all Sun
Sportswear customer accounts and licensing relationships and realigned its
33
<PAGE>
sales and marketing personnel in a manner in which it believes will enhance its
ability to take advantage of future sales opportunities.
Other factors impacting sales during the period included (i) a strategic
decision by management to stop selling licensed cartoon character products,
primarily Mickey Unlimited products, to one of its major customer's men's and
boys' department in order to position the Company to sell to that customer's
women's department, which management of the Company believes has significantly
higher long-term revenue potential, and (ii) delayed sales in January and
February to one of the Company's major customers due to a federal customs quota
embargo on certain of the Company's products from China. The Company believes
these items are temporary in nature and will not have a long-term continuing
impact on its sales and profitability in future periods.
The Company's gross profit increased approximately $1.0 million, or 13.8%,
from $7.4 million in 1996 to $8.4 million in 1997, principally as a result of
the increase in sales volume attributable to the Plymouth acquisition and the
Sun Merger. Overall gross profit margin decreased to 24.0% in 1997 from 24.4% in
1996, primarily as a result of the decline in higher gross profit licensed
cartoon character sales and a lower contributed gross profit from Sun
Sportswear. See "The Company -- Acquisitions" "-- Sun Sportswear, Inc."
Operating expenses increased approximately $2.3 million, or 35.7%, from
$6.3 million in 1996 to $8.6 million in 1997. The increase resulted principally
from the addition of two production facilities from the acquisition of Plymouth
and the Sun Merger. As a percentage of net sales, operating expenses increased
from 21.0% in 1996 to 24.6% in 1997. This increase was due to higher operating
expenses as a percentage of sales at Sun Sportswear and the decline in licensed
cartoon character sales.
Interest expense increased approximately $0.3 million, or 41.2%, from $0.8
million in 1996 to $1.1 million in 1997, primarily as a result of increased
borrowings under the Company's credit facility to fund its increased working
capital requirements and borrowings incurred in connection with the Plymouth
acquisition and the Sun Merger.
Income tax benefit increased from $0.0 million in 1996 to approximately
$0.6 million in 1997. In 1996, income tax expense was completely offset by the
reversal of a valuation allowance on the Company's net deferred tax assets, most
of which related to net operating loss carryforwards.
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED WITH FISCAL YEAR ENDED DECEMBER 30,
1995
The Company's net sales increased approximately $38.4 million, or 29.3%,
from $131.0 million in 1995 to $169.5 million in 1996. The acquisition of
Plymouth on August 2, 1996 contributed $14.8 million of sales during this
period. Excluding Plymouth, net sales increased $23.6 million primarily as a
result of the realization of the benefit from the successful implementation of
the Company's business plan for Velva Sheen. See "The
Company -- Acquisitions -- Velva Sheen."
The Company's gross profit increased $17.2 million, or 70.2%, from $24.4
million in 1995 to $41.6 million in 1996, principally as a result of the
increase in decorated product sales. Overall gross margin increased to 24.6% in
1996 from 18.7% in 1995, primarily as a result of: (i) increased sales volume,
which resulted in improved operating efficiencies; (ii) improved sourcing and
manufacturing, which resulted in lower cost of goods sold as a percent of net
sales; (iii) improved pricing for the Company's imported fleece product line;
and (iv) reduced embroidery production costs as a result of the Company's
acquisition of Needleworks.
Operating expenses increased $7.0 million, or 27.3%, from $25.5 million in
1995 to $32.5 million in 1996. The increase resulted principally from higher
commission and royalty expense due to increased decorated product sales and
additional administrative costs as a result of the Needleworks and Plymouth
acquisitions. Additionally, in 1996 the Company recorded increased compensation
expense pursuant to its incentive compensation plan. As a percentage of net
sales, operating expenses dropped slightly from 19.5% in 1995 to 19.2% in 1996.
34
<PAGE>
Interest expense increased $0.8 million, or 21.5%, from $3.7 million in
1995 to $4.5 million in 1996, primarily as a result of increased borrowings
under the Company's credit facility to fund its increased working capital
requirements and borrowings incurred in connection with the Plymouth
acquisition.
Income tax expense of $0.8 million was recorded in 1996, which reflects the
reversal of a valuation allowance on the Company's net deferred tax assets, most
of which is related to a net operating loss carryforward.
FISCAL YEAR ENDED DECEMBER 30, 1995 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1994
Before being acquired by the Company, Velva Sheen's financial performance
was deteriorating. Velva Sheen's net sales decreased 16.1% from $60.4 million in
1993 to $50.7 million in 1994. Following the acquisition, the Company developed
a plan to improve Velva Sheen's operating efficiency and profitability. The plan
included: (i) reducing facility personnel and related costs, particularly senior
and mid-level management personnel to levels commensurate with other the Company
operating locations; (ii) streamlining the facility's product development and
manufacturing processes in order to increase throughput and improve on-time
delivery, which included relocating Velva Sheen's non-licensed character
business to another more suitable the Company facility and closing Velva Sheen's
retail outlet store operations; (iii) eliminating unprofitable licenses and
reducing the number of product offerings to focus Velva Sheen on its core
product line of licensed cartoon character products; (iv) reducing inventory
levels and the number of inventory types and styles to levels commensurate with
the Company's expectations for Velva Sheen's sales levels; (v) implementing the
Company's shelf stock sales and marketing program in order to increase inventory
turns and stimulate sales; and (vi) realigning Velva Sheen's sales commission
structure for in-house and outside sales personnel to more properly incentivize
and compensate those personnel for their individual contributions.
The implementation of the plan resulted in a number of non-recurring
expenses in the second half of 1995, including: (i) severance and relocation
costs for terminated personnel; (ii) additional reserves for inventory to bring
carrying values in line with the Company's short-term inventory liquidation
plan; (iii) license termination charges or minimum royalty charges for
terminated or cancelled licenses; and (iv) costs associated with liquidating
inventory and closing Velva Sheen's retail outlet stores. Management of the
Company believes the successful implementation of the plan significantly reduced
the operating cost structure of the facility and improved its prospects for
growth and profitability in the future.
The Company's net sales increased $54.3 million, or 70.7%, from $76.8
million in 1994 to $131.0 million in 1995. The increase in sales was primarily
the result of the completion of the acquisition of Velva Sheen in November 1994.
In addition, the Company's undecorated product sales increased during 1995
primarily as a result of the introduction of a fulfillment program for one of
its major customers.
The Company's gross profit increased $12.5 million, or 105.3%, from $11.9
million in 1994 to $24.4 million in 1995, as a result of the increase in sales
from the Velva Sheen acquisition. Overall gross margin increased from 15.5% in
1994 to 18.7% in 1995, primarily as a result of a change in sales mix toward
higher margin decorated sportswear sales due to the Velva Sheen acquisition.
Operating expenses increased $15.3 million, from $10.2 million in 1994 to
$25.5 million in 1995. As a percentage of net sales, operating expenses
increased from 13.3% in 1994 to 19.5% in 1995. The increase was attributable
primarily to increased commissions and royalties on decorated sportswear sales
from Velva Sheen's operations and increased costs related to the implementation
of the plan discussed above.
Interest expense increased $2.0 million, from $1.7 million in 1994 to $3.7
million in 1995. The increase in interest expense was primarily attributable to
an increase in borrowings under the Company's credit facility to fund its
increased working capital requirements and borrowings incurred in connection
with the Velva Sheen acquisition.
35
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements, capital
expenditures and acquisitions from net cash provided by operations, borrowings
under its credit facilities and proceeds from the issuance of debt and equity
securities.
On July 2, 1997, the Company entered into a Third Amended and Restated Loan
and Security Agreement with Fleet Capital Corporation and BankBoston, N.A. which
makes a revolving line of credit (the "Credit Facility") available to Brazos,
Inc. (the "Borrower") in an aggregate principal amount of up to $50.0 million,
subject to a borrowing base based upon eligible accounts receivable and
inventory and various reserves established from time to time by the lenders.
Borrowings under the Credit Facility bear interest at a rate per annum, at the
Borrower's option, equal to (i) a prime rate plus 0.25%, or (ii) LIBOR plus
2.00%. The Credit Facility is secured by accounts receivable and inventory of
the Borrower and will include certain covenants applicable to the Borrower,
including requirements that the Borrower comply with certain financial ratios.
The Credit Facility has an initial term of three years, subject to extension,
and borrowings under the Credit Facility are guaranteed by the Company.
The Company expects that its primary capital requirements will be for debt
service, working capital and capital expenditures. The Company's capital
expenditures in 1997 are expected to be approximately $1.3 million. The Company
believes that funds generated from operations and funds available under the
Credit Facility will be sufficient to meet its liquidity requirements for the
foreseeable future.
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED WITH THE THIRTEEN WEEKS ENDED MARCH
30, 1996
Net cash used in the Company's operating activities was $3.8 million during
the thirteen weeks ended March 29, 1997 compared to $0.5 million of cash
provided by operating activities during the thirteen weeks ended March 30, 1996.
Principal working capital changes in the 1997 period included a $9.2 million
increase in inventory offset by a $7.7 million increase in accounts payable and
accrued liabilities. Principal working capital changes in the 1996 period
included a $4.2 million increase in accounts receivable, a $3.0 million increase
in inventory and a $7.2 million increase in accounts payable and accrued
liabilities.
Net cash used in the Company's investing activities was $4.6 million and
$0.2 million during the 1997 and 1996 periods, respectively. The Company's
investing activities in the 1997 period included a $4.6 million investment in
connection with the Sun Merger.
Net cash generated by the Company's financing activities was $8.2 million
during the 1997 period compared to $1.0 million used by financing activities
during the 1996 period. Net cash provided in 1997 primarily included $6.3
million of net borrowings and $2.1 million from the sale of common and preferred
stock. Net cash used in the 1996 period principally related to the repayment of
approximately $1.0 million of borrowings.
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED WITH THE FISCAL YEAR ENDED DECEMBER
30, 1995
Net cash provided by the Company's operating activities in fiscal 1996 and
1995 were $5.1 million and $0.7 million, respectively. Principal working capital
changes in 1996 included a $4.3 million decrease in inventory, a $1.0 million
increase in prepaid expenses, a $1.8 million increase in other noncurrent assets
and a $2.0 million decrease in accounts payable and accrued liabilities.
Net cash used by the Company's investing activities was $21.4 million and
$0.5 million during fiscal 1996 and fiscal 1995, respectively. The Company's
investing activities during fiscal 1996 included $20.3 million utilized in the
acquisition of Plymouth and $1.1 million of capital expenditures.
Net cash generated by the Company's financing activities was $16.1 million
and $0.4 million in fiscal 1996 and fiscal 1995, respectively. Net cash provided
in fiscal 1996 primarily included $13.7 million of net borrowings and $2.5
million from the sale of common and preferred stock. Net cash provided by
financing activities in fiscal 1995 principally related to net borrowings of
$0.4 million.
36
<PAGE>
FISCAL YEAR ENDED DECEMBER 30, 1995 COMPARED WITH THE FISCAL YEAR ENDED DECEMBER
31, 1994
Net cash provided from operating activities was $0.7 million in 1995,
although the Company experienced a net loss of $3.9 million. Accounts payable
and accrued liabilities increased $3.6 million without a significant increase in
accounts receivable or inventory. Accounts receivable and inventory increased by
$4.4 million in 1994.
During 1995, the Company incurred capital expenditures of $0.5 million.
During 1994, the Company invested $11.7 million in connection with its
acquisition of Velva Sheen and incurred capital expenditures of $0.5 million.
Financing activities provided $0.4 million of cash in 1995 as compared with
net borrowings of $15.6 million in 1994, which were utilized to fund the Velva
Sheen acquisition.
OTHER
The Company maintains an acquisition strategy focused on the acquisition of
businesses that provide products or services that complement those offered by
the Company. There can be no assurance that any such acquisitions will be
consummated.
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BUSINESS
GENERAL
The Company is a leading designer, manufacturer and marketer of decorated
sportswear in the United States. The Company offers extensive and diversified
product lines of licensed, proprietary and private label sportswear consisting
of T-shirts, fleecewear (sweatshirts) and other casual apparel products. Many of
the Company's licensed products include creative enhancements of classic cartoon
characters, including Disney's Mickey Mouse, Disney's Winnie the Pooh and
various Warner Bros. Looney Tunes characters, such as Bugs Bunny and the
Tasmanian Devil. The Company has entered into license agreements with Disney,
Warner Bros., Chic by H.I.S., Major League Baseball and most major colleges for
the use of their characters and logos in developing the Company's products. The
Company uses its in-house merchandising, design and art staff to create
innovative designs for the Company's proprietary product lines under numerous
Company-owned brand names and labels, including Brazos Sportswear, Morning Sun,
Top Stitch and Thank Goodness for Kids. In addition, the Company designs private
label products for its larger retail customers that are sold under particular
customers' labels. The Company sells its products to a diverse customer base
including (i) department stores such as J.C. Penney, May Co., Federated
Department Stores and Mercantile, (ii) mass merchandising stores such as
Wal-Mart, Kmart and Target, (iii) specialty stores such as Kids "R" Us and
Garden Ridge and (iv) other regional and national retail chains.
The Company believes it maintains a competitive advantage because of
several factors, including its (i) extensive and diversified lines of licensed,
proprietary and private label products, (ii) award winning in-house
merchandising and design staff, (iii) unique sales and marketing programs
tailored to the needs of specific customers and markets, (iv) diverse customer
base, (v) flexible and efficient manufacturing capabilities and (vi) commitment
to a low cost structure.
The Company believes growth in the decorated sportswear market has resulted
from: (i) an increased preference for comfortable apparel selections; (ii) more
flexible dress codes, including greater acceptance of casual wear in the
workplace; (iii) a heightened emphasis on physical fitness including increased
participation in sports; (iv) improved characteristics that have enhanced
consumer appeal, including improvements in fabric weight, blends and
construction, and increased offerings of size, color and style; (v) the
enhancement of screenprinted graphics and embroidered designs primarily
resulting from more advanced manufacturing equipment and processes; and (vi) the
increased use of "attitude" apparel. For example, the Company believes that
more people are using apparel as a way to express themselves or show affinity
with a group, cause or idea. The Company believes that these trends should
continue to drive industry growth.
BUSINESS STRATEGY
The Company intends to enhance its position as one of the leading
designers, manufacturers and marketers of decorated sportswear and to increase
its net sales and operating cash flow by continuing to pursue the following
business strategies:
EXTENSIVE LINES OF QUALITY PRODUCTS. The Company offers extensive and
diversified lines of licensed, proprietary, private label and blank products.
LICENSED PRODUCTS. Licensed products are decorated with classic cartoon
characters and logos that the Company's artists vary and refine using different
lettering, poses, activities or dress. The Company acquires rights to use
characters and logos on specified types of garments, pays each licensor
royalties on products sold displaying the licensed character or logo, and
typically guarantees a minimum annual royalty.
PROPRIETARY PRODUCTS. The Company develops its proprietary product lines
for its exclusive use under numerous Company-owned brand names and labels.
Proprietary products are merchandized using graphic designs based on a wide
variety of themes, including "attitude," recreational, outdoor, wildlife,
western, sports, patriotic, humor and seasonal themes. The Company's innovative
designs and broad assortment of proprietary products have created a number of
emerging Company-owned brand names and labels. The Company believes this
increased brand awareness will further expand and enhance its customer
relationships by creating a strong consumer following for its products.
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PRIVATE LABEL PRODUCTS. The Company manufactures private label products
for certain of its larger retail customers. The Company designs each private
label product by working closely with a customer, creating a unique decorated
sportswear line that is sold under that customer's label. The Company believes
that providing its private label customers a combination of decorating,
merchandising, design, manufacturing and sourcing services afford it a
competitive advantage because many other suppliers only provide contract
printing or embroidery services. The Company's private label customers include
Target, Wal-Mart and Sears.
BLANK PRODUCTS. The Company is a wholesale distributor of blank garments
of recognized manufacturers such as Fruit of the Loom, Russell and Hanes, and
sells these garments to over 12,000 customers that typically decorate the
products for later sale.
OTHER. Other products include custom manufactured athletic uniforms and
custom designed products for corporate accounts.
The Company believes its extensive and diversified product lines position
it well to capitalize on retailers' desires to reduce purchasing and
administrative costs by limiting the number of suppliers they use.
INNOVATIVE MERCHANDISING AND DESIGN STAFF. The Company employs 14 in-house
merchandising and design personnel and a staff of approximately 70 artists who
work closely with customers to create innovative designs for the Company's
sportswear lines. The Company's award winning merchandising and design staff has
been recognized for its achievements by licensors and customers, and has
received a number of awards, including the Graphic Excellence Award from Disney,
the Vendor of the Year Award from J.C. Penney's Women's department, the Bugsy
Award from Warner Bros. and the Vendor of the Year Award for Girls 4-14 from
Target.
UNIQUE COMBINATION OF SALES AND MARKETING PROGRAMS. The Company uses a
unique combination of sales and marketing programs designed to address the
differing needs of its diverse customer base. Key sales programs include:
BOOKING PROGRAM. The Company works with its larger retail customers
to custom design and merchandise a spring and fall product line of
"fashion-basic," longer lead time products. The product line consists
primarily of high quality, low price foreign sourced products. The
Company's 14 in-house account executives work closely with customers to
determine volume needs based on the current years' product line and past
sales history. The Company books orders under this program prior to
committing to overseas production. Production lead times vary by product
but typically range from 60 to 120 days.
CALENDAR GRAPHICS PROGRAM. The Company offers a calendar graphics
program designed to provide customers with an extensive selection of
graphics and a wide variety of garments and size mixes but with shorter
lead times than under the booking program. Under the calendar graphics
program, graphics designs are printed and available on a pre-scheduled
basis throughout the year. The Company batches orders from numerous
customers to gain production economies of scale to keep product costs
competitive. Therefore, customers can order in minimum quantities of two to
four dozen while gaining the pricing advantages of much larger runs.
Production lead times generally range from three to four weeks.
SHELF STOCK PROGRAM. The Company also offers a shelf stock program
that consists of preprinted inventory it delivers to customers on short
lead times, typically within five days of receipt of an order. Products are
sold through this program by approximately 100 independent sales
representatives who call on individual customer stores. In addition, the
Company uses an electronic data interchange system ("EDI") through which
customers place orders to replenish their stock with weekly shipments of
products that are selling well. The program also provides the Company with
information that enables the Company to assess market trends and to respond
promptly to the success of individual products or graphics. The shelf stock
program allows major retailers to tailor their buying to the specific needs
of each store and reduces the guesswork and risks of the "corporate buy"
allocation approach. In order to minimize the Company's investment in
inventory, the Company limits the graphics under this program to only a
portion of those the Company offers in its calendar graphics
39
<PAGE>
program. However, the program is attractive to the Company's customers
because it consists of the Company's most popular graphics, and new
concepts are added periodically as less popular designs are phased out.
The Company's marketing programs have enabled it to improve sales and more
efficiently manage its inventory, production, distribution and other costs while
providing its customers with exceptional service and support.
DIVERSE CUSTOMER BASE. Unlike many of the Company's competitors that
concentrate marketing efforts on a limited segment of the sportswear market, the
Company sells its decorated sportswear products to a diverse customer base
including department stores, mass merchandising stores and specialty and other
stores. This marketing strategy allows the Company to cover a large portion of
the retail market while reducing its exposure to any one market segment. In
addition, the Company believes that the breadth of its customer base provides a
competitive advantage in obtaining new licenses from licensors seeking to
introduce their products through multiple distribution channels.
EXPANSION AND ENHANCEMENT OF CUSTOMER RELATIONSHIPS. The expansion of the
Company's product lines and license portfolio has provided significant
cross-selling opportunities by increasing the number of departments within a
retailer that may sell the Company's products. For example, the Company is
targeting sales of women's sportswear to retail customers that traditionally
have sold only the Company's men's and boys' sportswear. In addition, the
Company maintains a staff of 14 in-house account executives and approximately
100 independent sales representatives to pursue additional large customers. The
Company has also established a telemarketing program to market its products to
local and regional retailers.
FLEXIBLE AND EFFICIENT MANUFACTURING. Many of the Company's competitors do
not operate production facilities of their own and, therefore, must contract
with third parties to provide the value added decorating process. The Company
believes that operating its own production facilities provides the Company with
a competitive advantage through (i) increased manufacturing and production
efficiencies, (ii) the flexibility to shift production among various facilities
and (iii) better control over quality, delivery and costs. In addition, the
Company's shelf stock and calendar graphics programs could not be implemented as
effectively without in-house production capabilities.
COMMITMENT TO LOW COST STRUCTURE. The Company is committed to controlling
costs and improving operating efficiencies. The Company's recent acquisitions
have resulted in significant improvements in the Company's purchasing power and
its ability to realize certain economies of scale in manufacturing, marketing,
distribution and administration. In addition, the Company concentrates on the
high value-added production processes of custom design, screen printing and
embroidery at its manufacturing facilities and outsources the capital intensive
process of manufacturing undecorated blanks to a network of domestic and foreign
manufacturers. This outsourcing allows the Company to maintain flexibility, low
fixed costs and low levels of capital expenditures.
INTERNATIONAL OPPORTUNITIES. The Company recently obtained a license from
Walt Disney Enterprises of Japan, Ltd. to export and distribute Disney's classic
cartoon character products directly to Japan. The Company's current marketing
plans include sales to several major retail outlets in Japan that represent
approximately 3,000 stores. The Company also is evaluating opportunities to sell
its products in other countries.
STRATEGIC ACQUISITIONS. The Company maintains an acquisition strategy
focused on acquiring businesses that provide products or services that
complement those offered by the Company. The criteria for identifying an
attractive acquisition candidate is not limited to the revenue potential of the
acquisition target, but also includes such factors as (i) expanding the
Company's product lines, (ii) increasing manufacturing, production and other
cost efficiencies, (iii) diversifying and expanding the Company's customer base
and (iv) gaining access to the talents of key management, sales and design
personnel. The Company has made eight acquisitions since 1989 that have brought
significant strategic advantages to its business.
40
<PAGE>
PRODUCTS
The Company provides extensive and diversified product lines of licensed,
proprietary and private label sportswear consisting primarily of T-shirts and
fleecewear (sweatshirts) imprinted or embroidered to display cartoon characters,
brands, logos and designs that are enhanced or created by the Company's in-house
merchandising, design and art staff. The products are sold in a variety of
styles, including basic pocket, long-sleeved and oversized T-shirts, night
shirts and sweat pants. T-shirts are available in solid, stripe, roll sleeve,
weathered natural and micro-stripe styles and range in fiber content from 50%
cotton/50% polyester to 100% cotton. Fleecewear products range from seven ounces
to 12 ounces in weight. The Company's products also include windsuits, denim
jackets, parkas, shorts and knit shirts and more detailed fashion-oriented
garments, all of which are available in a variety of colors, styles and fabric
weights.
The Company develops screen print and embroidery designs based on industry
trends, visits to fashion and trade shows and frequent meetings with apparel
label owners and major customers. Sales managers work closely with the Company's
merchandisers, designers and artists to develop appropriate styles and color
shades. The design process is interactive, requiring the creation and delivery
of numerous samples for customer feedback and further changes. For larger
customers, the design staff typically incorporates minor styling changes to a
basic design to create a unique product line for the customer. The product
development process also involves (i) production feasibility studies, (ii)
analysis and documentation of garment and art trends, as well as cost and
structure, (iii) prototype preparation for customers and trade shows, and (iv)
limited test sales.
LICENSES AND TRADEMARKS
LICENSES. The Company obtains non-exclusive licenses to manufacture and
market products with classic cartoon characters and other images. Many of the
Company's license agreements limit sales of products to certain market
categories. The Company's material licenses generally are for a term of one to
two years but can be terminated on 30 days' notice. Typically, the licensor may
terminate the license if specified minimum levels of annual net sales for
licensed products are not met or for a failure by the Company to comply with the
material terms of the license. In the ordinary course of its business, the
Company continues to produce products under expired licenses based on letter
agreements or oral representations from licensors to the effect that continued
production will be permitted pending negotiation of new licenses. Accordingly,
the Company's licensing arrangements are dependent primarily upon maintaining a
good relationship between the Company and its licensors. The license agreements
(i) generally require minimum annual payments and certain quality control
procedures and (ii) give the licensor the right to approve products licensed by
the Company. The Company believes it has good relationships with its licensors
and has generally been able to obtain renewals of expired licenses and to obtain
the required approvals for licensed products.
41
<PAGE>
The following table sets forth information concerning certain of the
Company's licenses, including (i) the licensed product, (ii) the primary
distribution channel and (iii) the target consumer for the licensed product.
<TABLE>
<CAPTION>
MAJOR CUSTOMERS
----------------------------------- TARGET CONSUMER
MASS DEPARTMENT SPECIALTY ---------------------
MERCHANT STORE STORE MEN WOMEN YOUTH
-------- ---------- --------- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
DISNEY
Mickey Mouse & Classic Characters..... X X X X X X
Winnie the Pooh....................... X X X X X X
WARNER BROS.
Warner-Looney Tunes (Standard
Characters)(1)..................... X X X X X
Warner-Looney Tunes (Cross
License)(2)........................... X X X X X X
OTHER CHARACTERS
Garfield.............................. X X X X X
Betty Boop............................ X X X
SPORTS
Major League Baseball................. X X X X X X
Minor League Baseball................. X X X X X X
The Collegiate Licensing Co.(3)....... X X X X X X
University of Notre Dame.............. X X X X X X
FILM PROPERTIES
The Little Mermaid.................... X X X
101 Dalmatians Live Action............ X X X X
The Hunchback of Notre Dame........... X X X X
The Lost World Jurassic Park.......... X X X X
Anastasia............................. X X X
INTERNATIONAL
Disney Japan -- Winnie the Pooh....... X X X X X X
Disney Japan -- Mickey Mouse.......... X X X X X X
OTHER...................................
Budweiser............................. X X X X
Chic.................................. X X X
Chic HIS.............................. X X X
</TABLE>
- ------------
(1) Allows use of Looney Tunes characters.
(2) Allows use of Looney Tunes characters on collegiate products.
(3) Represents licensing and sublicensing arrangements with more than 100
colleges and universities.
PROPRIETARY TRADEMARKS. The Company has registered, or has applied for
registration for, a variety of trademarks under which it sells a number of its
products, including Brazos Sportswear, Morning Sun, Top Stitch, Red Oak
Sportswear, Xenogenesis, Red Fox and Name of the Game. The Company believes that
its trademarks have significant value. The level of copyright and trademark
protection available to the Company for proprietary designs and characters
varies depending on several factors including the degree of originality and the
distinctiveness of the associated trademarks and designs.
SALES AND MARKETING
SALES FORCE. The Company has a sales force of 14 in-house account
executives who concentrate on national retail accounts and approximately 100
independent sales representatives who sell one or more of the Company's product
lines. The in-house account executives work with large accounts and buyers for
major retailers to tailor programs specifically for the needs of each customer.
The independent sales representatives cover the entire United States and call on
chain stores and individual retailers. Management
42
<PAGE>
believes that its combination of in-house and independent sales representatives
gives the Company a broad coverage of the retail marketplace. The Company
compensates key account executives through a combination of salary and bonus
incentives tied to sales and profitability. The Company compensates independent
sales representatives on a commission-only basis, with rates ranging from 1% to
10% of net sales, and determines their territories by geographic location,
market categories covered and products sold.
OTHER SALES EFFORTS. The Company also maintains a presence in New York
City's garment district, where the Company has (i) a 4,200 square foot apparel
showroom for women's, men's and boys' apparel, (ii) a 1,900 square foot showroom
for girls' apparel and (iii) an 855 square foot showroom for Morning Sun's
women's apparel. The Company also presents its products at trade shows,
including the semi-annual MAGIC Show, and operates a telemarketing group that
focuses on small customers who might otherwise not be covered by a sales
representative.
CUSTOMERS. The Company's primary distribution channels are through: (i)
department stores such as J.C. Penney, May Co. and Mercantile; (ii) mass
merchandisers such as Wal-Mart, Kmart and Target; and (iii) specialty stores
such as Kids "R" Us and Garden Ridge. On a pro forma basis after giving effect
to the Exchange Offer, the Acquisition, the Sun Merger and the acquisition of
Plymouth, as if such transactions had occurred at the beginning of fiscal 1996,
the Company's sales to Wal-Mart, J.C. Penney, Target and Kmart accounted for
approximately 16.9%, 15.0%, 5.9% and 4.9%, respectively, of its sales.
SOURCING OF GARMENTS
The Company sources blank garments from a network of domestic and foreign
manufacturers that are required to comply with the Company's stringent quality
specifications. Suppliers are selected based on the product's design, style,
quality specifications and required lead times. A majority of the Company's
blank garments are sourced through large domestic mills and independently owned
contractors with manufacturing facilities primarily in the United States, China,
Guatemala, Pakistan and Mexico. Blank garments requiring short delivery times
generally are purchased from domestic suppliers, while products that require
greater finishing detail or allow longer delivery times generally are purchased
overseas. The Company also orders blank garments from foreign sources when the
magnitude of the order is sufficient. The Company anticipates that the
percentage of blank garments that are imported will increase because of the
Company's increased focus on decorated sportswear sales, the increasing size of
its customers' orders and the Premier Acquisition. The relative proportion of
blank garments purchased from domestic and foreign suppliers may vary from time
to time depending on the factors described above and other competitive factors.
The Company believes that its sources of blank garments are sufficient to
satisfy its current requirements.
Generally, each supplier agrees to produce finished garments in accordance
with samples and specifications the Company provides. The Company's
representatives regularly visit the facilities of both foreign and domestic
suppliers to ensure quality and compliance with the Company's specifications.
The Company also conducts quality control inspections that include testing for
shrinkage, dye and finish consistency, color fastness, size specification
adherence, construction strength and uniformity.
At times, the Company uses sourcing agents who assist in selecting and
overseeing foreign third-party manufacturers and monitoring quotas and other
trade regulations. The Company's production staff and sourcing agents oversee
all aspects of apparel manufacturing and production. The Company and its
sourcing agents separately negotiate with suppliers for the purchase of fabrics,
which are then purchased either by the Company or its suppliers. Premier is one
of the Company's most significant sourcing agents. For fiscal 1996, sales by
Premier to the Company represented approximately 32.3% of Premier's net sales.
The Company believes the Premier Acquisition will significantly enhance the
Company's foreign sourcing capabilities and provide it increased flexibility in
the timing, delivery and cost of its products.
The Company generally does not enter into long-term contracts with its
suppliers. The Company believes that its relationships with its suppliers are
good.
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<PAGE>
PRODUCTION AND MANUFACTURING
The Company is committed to controlling costs and improving operating
efficiencies. Recent acquisitions have resulted in significant improvements in
the Company's purchasing power and its ability to realize certain economies of
scale in manufacturing, marketing, distribution and administration. In addition,
the Company concentrates on the high value-added production processes of custom
design, screen printing and embroidery at its manufacturing facilities and
outsources the capital intensive process of manufacturing undecorated blanks to
a network of domestic and foreign manufacturers. This outsourcing allows the
Company to maintain flexibility, low fixed costs and low levels of capital
expenditures.
Production of the Company's products requires applying garment decorations
through screen printing or embroidery.
SCREEN PRINTING. The screen printing process begins with the preparation
of a design by the Company's artists. The Company tests new designs for
printability and color dynamics and produces sales and production samples. The
Company also stocks over 140 pigment colors and numerous ink bases, which allows
for in-house development of new ink applications and techniques. In the printing
process, screens are positioned in automatic printing presses where inks are
pressed through the screen to duplicate the design on the garment. Garments
bearing designs on different portions of the garment may move through the
printing process several times. Following printing, the garments are dried,
making the printed design permanent and washable.
The Company operates 60 automatic screen printing presses, including two
belt presses, which permit a design to be printed over an entire side of a
garment ("overall print" designs). Most of the screen printing presses are
color printing presses with eight to twelve color printing capability, which can
print either spot designs or overall print designs. Each press is operated by a
group of trained employees who work together as a team. The Company believes
that this approach contributes to the flexibility, quality and speed of its
production process. The Company believes that its capacity is sufficient for its
needs and that during seasonal peaks sufficient sources of outside production
are available to the Company to meet its production needs.
EMBROIDERY. The embroidery process begins with the preparation of a design
by the Company's artists. The Company tests new designs for embroiderability as
it relates primarily to stitch count and color selection and produces sales and
production samples. After all designs are approved, the design that is to be
embroidered is formatted onto a computer disk, which is then programmed into the
embroidery machine. Each embroidery machine has 12 sewing heads, permitting one
dozen garments to be embroidered at one time. Garments are trimmed, packed in
the Company's warehouse and shipped directly to the customer or to other Company
facilities for distribution to the customer. The Company operates 41 embroidery
machines.
QUALITY CONTROL. The Company maintains a quality control department
responsible for monitoring all phases of production and ensuring that purchased
garments meet the Company's quality standards. The Company develops and inspects
prototypes of each product type, establishes fittings based on the prototype,
inspects samples and, through its employees or sourcing agents, inspects fabric
before cutting. The Company or its sourcing agents inspect the final product
before shipment to the Company's facilities. The Company believes that its
product quality is among the highest in its market segment.
PRODUCT SHIPMENT. The Company believes responding quickly to customer
requirements and meeting delivery schedules consistently are important factors
in its business. Although customers often place orders for garment styles as
long as 20 weeks in advance, customers generally select the specific art designs
to be printed on ordered garments periodically for delivery within as few as two
days following the design selection.
To provide on-time delivery, the Company has developed a bar coding
capability to assist in rapid stock control of inventory and has implemented a
computerized manufacturing information system to make its manufacturing process
more efficient. The Company can place garments on hangers before shipping, affix
price tags and other product information, and can ship garments polybagged or
folded. These services
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<PAGE>
reduce the time required to prepare the garments for display and thereby enable
customers to stock their racks and shelves more quickly. The Company's customers
generally bear all shipping costs.
The Company operates six production facilities in the United States that
operate an aggregate of 60 automatic screen printing presses and 41 embroidery
machines. Set forth below is a brief description of each of the Company's
manufacturing facilities:
SQUARE OWNED/
LOCATION EQUIPMENT FEET LEASED
- ---------------------------------------------------------- --------- --------
Cincinnati, OH 12 automatic screen printing presses 187,439 Leased
2 embroidery machines
Staten Island, NY 14 automatic screen printing presses; 153,000 Leased
250 yards of cutting tables
College Station, TX 12 automatic screen printing presses; 88,625 Leased
5 embroidery machines
Kent, WA 15 automatic screen printing presses 230,000 Leased
Millersburg, PA 24 embroidery machines 54,000 Owned
Tacoma, WA 7 automatic screen printing presses; 171,000 Leased
10 embroidery machines
The Company distributes blank garments from 9 warehouses located throughout
the United States. The Company also maintains a cut and sew facility in Dallas,
Texas, three showrooms in the garment district of New York City and an
administrative office in Clute, Texas.
REGULATION
The Company is subject to federal, state and local environmental laws and
regulations, including laws relating to employee knowledge of, exposure to, and
disposal of inks, dyes, photographic chemicals and cleaning solvents. The
Company believes that its operations comply in all material respects with
applicable environmental laws and regulations. Although the Company continues to
make capital expenditures for environmental protection, it does not anticipate
that significant expenditures will be required to remain in compliance with
environmental requirements.
COMPETITION
The apparel industry is highly competitive. The Company competes with
numerous apparel vendors, including those with their own retail stores and those
whose merchandise displays licensed cartoon characters and logos of professional
sports teams and colleges and universities. The Company also competes through a
combination of graphics, decorating techniques, packaging and retail
presentation. Competitive factors include product quality, access to popular
licenses, price, ability to meet delivery requirements and other aspects of
customer service, changes in styles and consumer preferences, and the limited
availability of customer shelf and rack space.
BACKLOG
The Company typically receives purchase orders several months in advance of
delivery. A majority of these purchase orders typically can be canceled without
penalty or cancellation charges. On a pro forma basis after giving effect to the
Exchange Offer, the Acquisition, the Sun Merger and the acquisition of Plymouth,
as if such transactions had occurred at the beginning of fiscal 1996, the
Company's backlog of orders was approximately $91 million, all of which is
expected to be shipped in 1997.
EMPLOYEES
At July 2, 1997, the Company employed approximately 1,800 full-time
employees. None of the Company's employees are covered by a collective
bargaining agreement, other than a portion of the Company's employees at the
Company's Cincinnati facility. The collective bargaining agreement with respect
to such employees expires in July 1997. The Company is currently in negotiations
for a new collective bargaining agreement for its Cincinnati facility and
expects that an agreement will be entered into
45
<PAGE>
in the ordinary course, consistent with past practices. The Company believes
that its employee relations are good.
LEGAL PROCEEDINGS
A lawsuit filed in February 1994 is pending in the Supreme Court of the
State of New York, County of Oneida, against the Company, E.R.O. Industries,
Inc., Toys "R" Us, Inc., Grace International Apparel, Inc., and Bradlees
Department Store. The plaintiff is a child who was severely burned while
allegedly lying in a polyester slumber sack (manufactured by E.R.O. Industries,
Inc. and sold by Toys "R" Us, Inc.), watching television and playing with a
butane lighter. He was allegedly wearing a flannel shirt (manufactured by Grace
International Apparel, Inc. and sold by Bradlees Department Store) over a
T-shirt (printed by the Company and sold by Bradlees Department Stores). In July
of 1995, Bradlees Department Stores filed for Chapter 11 protection.
The plaintiff seeks compensatory damages of $50 million against all
defendants and punitive damages of $50 million against each defendant under
various tort theories. The Company has tendered the defense of this suit to its
insurance carrier, which is opposing the suit vigorously. The Company believes
its coverage is sufficient in the event it is held liable for compensatory
damages. While its coverage may not extend to punitive damages awards, the
Company believes there are no grounds for such damages. Although it cannot
predict with certainty the outcome of this suit, the Company believes its
disposition should not result in a material adverse effect on the results of
operations or the financial condition of the Company.
The Company is subject to other legal proceedings in the ordinary course of
business. While the outcome of lawsuits or other proceedings cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the financial condition or results of operations of the
Company.
46
<PAGE>
MANAGEMENT
The table below sets forth certain information regarding the executive
officers and directors of the Company:
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
Randall B. Hale..................... 34 Chairman of the Board and Director
J. Ford Taylor...................... 40 President, Chief Executive Officer
and Director
F. Clayton Chambers................. 37 Vice President, Chief Financial
Officer,
Treasurer, Secretary and Director
Alan B. Elenson..................... 47 President of Plymouth Mills Facility
and Director
Robert C. Klein..................... 46 President -- Morning Sun Facility*
Laurence E. Crabb................... 44 President -- Premier Facility*
R. Wayne Hatcher.................... 47 President -- CC Creations and Red Oak
Facility
Samuel T. McKnight.................. 52 President -- Blank Distribution
Division
Deborah S. Williams................. 38 President -- Velva Sheen Facility
Nolan Lehmann....................... 53 Director
Michael S. Chadwick................. 45 Director
- ------------
* Will take office upon closing of the Acquisitions.
RANDALL B. HALE. Mr. Hale has been a director and chairman of the board of
the Company or its predecessors since 1992. He has served as a vice president of
Equus and Equus Capital Management Company ("Equus Capital") since 1992 and a
director of Equus Capital since 1996. From 1985 to 1992, he was employed by
Andersen Worldwide. Mr. Hale is a director of American Residential Services,
Inc. and is also a director of numerous privately-owned companies. Mr. Hale is a
certified public accountant.
J. FORD TAYLOR. Mr. Taylor has been a president, chief executive officer
and a director of the Company or its predecessors since 1996. He was president
of the decorated sportswear operations from 1995 until 1996 and vice
president -- operations of the decorated sportswear operations from 1993 until
1995. Mr. Taylor served as president of the CC Creations and Red Oak facility in
College Station, Texas from 1990 to 1993. He founded CC Creations in 1982 which
he owned and operated before its acquisition by the Company.
F. CLAYTON CHAMBERS. Mr. Chambers has been a director of the Company or
its predecessors since 1989. He has served as vice president, chief financial
officer, treasurer and secretary of the Company since January 1995, and
previously served as a consultant to the Company beginning in May 1994. Mr.
Chambers was a principal in the firm of Chadwick, Chambers & Associates, Inc.,
an investment and merchant banking firm located in Houston, Texas, from 1988
until 1994. He was employed by Lovett Mitchell Webb & Garrison, an investment
banking firm, from 1986 until 1987.
ALAN B. ELENSON. Mr. Elenson has been a director of the Company or its
predecessors since 1996. He founded Plymouth in 1975 and owned and operated
Plymouth before its acquisition by the Company in August 1996. Mr. Elenson is
president of the Company's Plymouth Mills operations.
ROBERT C. KLEIN. Mr. Klein has been president of the Morning Sun facility
since 1993. He served as president and chief executive officer of Morning Sun
before its acquisition by the Company. From 1978 until 1993, Mr. Klein served in
a variety of positions within manufacturing, merchandising and sales at Jantzen,
Inc., a division of VF Corp., and was vice president of womenswear before he
left Jantzen to join Morning Sun.
LAURENCE E. CRABB. Mr. Crabb has been president of the Premier facility
since 1997. He founded Premier in 1986 and owned and operated Premier before its
acquisition by the Company. Mr. Crabb was employed by Jansport from 1982 until
1986, where he had expanded responsibilities for merchandising and sourcing
production throughout Asia, with an emphasis in China. He was employed by Levi
Strauss and Company from 1977 until 1982, where he was responsible for sourcing
production throughout Asia.
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<PAGE>
R. WAYNE HATCHER. Mr. Hatcher has been president of the CC Creations and
Red Oak facility since 1996. From 1985 to 1995, he served in a managerial
position with the Company and in 1995 was promoted to
vice-president -- operations of the CC Creations and Red Oak facility. Mr.
Hatcher was employed by Robinson Company, a screen printer, from 1981 to 1985
and by a retail sporting goods and wholesale sportswear store, Purvis
Sportswear, from 1972 to 1981.
SAMUEL T. MCKNIGHT. Mr. McKnight has been president of the Blank
Distribution Division since 1974. He founded Gulf Coast Sportswear, the
predecessor of the Company, in 1974. From 1972 to 1974 Mr. McKnight served as
president of M & M Designs, a shirt printing company.
DEBORAH S. WILLIAMS. Ms. Williams has been president of the Velva Sheen
facility since 1996. She served as vice president of purchasing from 1994 until
1996. From 1990 to 1994 Ms. Williams served as director of purchasing of Velva
Sheen and from 1982 to 1990 was a buyer at Velva Sheen.
NOLAN LEHMANN. Mr. Lehmann has been a director of the Company or its
predecessors since 1989. He has served as a director and president of Equus
Capital since 1980, and as a director and president of Equus since inception.
Before joining Equus Capital, Mr. Lehmann served in a number of executive
management positions with Service Corporation International from 1973 to 1980.
Mr. Lehmann is also a director of Allied Waste Industries, Inc., American
Residential Services, Inc., Drypers Corporation and Garden Ridge Corporation. In
addition, he serves as a director of several privately-owned companies. Mr.
Lehmann is a certified public accountant.
MICHAEL S. CHADWICK. Mr. Chadwick has been a director of the Company or
its predecessors since 1989. He is a senior vice president and a managing
director of the corporate finance department of Sanders Morris Mundy, a
Houston-based financial services and investment banking firm. From 1988 to 1994,
Mr. Chadwick served as president of Chadwick, Chambers & Associates, Inc., an
investment and merchant banking firm located in Houston, Texas. Mr. Chadwick
presently serves on the Board of Directors of Watermarc Food Management Company
and Blue Dolphin Energy Company, publicly traded corporations, and Moody-Price,
Inc., a privately-owned corporation.
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of the
executive officers of the Company who have remained its executive officers
following completion of the Sun Merger. Even though Sun Sportswear was the
entity that survived the Sun Merger, no information with respect to the
executive compensation of Sun Sportswear's executive officers has been included
below because all of such executive officers resigned upon consummation of the
Sun Merger and are no longer employed by the Company.
SUMMARY COMPENSATION TABLE. The following table sets forth certain summary
information concerning the compensation paid or accrued, during the fiscal years
indicated, by the Company to its executive officers.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION -
SECURITIES
UNDERLYING
ANNUAL COMPENSATION STOCK OPTION
-------------------------------------------- AWARDS
YEAR SALARY BONUS OTHER(1) (SHARES)
--------- ---------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
J. Ford Taylor....................... 1996 $ 180,769 $ 160,000 $ 23,750 127,301
1995 $ 92,311 $ 55,000 $ 31,667 --
1994 $ 75,000 $ 55,000 $ 31,667 --
F. Clayton Chambers.................. 1996 $ 135,100 $ 135,000 -- 24,930
1995 $ 95,308 -- -- --
1994 $ 28,000 -- -- --
</TABLE>
- ------------
(1) Represents payments made to Mr. Taylor pursuant to non-competition covenants
included in his employment agreement.
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<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to executive officers during fiscal 1996. These stock options
were granted under the Company's 1995 Incentive Stock Plan before the Sun
Merger. All market values, numbers of shares underlying options and exercise
prices have been adjusted to reflect the conversion and the reverse split in
connection with the Sun Merger and the reincorporation, respectively.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE
TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5% 10%
- ------------------------------------- ----------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Ford Taylor....................... 113,736 49.9% $1.98 3/27/06 $ 1,812,706 $ 3,019,824
13,565 6.0% $3.96 8/02/06 $ 189,338 $ 333,308
F. Clayton Chambers.................. 11,373 5.0% $1.98 3/27/06 $ 181,261 $ 301,966
13,557 6.0% $3.96 8/02/06 $ 189,226 $ 333,111
</TABLE>
- ------------
(1) Potential values stated are the result of using the Commission's method of
calculations of annually compounding 5% and 10% appreciation in value from
the date of grant to the end of the option term. Such assumed rates of
appreciation and potential realizable values are not necessarily indicative
of the appreciation, if any, which may be realized in future periods. Since
the above options were granted prior to the establishment of a trading
market in the underlying security, the exchange offering price in connection
with the Sun Merger, or $11.00 per share, was utilized.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the unexercised
options to purchase shares of common stock for each of the executive officers
held by them at December 28, 1996. None of the executive officers exercised any
stock options during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 28, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Ford Taylor....................... 89,389 37,912 $ 779,430 $ 341,966
F. Clayton Chambers.................. 21,139 3,791 $ 163,831 $ 34,195
</TABLE>
- ------------
(1) Represents the difference between the price of the common stock set forth in
the Sun Merger with the Company and any lesser exercise price.
COMPENSATION OF DIRECTORS
Each non-employee board member receives an annual fee of $16,000 for his
service on the board of directors and reimbursement of travel expenses incurred
for attendance at meetings.
BRAZOS ANNUAL INCENTIVE COMPENSATION PLAN
Effective December 30, 1995, Brazos, Inc., a wholly-owned subsidiary of the
Company, implemented its Annual Incentive Compensation Plan (the "Incentive
Plan"), which is a nonqualified compensation plan for its full-time employees
that provides that a percentage of its annual net income after taxes be
distributed among participating employees based on their annual base salaries.
Before each fiscal year, the board of directors of Brazos, Inc. establishes
a minimum income threshold (the "Threshold"). At the end of each fiscal year,
after annual financial results have been finalized, a
49
<PAGE>
percentage of the Company's after-tax income, net of the Threshold, is
distributed to each participating employee up to a maximum percentage of his or
her annual base income.
The Incentive Plan is administered by a committee consisting of Messrs.
Hale, Chadwick and Lehmann, and is subject to amendment, modification or
termination by the board of directors of Brazos, Inc. at any time in its sole
discretion.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Taylor and
Chambers that provide for current annual salaries of $250,000 and $150,000,
respectively. The agreements expire on December 31, 1999. Mr. Taylor's agreement
provides for minimum cash bonuses of $15,000, $17,500 and $20,000 for calendar
years ending 1997, 1998 and 1999, respectively, and for additional discretionary
bonuses. Mr. Chambers' agreement provides for minimum cash bonuses of $5,000,
$7,500 and $10,000 for calendar years ending 1997, 1998 and 1999, respectively,
and for additional discretionary bonuses. In addition, the agreements provide
that upon termination of employment, the terminated officer will be prohibited
from competing with the Company for a period of two years. The Company has also
entered into employment agreements with Messrs. Elenson and McKnight, and will,
in connection with the Acquisitions, enter into employment agreements with
Messrs. Crabb and Klein, the chief executive officers of Premier and Morning
Sun, respectively.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial
ownership of the Company's common stock by (i) each person who will beneficially
own more than five percent of the outstanding shares of common stock, (ii) each
director of the Company, (iii) each executive officer of the Company and (iv)
all directors and executive officers as a group.
NUMBER OF PERCENT OF
NAME SHARES CLASS
- ------------------------------------- --------- -----------
Equus II Incorporated................ 2,877,410(1) 56.3%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Allied Investment Corporation........ 342,938 7.8%
Allied Investment Corporation II
1666 K Street, N.W., Suite 901
Washington, D.C. 20006
Bank of America NW, N.A., d/b/a
Seafirst Bank........................ 307,552 7.0%
820 A Street, Suite 250
P.O. Box 1493
Tacoma, Washington 98401
George Warny......................... 266,678(2) 6.0%
215 Flag Lake Drive
Clute, Texas 77531
Samuel T. McKnight................... 225,039(3) 5.1%
215 Flag Lake Drive
Clute, Texas 77531
Alan B. Elenson...................... 232,575(4) 5.0%
330 Tompkins Avenue
Staten Island, New York 10304
J. Ford Taylor....................... 225,215(5) 5.0%
3860 Virginia Avenue
Cincinnati, Ohio 45227
F. Clayton Chambers.................. 251,112(6) 5.7%
3860 Virginia Avenue
Cincinnati, Ohio 45227
Michael S. Chadwick.................. 252,954(7) 5.7%
3100 Texas Commerce Tower
Houston, Texas 77002
Randall B. Hale...................... 2,892,573(8)(9) 56.4%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Nolan Lehmann........................ 2,886,887(10)(8) 56.4%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
All directors and executive officers
as a group (six persons)........... 3,863,908(10) 69.1%
- ------------
(1) Includes 170,839 shares which may be acquired upon exercise of warrants and
546,263 shares issuable upon conversion of preferred stock.
(2) Includes 6,824 shares which may be acquired upon exercise of warrants and
36,999 shares issuable upon conversion of preferred stock. Includes 106,116
shares as to which Mr. Warny serves as trustee and as to which Mr. Warny
disclaims beneficial ownership. Excludes 90,990 shares held by trusts for
the benefit of Mr. Warny's children and for which Mr. McKnight serves as
trustee and as to which Mr. Warny disclaims beneficial ownership.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
51
<PAGE>
(3) Includes 32,437 shares issuable upon conversion of preferred stock and
includes 90,990 shares to which Mr. McKnight serves as trustee and as to
which Mr. McKnight disclaims beneficial ownership. Excludes 106,116 shares
held by trusts for the benefit of Mr. McKnight's children and for which Mr.
Warny serves as trustee and as to which Mr. McKnight disclaims beneficial
ownership.
(4) Includes 232,575 shares that may be acquired upon exercise of warrants and
options. Includes 226,896 shares held jointly with, or separately by, Joann
Elenson, Mr. Elenson's spouse.
(5) Includes 96,213 shares that may be acquired upon exercise of warrants and
options and 29,908 shares issuable upon conversion of preferred stock.
Includes 120,700 shares held jointly by Sandra Taylor, Mr. Taylor's spouse.
(6) Includes 27,963 shares that may be acquired upon exercise of warrants and
options and 21,752 shares issuable upon conversion of preferred stock of
which 5,041 shares and 2,390 shares upon conversion are held in trust for
Mr. Chambers' children. Mr. Chambers disclaims beneficial ownership of such
shares.
(7) Includes 22,367 shares that may be acquired upon exercise of warrants and
options and 24,144 shares issuable upon conversion of preferred stock.
(8) Includes 2,877,409 shares beneficially owned by Equus; each holder
disclaims beneficial ownership of such shares.
(9) Includes 15,164 shares that may be acquired upon exercise of options.
(10) Includes 9,478 shares that may be acquired upon exercise of options.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In August 1996, Brazos, Inc. entered into a financial advisory agreement
with Sanders Morris Mundy ("SMM") in connection with the Sun Merger. Mr.
Chadwick is a senior vice president and a managing director of SMM and has been
a director of the Company or its predecessors since 1989. The agreement provided
for a success fee of approximately $160,000 based on the transaction price of
the Sun Merger in addition to $100,000 previously paid in financial advisory
fees.
In April 1997, the Company entered into a financial advisory agreement
with SMM pursuant to which SMM has agreed to provide certain financial advisory
services to the Company. The agreement provides for payments to SMM in the
amount of $10,000 per month, for a period of 12 months, but the Company has the
right to terminate the agreement after the cumulative payment to SMM of $60,000.
SMM is also entitled to a lump sum success fee of $50,000 in connection with the
Morning Sun Acquisition. In connection with the Note Offering, SMM received an
amount equal to the product of 0.25% multiplied by the gross proceeds of the
Note Offering. SMM has agreed, however, to forego the $50,000 contingent lump
sum success fee payable by the Company in connection with the Morning Sun
Acquisition.
Pursuant to an asset purchase agreement consummated in August 1996, the
Company acquired substantially all of the assets of Plymouth for approximately
$36 million. Upon consummation of the acquisition, Mr. Elenson, the controlling
shareholder of Plymouth, became a director of the Company. As part of the
purchase price for the acquisition of Plymouth's assets, the Company agreed to
pay certain contingent consideration of $8.2 million, including $2.95 million
aggregate principal amount of junior subordinated debentures maturing March 1999
and cash payments of $2.3 million (paid in October 1996) and $2.95 million
(which was paid upon consummation of the Note Offering). The Company also issued
to Plymouth junior subordinated debentures in the principal amounts of $3.0
million and $4.5 million that provide for periodic interest payments and that
mature in December 1997 and December 2003, respectively. Upon consummation of
the Sun Merger, the $3.0 million junior subordinated debenture was repaid in
full. Upon consummation of the Note Offering, the $2.95 million junior
subordinated debenture, the $2.95 million contingent payment amount and the $4.5
million debenture was repaid in full.
To finance the acquisition of the Plymouth assets, Brazos, Inc. issued
2,500,000 shares of its preferred stock and the Company issued warrants to
purchase 66,511 shares of Company common stock, at an exercise price of $.01
per share, for aggregate
52
<PAGE>
consideration of $2,500,000. The Brazos, Inc. preferred stock has been converted
into the same number of shares of the Company's Series B-2 Preferred Stock (the
"Series B-2 Preferred Stock"). The warrants were exercised prior to the Sun
Merger. Equus purchased 1,200,000 shares of Series B-2 Preferred Stock and a
warrant to purchase 242,077 shares of Company common stock at a purchase price
of $1.2 million. Equus II also received warrants to purchase 30,261 shares of
Company common stock at an exercise price of $4.62 per share.
In connection with the Plymouth acquisition, SMM received warrants to
purchase 20,168 shares of Company common stock at an exercise price of $4.62 per
share. Of these warrants, 6,065 were assigned by SMM to Mr. Chadwick. Mr.
Chadwick purchased 100,000 shares of Series B-2 Preferred Stock and a warrant to
purchase 20,173 shares of Company common stock at a purchase price of $100,000.
Mr. Taylor (together with his spouse) and each of Messrs. Warny and McKnight
purchased 75,000 shares of Series B-2 Preferred Stock and a warrant to purchase
15,128 shares of Company common stock at a purchase price of $75,000 (with the
warrant purchased by Mr. McKnight issued in the name of a trust for the benefit
of his children). Mr. Chambers purchased 50,000 shares of Series B-2 Preferred
Stock and a warrant to purchase 10,084 shares of Company common stock at a
purchase price of $50,000. In addition, Mr. Chambers, as trustee for two trusts
created for the benefit of his two children, purchased 25,000 shares of Series
B-2 Preferred Stock and a warrant to purchase 5,042 shares of Company common
stock at a purchase price of $25,000.
In connection with the Plymouth acquisition, the following subordinated
debt of Brazos, Inc. was converted into shares of the Company's Series B
Preferred Stock (the "Series B Preferred Stock"): Equus converted subordinated
notes in the amount of $3,350,000 and $178,500 into 3,528,500 shares; each of
Messrs. Warny and McKnight converted subordinated notes in the amount of
$234,392 and $29,750 into 264,142 shares; Mr. Chadwick converted subordinated
notes in the amount of $75,000 and $29,750 into 104,750 shares; Mr. Chambers
converted subordinated notes in the amount of $75,000 and $29,750 into 104,750
shares; and J. Ford and Sandra Taylor converted a note in the amount of $190,000
into 190,000 shares. All of these shares were subsequently exchanged for the
same number of shares of the Company's Series B-1 Preferred Stock (the "Series
B-1 Preferred Stock") pursuant to the Sun Merger.
In connection with the Sun Merger, the Company issued 2,000,000 shares of
the Company's Series B-3 Preferred Stock (the "Series B-3 Preferred Stock") and
warrants to purchase 36,000 shares of Company common stock, at an exercise price
of $50.00 per share, for aggregate consideration of $2,000,000. The warrants
were converted into warrants to purchase 272,968 shares of Company common stock
at an exercise price of $6.59 per share in connection with the Sun Merger. Equus
purchased 1,030,000 shares of Series B-3 Preferred Stock and a warrant to
purchase 140,578 shares of Company common stock at a purchase price of
approximately $1.0 million. Mr. Taylor (together with his spouse) and each of
Messrs. Chadwick, Chambers and Warny purchased 50,000 shares of Series B-3
Preferred Stock and a warrant to purchase 6,824 shares of Company common stock
at a price of $50,000.
Brazos, Inc. leases a 88,625 square foot office and production facility in
College Station, Texas, from a partnership whose owners include corporations in
which Equus and Messrs. Taylor, Chambers, Chadwick, McKnight and Warny have an
ownership interest. The two leases are for a ten-year term expiring 2002 and
provide for aggregate monthly lease payments of $18,500.
Management is of the opinion that all the transactions described were on
terms at least as favorable as could have been obtained from unaffiliated third
parties.
DESCRIPTION OF PREFERRED STOCK
The Company's board of directors has the authority to issue 25,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, redemption rights, liquidation preferences and
the number of shares constituting any series, without any further vote or action
by the stockholders.
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<PAGE>
The Company's board of directors has designated the rights and preferences
for the three series of preferred stock, the Series B-1 Preferred Stock, the
Series B-2 Preferred Stock and the Series B-3 Preferred Stock with authorized
shares of 8,000,000, 4,000,000 and 3,500,000, respectively. As of March 31,
1997, there were 4,688,640, 2,630,332 and 2,007,447 shares issued and
outstanding of Series B-1, Series B-2 and Series B-3 Preferred Stock,
respectively. A brief summary of the designations, preferences, rights and
limitations of each of the three series of Preferred Stock is set forth below.
The Company, the holders of a majority of the Company's common stock and
the holders of the preferred stock have agreed to amend the terms of the
preferred stock to extend the mandatory redemption date to the earlier to occur
of (i) December 31, 2008 or (ii) the occurrence of a Sale. For this purpose, a
"Sale" is defined to include: (i) the sale, transfer, lease or conveyance of
all or substantially all of the properties and assets of the Company or of the
issued and outstanding voting securities of the Company; or (ii) the merger or
consolidation of the Company with or into any other corporation or entity in
which the Company is not the sole surviving corporation, other than a merger or
consolidation in which the holders of shares of common stock of the Company
immediately preceding the consolidation or merger receive, directly or
indirectly, (a) 50% or more of the common stock of the sole surviving or
continuing corporation outstanding immediately following the consummation of
such merger or consolidation and (b) securities representing 50% or more of the
combined voting power of the voting stock of the sole surviving or continuing
corporation outstanding immediately following the consummation of such merger or
consolidation.
SERIES B-1 PREFERRED STOCK. Holders of the Company's Series B-1 Preferred
Stock (the "Series B-1 Preferred Stock") are entitled to receive cumulative
dividends of $.08 per share per annum, payable quarterly on the last day of
March, June, September and December of each year. Except with accrued and unpaid
dividends payable on redemption or conversion of the Series B-1 Preferred Stock,
the dividends are payable by the issuance of additional shares of Series B-1
Preferred Stock based on the $1.00 per share liquidation value. The Series B-1
Preferred Stock is convertible at the option of the holders at a price of $11.00
per share, at any time, subject to certain adjustments.
SERIES B-2 PREFERRED STOCK. The preferences, rights and limitations
associated with the Company's Series B-2 Preferred Stock are identical to those
in respect of the Series B-1 Preferred Stock, except the Series B-2 Preferred
Stock is entitled to (i) voting rights similar to holders of common stock based
on the number of shares of common stock into which the Series B-2 Preferred
Stock could then be converted and (ii) a liquidation preference of $1.00 per
share, plus the amount of any accrued but unpaid dividends on such share, with
such preference being paid before any payments in respect of the Series B-1
Preferred Stock and any Junior Stock (as defined in the Company's certificate of
incorporation). In addition, the Company may not redeem the Series B-2 Preferred
Stock at the $1.00 per share redemption price if any shares of Series B-3
Preferred Stock are then outstanding. The Company and the other holders of
Series B-2 Preferred Stock also have a right of first refusal to purchase all
(but not less than all) of the shares of Series B-2 Preferred Stock desired to
be transferred by any holder of such shares at the third party offering price.
SERIES B-3 PREFERRED STOCK. The preferences, rights and limitations
associated with the Company's Series B-3 Preferred Stock are identical to those
in respect of the Series B-1 Preferred Stock, except the Series B-3 Preferred
Stock is entitled to a liquidation preference of $1.00 per share, plus the
amount of any accrued but unpaid dividends on such share, with such preference
being paid prior to any payments in respect of the Series B-1 Preferred Stock,
the Series B-2 Preferred Stock and the Junior Stock. The Company and the other
holders of Series B-3 Preferred Stock have a right of refusal similar to the
Series B-1 Preferred Stock and the Series B-2 Preferred Stock.
54
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on July 2, 1997, and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to certain persons in transactions outside the United States
in reliance on Regulation S under the Securities Act. In connection with the
Note Offering, the Company entered into the Registration Rights Agreement, which
requires, among other things, that on or before August 31, 1997, the Company (i)
file with the Commission a registration statement under the Securities Act with
respect to an issue of new notes of the Company identical in all material
respects to the Notes, (ii) use their best efforts to cause such registration
statement to become effective under the Securities Act and (iii) upon the
effectiveness of that registration statement, offer to the Holders of the Notes
the opportunity to exchange their Notes for a like principal amount of Exchange
Notes, which would be issued without a restrictive legend and may be reoffered
and resold by the holder without restrictions or limitations under the
Securities Act (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act). A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "Holder" with respect
to the Exchange Offer means any person in whose name the Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected. The Notes
are currently eligible for sale pursuant to Rule 144A through the PORTAL System
of the National Association of Securities Dealers, Inc. Because the Company
anticipates that most holders of Notes will elect to exchange such Notes for
Exchange Notes due to the absence of restrictions on the resale of Exchange
Notes under the Securities Act, the Company anticipates that the liquidity of
the market for any Notes remaining after the consummation of the Exchange Offer
may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
Holders of Notes do not have any appraisal or dissenter's rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Company.
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If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under " -- Conditions" shall
not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered Holders, and, depending upon the significance of the amendment
and the manner of disclosure to the registered Holders, the Company will extend
the Exchange Offer for a period of five to ten business days if the Exchange
Offer would otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective the Shelf Registration
Statement within the time periods set forth herein, liquidated damages will
accrue and be payable on the Notes either temporarily or permanently. See
"Description of Exchange Notes -- Registration Rights."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from July 2, 1997, the date of
issuance of the Notes that are tendered in exchange for the Exchange Notes (or
the most recent Interest Payment Date to which interest on such Notes has been
paid). Accordingly, holders of Notes that are accepted for exchange will not
receive interest that is accrued but unpaid on the Notes at the time of tender,
but such interest will be payable on the first Interest Payment Date after the
Expiration Date. Interest on the Exchange Notes will be payable semiannually on
each January 1 and July 1, commencing on January 1, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 5:00
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p.m., New York City time, on the Expiration Date. Delivery of the Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading " -- Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or
any Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority to so act must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at The Depository Trust Company ("DTC") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in DTC's system may make book-entry
delivery of the Notes by causing DTC to transfer such Notes into the Exchange
Agent's account with respect to the Notes in accordance with DTC's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depository, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Depository does not
constitute delivery to the Exchange Agent.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agents that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at DTC) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at DTC) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at DTC to be credited),
(iii) be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Notes register the transfer
of such Notes into the
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name of the person withdrawing the tender and (iv) specify the name in which any
such Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time or receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Notes so withdrawn are
validly retendered. Any Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Notes may be retendered by
following one of the procedures described above under
" -- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
" -- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and, depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Company will extend the Exchange Offer for a period of
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association will act as Exchange Agent for
the Exchange Offer.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By mail:
Norwest Bank Minnesota, National Association
P.O. Box 1517
Minneapolis, Minnesota 55480-1517
Attention: Corporate Trust Operations
By courier:
Norwest Bank Minnesota, National Association
Norwest Center
6th and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations
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By hand delivery:
Norwest Bank Minnesota, National Association
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations
By facsimile (eligible institutions only):
(612) 667-4927
For telephone inquiries:
(612) 667-9764
FEES AND EXPENSES
The expenses of the Exchange Offer will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount, as reflected in the Company's
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized in connection with the Exchange Offer.
The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any Holder of such Exchange
Notes (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and such Holder does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such Exchange Notes. Any Holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the Exchange Notes may not rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings Corporation (available April 13,
1989) and Morgan Stanley & Co., Incorporated (available June 5, 1991), or
similar no-action letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. In addition, any such resale transaction
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should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K of the
Securities Act. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each Holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company will represent to the Company that such Holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder of Notes that does not exchange that Holder's
Notes for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iv)
outside the United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present
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plans to acquire any Notes that are not tendered in the Exchange Offer or to
file a registration statement to permit resales of any untendered Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "IRC"), applicable Department of the
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the IRS will not take a contrary view,
and no ruling from the Internal Revenue Service (the "IRS") has been or will
be sought. Legislative, judicial or administrative changes or interpretations
may be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to Holders. Certain Holders of the Notes
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. Each Holder of a Note should consult his, her or its own tax
advisor as to the particular tax consequences of exchanging such Holder's Notes
for Exchange Notes, including the applicability and effect of any state, local
or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
Holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Notes exchanged therefor. A Holder's holding period
for the Exchange Notes should include the Holder's holding period for the Notes
exchanged therefor. The issue price, original issue discount inclusion and other
tax characteristics of the Exchange Notes should be identical to the issue
price, original issue discount inclusion and other tax characteristics of the
Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
On July 2, 1997, the Company entered into the Credit Facility. The Credit
Facility provides for borrowings of up to $50.0 million, subject to a borrowing
base calculated by reference to eligible accounts receivable and inventory and
various reserves established from time to time by the lenders. Borrowings under
the Credit Facility will bear interest at a rate per annum, at the Borrower's
option, equal to (i) a prime rate plus 0.25% or (ii) LIBOR plus 2.00%. The
Credit Facility is secured by accounts receivable and inventory of the Borrower
and includes certain covenants applicable to the Borrower, including
requirements that the Borrower comply with certain financial ratios including,
but not limited to, covenants related to minimum tangible net worth, a minimum
interest coverage ratio and a minimum fixed charge coverage ratio. The Credit
Facility has an initial term of three years and borrowings under the Credit
Facility are guaranteed by the Company.
OTHER INDEBTEDNESS
A portion of the consideration paid pursuant to the Premier Acquisition
consisted of (i) a convertible subordinated note (the "Convertible Note") of
the Company in the principal amount of $1.5 million and (ii) a subordinated
"earnout" obligation (the "Earnout Obligation") of the Company in the
principal amount of $4.0 million. The Convertible Note bears no interest, has a
seven-year term and is convertible, at the holder's option, into 136,364 shares
of the Company's common stock at any time prior to maturity. The Convertible
Note has no principal payments and can only be converted by the holder into
common stock at
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or prior to maturity. The Earnout Obligation bears interest at 7.0% per annum
and has a seven-year term with no principal payments for the first two years and
equal quarterly principal payments of $200,000 for the last five years. In the
event that Premier's future operating results do not meet specified performance
criteria, the principal amount of the Earnout Obligation will be reduced.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued pursuant to an indenture (the
"Indenture") among the Company, as issuer, the Subsidiary Guarantors and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The
terms of the Exchange Notes include those set forth or referred to in the
Indenture and those made part of the Indenture by the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Exchange Notes are subject
to all such terms, and prospective Holders of Exchange Notes are referred to the
Indenture, the Trust Indenture Act and the documents referred to in the
Indenture for a statement thereof. The following summary does not purport to be
a complete description of the Exchange Notes, the Indenture or such documents
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Exchange Notes, the Indenture and such documents. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Indenture, and those definitions are incorporated herein by reference. As used
in the following summary, the term "Company" means Brazos Sportswear, Inc. and
does not include any subsidiary of Brazos Sportswear, Inc.
GENERAL
The Exchange Notes will be (i) senior unsecured obligations of the Company,
(ii) unconditionally guaranteed by the Subsidiary Guarantors and (iii) limited
to $100 million aggregate principal amount. The Exchange Notes will be issued
only in registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. The Exchange Notes will mature on July 1, 2007 and
bear interest at the rate per annum shown on the front cover hereof from the
date they are originally issued under the Indenture or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually in cash in arrears on January 1 and July 1 of each year, commencing
January 1, 1998, to the Persons in whose names the Exchange Notes (or any
predecessor Exchange Notes) are registered at the close of business on the
preceding December 15 or June 15, as the case may be (whether or not a business
day). Interest on the Exchange Notes will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Principal of, and premium, if any, interest and Liquidated Damages, if any,
on, the Exchange Notes will be payable (i) in same-day funds on or prior to the
payment dates with respect to those amounts in the case of Exchange Notes held
of record by DTC or its nominee and (ii) at the office of the Trustee in New
York, New York, in the case of Exchange Notes held of record by Holders other
than DTC or its nominee, and the Exchange Notes may be surrendered for
registration of transfer or exchange at the office of the Trustee in New York,
New York. The Company may, at its option, pay interest on Exchange Notes held of
record by Holders other than DTC or its nominee by check mailed to the addresses
of the Persons entitled thereto as they appear in the Note Register on the
Regular Record Date for that interest.
No service charge will be made for any registration of transfer, exchange
or redemption of the Exchange Notes, but the Company or the Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge and
any other expenses (including the fees and expenses of the Trustee) payable in
connection therewith. Neither the Trustee nor the Company is required (i) to
issue, register the transfer of or exchange any Exchange Notes during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption and ending at the close of business on the day of that
mailing or (ii) to register the transfer of or exchange any Exchange Notes
selected for redemption in whole or in part, except the unredeemed portion of
Exchange Notes being redeemed in part.
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CERTAIN DEFINITIONS
"ACCOUNTS RECEIVABLE" has the meaning specified for the term "accounts"
in Section 9-106 of the UCC.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person,
Indebtedness of any other Person (i) existing at the time that other Person
merges or consolidates with the specified Person or becomes a Restricted
Subsidiary of such specified Person, including Indebtedness incurred in
connection with, or in contemplation of, that other Person merging with or into
the specified Person or becoming a Restricted Subsidiary of the specified Person
or (ii) assumed by the specified Person in connection with an acquisition of
properties or assets from that other Person. A specified Person will be deemed
to incur Indebtedness constituting its Acquired Indebtedness on the date (i) the
obligor respecting that Indebtedness merges or consolidates with the specified
Person, (ii) the obligor of that Indebtedness becomes a Restricted Subsidiary of
that specified Person or (iii) the specified Person assumes that Indebtedness.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the specified Person. For purposes of this definition: (i)
"control," when used with respect to any Person, means the power to direct the
management and policies of that Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
and (ii) beneficial ownership at any time of 10% or more of the outstanding
voting common equity of a Person (including voting common equity subject to
being acquired pursuant to the exercise of options, warrants or other rights
exercisable within 60 days of that time) will be deemed to constitute control of
that Person at that time.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition (including, without limitation, by means of a
Sale/Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a "transfer") to any Person other than the
Company or any Wholly Owned Restricted Subsidiary other than Brazos Sportswear
Japan KK, directly or indirectly, in one transaction or a series of related
transactions, of (i) any Capital Stock, other than Junior Preferred Stock, of
any Restricted Subsidiary held by the Company or any other Restricted
Subsidiary, (ii) any unissued Capital Stock, other than Junior Preferred Stock,
of any Restricted Subsidiary or (iii) any other properties or assets of the
Company or any Restricted Subsidiary. Notwithstanding the preceding sentence,
the following does not constitute "Asset Sales": (i) transfers of cash, Cash
Equivalents, Accounts Receivable (including the sale of Accounts Receivable
without recourse to the Company or any Restricted Subsidiary pursuant to a bona
fide factoring arrangement with a Person not an Affiliate of the Company),
inventories or other properties or assets in the ordinary course of business and
issuances of Qualified Capital Stock of the Company; (ii) any transfer of
properties or assets (including Capital Stock) that is governed by, and made in
accordance with, the covenant described under "-- Merger, Consolidation and
Sale of Assets" above; (iii) any transfer of properties or assets if permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" above; (iv) transfers of damaged, worn-out or obsolete
equipment or assets that, in the Company's reasonable judgment, are either (a)
no longer used or (b) no longer useful in the business of the Company and the
Restricted Subsidiaries; and (v) any transfer that, but for this clause (v),
would be an Asset Sale, if after giving effect to the transfer, the aggregate
fair market value of the properties or assets subject to that transfer and all
related transfers so designated by the Company does not exceed $500,000.
"ATTRIBUTABLE INDEBTEDNESS" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of lease payments
required to be paid by that Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to the date of determination at
a rate per annum equal to the discount rate that would be applicable to a
Capitalized Lease Obligation with a like term in accordance with GAAP. As used
in the preceding sentence, the "net amount of lease payments" under any lease
for any period means the sum of lease, rental and other payments
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required to be paid with respect to such period by the lessee thereunder,
excluding any amounts required to be paid by the lessee on account of
maintenance and repairs, insurance, and taxes, assessments or similar charges.
If a lessee under any lease may terminate that lease by paying a penalty, the
"net amount of lease payments" under that lease will include the amount of
that penalty, but will exclude all lease payments after the first date on which
that lease may be so terminated.
"AVERAGE LIFE" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of that Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.
"BANKRUPTCY CODE" means Title 11 of the United States Code or any similar
or successor federal law in effect from time to time for the relief of debtors.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person, any
obligation of that Person to pay lease payments, rent or other amounts under a
lease of (or other similar agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for purposes of the
Indenture, the amount of that obligation at any date will be the capitalized
amount thereof at that date, as determined in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participation, rights or other equivalents in the equity interests
(however designated) in that Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable or
exchangeable for or convertible into such an equity interest in that Person.
"CASH EQUIVALENTS" means: (i) marketable obligations with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof, provided that
the full faith and credit of the United States of America is pledged in support
thereof; (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of (a) Southwest Bank of Texas,
N.A., (b) any financial institution that is a member of the Federal Reserve
System and has combined capital and surplus and undivided profits of not less
than $500 million or any commercial bank that is organized under the laws of any
country that is a member of the Organization for Economic Cooperation and
Development and has total assets in excess of U.S. $500 million or its
equivalent in another currency or (c) any financial institution the deposits
with which are insured by the United States of America or any agency or
instrumentality thereof, provided that the amount of deposits, certificates of
deposit or acceptances pursuant to this clause (ii)(c) with any one institution
does not exceed the insured amount with that institution; (iii) commercial paper
(a) maturing no more than 180 days from the date of creation thereof issued by a
corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and (b) rated
at least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; and (v) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iv) above. For purposes of this
definition, the maturity of a security will be determined when it is acquired by
the Company or a Restricted Subsidiary.
"CHANGE OF CONTROL" means the occurrence of any event or series of events
(whether or not otherwise in compliance with the provisions of the Indenture) by
which: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than the Principals) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of a majority of the total voting power of the total Voting Stock of
the Company; (ii) the Company consolidates with or merges into another Person or
any Person consolidates with, or merges into, the Company, pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction pursuant to which (a) the outstanding Voting Stock of the Company is
changed into or exchanged for Voting Stock of the surviving or resulting Person
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that is Qualified Capital Stock and (b) the beneficial owners (as defined in
Rule 13d-3 under the Exchange Act) of the total voting power of the total Voting
Stock of the Company immediately prior to such transaction beneficially own,
directly or indirectly, not less than a majority of the voting power of the
total Voting Stock of the surviving or resulting Person immediately after such
transaction; (iii) the Company, either individually or in conjunction with one
or more Restricted Subsidiaries, sells, assigns, conveys, transfers, leases or
otherwise disposes of, or the Restricted Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, the properties and assets of the
Company and its Restricted Subsidiaries substantially as an entirety (either in
one transaction or a series of related transactions), including Capital Stock of
the Restricted Subsidiaries, to any Person or group of Persons that are
Affiliates of each other (in this clause (iii), the "transferee") (other than
the Company or a Wholly Owned Restricted Subsidiary), other than any such
transaction pursuant to which (a) the properties and assets of the Company and
its Restricted Subsidiaries substantially as an entirety are exchanged for
Voting Stock of the transferee and (b) the beneficial owners (as defined in Rule
13d-3 under the Exchange Act) of the total voting power of the total Voting
Stock of the Company immediately prior to such transaction beneficially own,
directly or indirectly, not less than a majority of the total voting power of
the Voting Stock of the transferee; (iv) during any consecutive two-year period
(which period need not be calendar years), individuals who at the beginning of
that period constituted the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of two-thirds of the
directors then still in office who were either directors at the beginning of
that period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or (v) any plan or proposal for liquidation or
dissolution of the Company is approved by the vote or other consent of the
holders of Capital Stock of the Company that is required by applicable law to
effect that plan or proposal.
"COMMON STOCK" of any Person means Capital Stock of that Person that does
not rank prior, as to the payment of dividends or the distribution of assets on
any voluntary or involuntary liquidation, dissolution or winding up of that
Person, to shares of Capital Stock of any other class of that Person.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
period of four consecutive fiscal quarters of the Company (each such period of
four consecutive fiscal quarters, a "computation period"), the ratio of (i)
the sum of Consolidated Net Income, Consolidated Fixed Charges, Consolidated
Income Tax Expense and Consolidated Non-cash Charges of the Company and the
Restricted Subsidiaries, on a consolidated basis for that computation period,
all determined in accordance with GAAP, to (ii) Consolidated Fixed Charges for
that computation period. For purposes of this computation, acquisitions or
dispositions that have been made by the Company or any Restricted Subsidiary,
including through mergers or consolidations and including any related financing
transactions, during the computation period or subsequent to the computation
period but on or prior to the date of computation will be deemed to have
occurred on the first day of the computation period and will give pro forma
effect to such acquisitions or dispositions and any related financing
transactions with appropriate adjustments to the computation of Consolidated Net
Income, Consolidated Fixed Charges, Consolidated Income Tax Expense and
Consolidated Non-cash Charges. In each computation of the Consolidated Fixed
Charge Coverage Ratio, the computation will be made as of the date Indebtedness
(other than Permitted Indebtedness) is proposed to be incurred or Disqualified
Preferred Stock is proposed to be issued (the "determination date") for the
then most recent computation period for which consolidated financial statements
are then available (the "current period") on a pro forma basis assuming that
(i) the Indebtedness to be incurred or the Disqualified Capital Stock to be
issued (and all other Indebtedness incurred or Disqualified Capital Stock issued
after the first day of the current period through and including the
determination date), and (if applicable) the application of the net proceeds
therefrom (and from any other such Indebtedness or Disqualified Capital Stock),
including to refinance other Indebtedness, had been incurred, issued or applied,
as the case may be, on the first day of the current period and, in the case of
Acquired Indebtedness, on the assumption that the related transaction (whether
by means of purchase, merger or otherwise) also had occurred on the first day of
the current period with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation and (ii) any
acquisition or disposition by the Company or any Restricted Subsidiary of
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any properties or assets outside the ordinary course of business and any related
financing transactions, or any repayment of any principal amount of any
Indebtedness of the Company or any Restricted Subsidiary, in either case since
the first day of the current period through and including the determination
date, had been consummated on the first day of the current period. The
Consolidated Fixed Charges representing interest on Indebtedness outstanding on
any determination date and assumed in accordance with the preceding sentence to
have been outstanding throughout the then current period will be computed as
follows: (i) if that Indebtedness bears interest only at a floating rate, that
floating rate as of the determination date will be assumed to have been in
effect throughout that current period; (ii) if that Indebtedness bears interest,
at the option of the primary obligor, at either a floating rate or, for one or
more periods of varying durations, fixed rates, either that floating rate or, at
the option of the Company, that fixed rate for the longest period available to
the primary obligor, in each case as of the determination date, will be assumed
to have been in effect throughout that current period; (iii) if that
Indebtedness is incurred under a revolving credit facility, the principal amount
of that Indebtedness assumed to have been outstanding throughout that current
period will be the lesser of (a) the average daily outstanding principal balance
of that Indebtedness during that current period or such shorter period as
amounts have been available to be borrowed or reborrowed under that facility or
(b) the total revolving credit commitment under that facility as of the
determination date; and (iv) if (a) that Indebtedness bears interest at a
floating rate, (b) that floating rate is used pursuant to clause (i) or (ii) of
this sentence to determine the Consolidated Fixed Charges attributable to that
Indebtedness and (c) that interest is covered by agreements relating to Interest
Rate Protection Obligations, that interest, to the extent so covered, will be
assumed to have accrued at the rate per annum resulting after giving effect to
the operation of those agreements.
"CONSOLIDATED FIXED CHARGES" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for that period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, any amortization of debt discount, the
net cost under Interest Rate Protection Obligations (including any amortization
of discounts), the interest portion of any deferred payment obligation
constituting Indebtedness, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and all
accrued interest, in each case to the extent attributable to that period, (b) if
any Indebtedness of any Person (other than the Company or a Restricted
Subsidiary) is guaranteed by the Company or any Restricted Subsidiary during
that period, the aggregate amount of interest paid (to the extent not accrued in
a prior period) or accrued by such other Person during that period attributable
to any such Indebtedness, in each case to the extent required by GAAP to be
recognized during that period as an expense of the Company or any Restricted
Subsidiary, (c) the aggregate amount of the interest component of Capitalized
Lease Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during that period, and (d) the aggregate amount of dividends (except dividends
paid or payable in additional shares of Qualified Capital Stock) paid (to the
extent not accrued in a prior period) or accrued on Preferred Stock or
Disqualified Capital Stock of the Company and the Restricted Subsidiaries, to
the extent such Preferred Stock or Disqualified Capital Stock is owned by
Persons other than the Company or any Restricted Subsidiary, less (ii), to the
extent included in clause (i) above, amortization during that period of (a)
capitalized debt issuance costs of the Company and the Restricted Subsidiaries
and (b) original issue discount on the Premier Convertible Note.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the provision
for federal, state, local and foreign income taxes (including state franchise
taxes accounted for as income taxes in accordance with GAAP) of the Company and
the Restricted Subsidiaries for the period as determined on a consolidated basis
in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net
income (or loss) of the Company and the Restricted Subsidiaries for such period
as determined in accordance with GAAP, as adjusted by excluding (i) net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto) and after-tax (A) non-recurring pooling-of-interests or acquisition
related costs, income and expenses and (B) non-cash non-recurring income and
expenses, in each case to the extent included in consolidated net income (or
loss) for that period, (ii) net after-tax gains or losses (less all fees and
expenses
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relating thereto) attributable to Asset Sales, (iii) net income (or net loss) of
any Person (other than the Company or any Restricted Subsidiary) in which the
Company or any Restricted Subsidiary has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any Restricted Subsidiary in cash or property by such other Person
during that period (regardless of whether such dividends or distributions are
attributable to net income (or net loss) of such Person during that period or
during any prior period), (iv) net income (or net loss) of any Person combined
with the Company or any Restricted Subsidiary on a "pooling of interests"
basis attributable to any period prior to the date of combination, and (v) net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary to
the Company or a Wholly Owned Restricted Subsidiary of its net income is not at
the date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement or instrument (other than the Working
Capital Agreement), judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders. For
purposes of clause (iii) above, the amount of any distribution of property will
be equal to the fair market value of that property as determined in good faith
by the Board of Directors and evidenced by a Board Resolution.
"CONSOLIDATED NET WORTH" means, at any date, the consolidated
stockholders' equity of the Company less (without duplication) the amount of
that stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of the Company and the Restricted Subsidiaries, as determined in
accordance with GAAP.
"CONSOLIDATED NON-CASH CHARGES" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and the Restricted Subsidiaries that are deducted in computing Consolidated Net
Income for that period, all determined on a consolidated basis in accordance
with GAAP (excluding any such non-cash charge in the ordinary course of business
for which an accrual of or reserve for cash charges for any future period is
required).
"CURRENCY HEDGE OBLIGATIONS" means, at any time as to any Person, the
obligations of that Person at that time incurred by it in the ordinary course of
its business pursuant to any foreign currency exchange agreement, option or
futures contract or other similar agreement or arrangement designed to protect
against or manage the exposure of that Person or any of its Subsidiaries to
fluctuations in foreign currency exchange rates.
"DEFAULT" means any event, act or condition that, after notice or passage
of time or both, would become an Event of Default.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest (other than an interest arising solely from the beneficial
ownership of Capital Stock of the Company) in or with respect to that
transaction or series of transactions.
"DISQUALIFIED CAPITAL STOCK" of any specified Person means any Capital
Stock of the specified Person that, either by its terms, by the terms of any
security into which it is convertible or for which it is exchangeable or by
contract or otherwise is, or on the happening of an event or passage of time or
both would be, (i) required to be redeemed or repurchased (whether mandatorily
or at the option of the holder thereof), other than a redemption or repurchase
effected solely through the issuance of Qualified Capital Stock of the specified
Person, by the specified Person or any of its Subsidiaries or by the Company or
any Restricted Subsidiary prior to the final Stated Maturity of the Exchange
Notes or (ii) convertible into or exchangeable for any Indebtedness of the
specified Person or any of its Subsidiaries or of the Company or any Restricted
Subsidiary that has any Stated Maturity prior to the final Stated Maturity of
the Exchange Notes.
"EVENT OF DEFAULT" has the meaning set forth under the caption
" -- Events of Default" above.
"EXCHANGE NOTES" means the 10 1/2% Senior Notes due 2007 issued pursuant
to the Exchange Offer.
"EXISTING PREFERRED STOCK" means the Series B-1, Series B-2 and Series
B-3 Preferred Stock of the Company issued and outstanding on the Issue Date in
an amount not to exceed the sum of (a) the aggregate
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liquidation amount of the Series B-1, Series B-2 and Series B-3 Preferred Stock
of the Company outstanding on the Issue Date and (b) the aggregate liquidation
amount of additional Series B-1, Series B-2 and Series B-3 Preferred Stock
issued in lieu of the payment of cash dividends thereon, PROVIDED that the rate
at which dividends accrue shall not exceed the rate accruing thereon on the
Issue Date.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) the statements and pronouncements of the Financial Accounting
Standards Board or (iii) such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America.
"GUARANTEE" or "GUARANTEE" means, as applied to any Indebtedness, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of that Indebtedness and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of that Indebtedness, including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit. When used as a verb, "guarantee" has a corresponding meaning.
"HOLDER" means a Person in whose name an Exchange Note is registered in
the Note Register.
"INDEBTEDNESS" means, with respect to any Person, without duplication,
(i) all liabilities of that Person, contingent or otherwise, for borrowed money
or for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business of that Person) and all liabilities of that Person incurred
in connection with any letters of credit, bankers' acceptances or other similar
credit transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of that Person, or any warrants,
rights or options to acquire that Capital Stock, outstanding on the Issue Date
or thereafter, or any obligations arising out of the sale of Accounts Receivable
of that Person if, and to the extent, any of the foregoing would appear as a
liability on a balance sheet of that Person prepared in accordance with GAAP,
(ii) all obligations of that Person evidenced by bonds, notes, debentures or
other similar instruments, if, and to the extent, any of the foregoing would
appear as a liability on a balance sheet of that Person prepared in accordance
with GAAP, (iii) all obligations of that Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by that Person (even if the rights and remedies of the seller or lender
under such agreement in the event of a default are limited to repossession or
sale of such property), (iv) the Attributable Indebtedness of any Capitalized
Lease Obligation of that Person, (v) all obligations of the types described in
the preceding clauses and all dividends, the payment of which is secured by (or
for which the holder of such obligations has an existing right, contingent or
otherwise, to be secured by) any Lien upon property (including, without
limitation, accounts and contract rights) owned by that Person, even though that
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or the amount of the obligation so secured), (vi) all Guarantees
by that Person of obligations of the types referred to in clauses (i) through
(v) of this definition, and (vii) the net amount of obligations of that Person
under or in respect of each agreement evidencing Currency Hedge Obligations and
Interest Rate Protection Obligations.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is disinterested
and independent with respect to the Company and its Affiliates and, in the
reasonable judgment of the Board of Directors, is qualified to perform the task
for which it has been engaged.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Exchange Notes.
"INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any
specified Person, the obligations of the specified Person pursuant to any
arrangement with any other Person whereby, directly or indirectly, the
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specified Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a stated
notional amount in exchange for periodic payments made by the specified Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and includes, without limitation, interest rate swaps, caps,
floors, collars and other similar agreements or arrangements designed to protect
against or manage the exposure of the specified Person or any of its
Subsidiaries to fluctuations in interest rates.
"INVENTORY" has the meaning specified in Section 9-109(4) of the UCC.
"INVESTMENT" means, with respect to any specified Person, any direct or
indirect advance, loan, guarantee of Indebtedness or other extension of credit
or capital contribution by the specified Person to (by means of any transfer of
cash or other property or assets to others or any payment for property, assets
or services for the account or use of others), or any purchase or acquisition by
the specified Person of any Capital Stock, bonds, notes, debentures or other
securities (including derivatives) or evidences of Indebtedness issued by, any
other Person. If the Company designates a Restricted Subsidiary as an
Unrestricted Subsidiary, the Company will be deemed to make at the effective
time of that designation an "Investment" in that Unrestricted Subsidiary in
the amount equal to the then fair market value of that Unrestricted Subsidiary's
net assets. The following are not "Investments": (i) extensions of trade
credit or other advances to customers on commercially reasonable terms in
accordance with normal trade practices or otherwise in the ordinary course of
business; (ii) Interest Rate Protection Obligations and Currency Hedge
Obligations, but only to the extent that the same constitute Permitted
Indebtedness; and (iii) endorsements of negotiable instruments and documents in
the ordinary course of business.
"ISSUE DATE" means the date the Exchange Notes are initially issued, or
July 2, 1997.
"JUNIOR PREFERRED STOCK" means, with respect to any specified Person,
Preferred Stock of the specified Person (i) that (a) is issued after the Issue
Date as part of the purchase price to acquire assets or Capital Stock of another
Person, (b) is Qualified Capital Stock, (c) is expressly subordinated as to
payment to any Subsidiary Guarantee of the specified Person, (d) has no voting
rights except as otherwise provided by law or generally with respect to any
amendment of the instrument pursuant to which such Preferred Stock was issued
that would adversely alter the powers, preferences and rights associated with
such Preferred Stock and (e) if the Preferred Stock is issued by a Subsidiary of
the Company, the Preferred Stock is exchangeable at the option of the Company
into Qualified Capital Stock of the Company, and (ii) dividends, if any, on
which are payable solely in kind by the issuance of additional shares of
Preferred Stock meeting the requirements of subclauses (i)(b) through (i)(e) of
this definition.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person will be deemed to own subject to a
Lien any property that the Person has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement, capital lease or
other title retention agreement.
"MATURITY" means, with respect to any Exchange Note, the date on which
any principal of that Exchange Note becomes due and payable as therein or in the
Indenture provided, whether at the Stated Maturity with respect to that
principal or on redemption, repurchase pursuant to a Change of Control Offer or
a Net Proceeds Offer, by declaration of acceleration or otherwise.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"NET AVAILABLE PROCEEDS" means, with respect to any Asset Sale, the
proceeds therefrom in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banking firms) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale
(after taking into account available tax credits or deductions and any tax
sharing arrangements), (iii) amounts required to be
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paid to any Person (other than the Company or any Restricted Subsidiary) (a)
owning a beneficial interest in the properties or assets subject to the Asset
Sale, (b) having a Lien on such properties or assets or (c) requiring such
payment as a condition to providing any consent necessary to consummate the
Asset Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with that Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after that
Asset Sale, including, without limitation, pensions and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with that Asset
Sale, all as reflected in an Officers' Certificate; provided, however, that any
amounts remaining after adjustments, revaluations or liquidations of those
reserves will constitute Net Available Proceeds.
"NET CASH PROCEEDS" means, with respect to any issuance or sale of
Qualified Capital Stock or other securities, the cash proceeds of that issuance
or sale net of the fees of attorneys and accountants, fees, discounts or
commissions of underwriters and placement agents and brokerage, consultant and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"NON-RECOURSE PURCHASE MONEY INDEBTEDNESS" means only Indebtedness of the
Company or any Restricted Subsidiary that is incurred to finance the purchase of
any assets of the Company or any Restricted Subsidiary within 90 days of such
purchase, as long as (i) the amount of that Indebtedness does not exceed 100% of
the purchase cost of such assets as initially recorded in the "property, plant
and equipment" account on a balance sheet of the Company or that Restricted
Subsidiary, as the case may be, in accordance with GAAP, (ii) that Indebtedness
is non-recourse to the Company or any of its Restricted Subsidiaries and all
their respective assets other than the assets so purchased and (iii) the
purchase of such assets is not part of an acquisition of any Person.
"NOTE REGISTER" means the register required by the Indenture to be
maintained by or on behalf of the Company for the registration of the Exchange
Notes and transfers of the Exchange Notes.
"PAYMENT RESTRICTION" means, with respect to any Restricted Subsidiary,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) that Restricted
Subsidiary to (a) pay dividends or make other distributions on its Capital Stock
or make payments on any obligation, liability or Indebtedness owed to the
Company or any other Restricted Subsidiary, (b) make loans or advances to the
Company or any other Restricted Subsidiary or (c) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary or (ii) the Company
or any other Restricted Subsidiary to receive or retain any such dividends,
distributions or payments, loans or advances or transfer of properties or
assets.
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness under Working Capital Agreements in an aggregate
principal amount at any time outstanding not to exceed the greater of (1)
$50.0 million or (2) the sum of (A) 85% of the amount of the Accounts
Receivable of the Company and the Restricted Subsidiaries, and (B) 55% of
the amount of the Inventory of the Company and the Restricted Subsidiaries
(except that during the period April 1 through September 30 of each year,
65% of the amount of the Inventory of the Company and the Restricted
Subsidiaries shall be used), in each case as would be shown on a
consolidated balance sheet of the Company and the Restricted Subsidiaries
at that time prepared in accordance with GAAP;
(ii) Indebtedness under the Exchange Notes and the Subsidiary
Guarantees;
(iii) Indebtedness outstanding, or to be incurred pursuant to
commitments in effect, on the Issue Date after giving effect to this Note
Offering and the application of the net proceeds therefrom;
(iv) Indebtedness under Interest Rate Protection Obligations,
provided that (a) those Interest Rate Protection Obligations are related to
payment obligations on Permitted Indebtedness or Indebtedness otherwise
permitted by the Consolidated Fixed Charge Coverage Ratio test described
under "Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock" above, and (b) the
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notional principal amount of those Interest Rate Protection Obligations
does not exceed the principal amount of the Indebtedness to which those
Interest Rate Protection Obligations relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (a)
those Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the
Consolidated Fixed Charge Coverage Ratio test described under "Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock"
above or to the foreign currency cash flows reasonably expected to be
generated or required by the Company and the Restricted Subsidiaries, (b)
the notional principal amount of the Currency Hedge Obligations does not
exceed the principal amount of that Indebtedness and the amount of those
foreign currency cash flows to which those Currency Hedge Obligations
relate and (c) those Currency Hedge Obligations are entered into for the
purpose of limiting currency exchange rate risks in connection with
transactions entered into in the ordinary course of business;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or
to a Wholly Owned Restricted Subsidiary; provided, however, that upon
either (i) the subsequent issuance (other than directors' qualifying
shares), sale, transfer or other disposition of any Capital Stock or any
other event that results in a Wholly Owned Restricted Subsidiary ceasing to
be a Wholly Owned Restricted Subsidiary or (ii) the transfer or other
disposition of any such Indebtedness (except to the Company or a Wholly
Owned Restricted Subsidiary), the provisions of this clause (vi) will no
longer apply to such Indebtedness and such Indebtedness will be deemed, in
each case, to be incurred and will be treated as an incurrence for purposes
of the Consolidated Fixed Charge Coverage Ratio test described under
" -- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock" above at the time the transfer or other disposition
occurred;
(vii) Guarantees of Permitted Indebtedness or Indebtedness incurred
in accordance with the Consolidated Fixed Charge Coverage Ratio test
described under " -- Certain Covenants" " -- Limitation on Indebtedness
and Disqualified Capital Stock" above;
(viii) other Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $10 million; and
(ix) any renewals, amendments, extensions, supplements,
modifications, deferrals, substitutions, refinancing or replacements (each,
for purposes of this clause (ix), a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness incurred in accordance with the
Consolidated Fixed Charge Coverage Ratio test described under " -- Certain
Covenants" " -- Limitation on Indebtedness and Disqualified Capital
Stock" above or referred to above in clauses (ii) through (vii) or this
clause (ix), so long as (a) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if the
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing, (b) in the case of
any refinancing of Indebtedness (including the Exchange Notes) that is pari
passu with or subordinated in right of payment to the Exchange Notes, then
such new Indebtedness is pari passu with or subordinated in right of
payment to the Exchange Notes at least to the same extent as the
Indebtedness being refinanced and (c) such new Indebtedness has an Average
Life equal to or longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity that is not earlier than the final
Stated Maturity of the Indebtedness being refinanced.
"PERMITTED INVESTMENTS" means any of the following:
(i) Investments in Cash Equivalents;
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(ii) an Investment or series of related Investments by the Company or
any Restricted Subsidiary in another Person, if as a result of that
Investment or series of related Investments (a) that other Person becomes a
Wholly Owned Restricted Subsidiary or (b) that other Person is merged or
consolidated with or into, or transfers or conveys its properties and
assets substantially as an entirety to, the Company or a Wholly Owned
Restricted Subsidiary;
(iii) Investments of Net Available Proceeds permitted by the covenant
described under " -- Certain Covenants" " -- Limitation on Asset Sales"
above;
(iv) Investments consisting of loans and advances to employees,
officers and directors of the Company or any Restricted Subsidiary (a) for
travel, entertainment, relocation or other expenses in the ordinary course
of business or (b) representing the consideration for the issuance to such
employees, officers or directors of Common Stock of the Company;
(v) Investments consisting of loans and advances by the Company or
any Restricted Subsidiary to employees, officers and directors of the
Company or any Restricted Subsidiary in an aggregate principal amount at
any one time outstanding not exceeding $1 million;
(vi) Investments acquired by the Company or any Restricted Subsidiary
in the ordinary course of business (a) in exchange for any other Investment
or account receivable held by the Company or any Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or the obligor with
respect to such account receivable or (b) as a result of a foreclosure by
the Company or any Restricted Subsidiary with respect to any secured
Investment or other transfer of title with respect to any such secured
Investment in default; or
(vii) Investments the payment for which consists exclusively of
Qualified Capital Stock, provided that any such Investment must be made in
accordance with the other requirements of the Indenture, including (a) with
respect to any Acquired Indebtedness relating to such an Investment, the
Consolidated Fixed Charge Coverage Ratio test described under " -- Certain
Covenants" " -- Limitation on Indebtedness and Disqualified Capital
Stock" above and (b) with respect to any Lien on properties or assets
acquired in connection with any such Investment, the covenant described
under " -- Certain Covenants" " -- Limitation on Liens" above.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens existing as of the Issue Date;
(ii) Liens securing the Exchange Notes or the Subsidiary Guarantees;
(iii) Liens in favor of the Company or, with respect to a Restricted
Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens securing Permitted Indebtedness of the Company and the
Restricted Subsidiaries of the type described in clause (i) of the
definition of Permitted Indebtedness, provided that (a) no such Lien will
extend to any property other than Accounts Receivable and Inventory and the
proceeds therefrom and (b) the Company or any Restricted Subsidiary may
grant a license to the holders of any such Permitted Indebtedness to use
trademark and other intellectual property owned by the Company or any
Restricted Subsidiary to enable such holder to dispose of Accounts
Receivable and Inventory following foreclosure;
(v) Liens securing Indebtedness that constitutes Permitted
Indebtedness of the type described in clause (ix) of the definition of
"Permitted Indebtedness" incurred as a refinancing of any Indebtedness
secured by Liens described in clauses (i), (iv), (xi), (xii) and (xiii) of
this definition; provided, however, that (a) if any Lien securing
Indebtedness being refinanced is subordinated or junior to any Lien granted
for the benefit of the Holders, then the Lien securing the new Indebtedness
must be subordinated or junior to any Lien granted for the benefit of the
Holders at least to the same extent as the Lien securing the Indebtedness
being refinanced and (b) such Liens do not extend to or cover any
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property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(vii) Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other similar Liens incurred in the
ordinary course of business for sums not delinquent or being contested in
good faith, and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(viii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the payment or performance
of tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(ix) Liens securing any judgment not giving rise to a Default or
Event of Default and so long as any appropriate legal proceedings that may
have been duly initiated for the review of the judgment has not been
finally terminated or the period within which those proceedings may be
initiated has not expired;
(x) easements, rights-of-way, reservations, zoning and other
restrictions and other similar encumbrances not interfering in any material
respect with the ordinary conduct of business of the Company or any
Restricted Subsidiary;
(xi) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease or of a secured party under a purchase money
security interest; provided that (a) the Attributable Indebtedness or
Indebtedness related thereto constitutes Indebtedness permitted to be
incurred under the terms of the Indenture and (b) with respect to any
Capitalized Lease Obligation or purchase money security interest, such
Liens do not extend to any property or assets other than leased property
subject to such Capitalized Lease Obligation or property acquired with the
proceeds of such purchase money indebtedness, as the case may be;
(xii) Liens securing Non-Recourse Purchase Money Indebtedness;
provided, however, that (a) the Non-Recourse Purchase Money Indebtedness
shall not be secured by any property or assets of the Company or any
Restricted Subsidiary other than the property or assets so acquired and any
proceeds therefrom and (b) the Lien securing such Non-Recourse Purchase
Money Indebtedness shall be created within 90 days of such acquisition;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the Consolidated Fixed Charge Coverage Ratio test described under
" -- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock" above; provided that (a) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted
in connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (b) such Liens
do not extend to or cover any property or assets of the Company or of any
Restricted Subsidiary other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary and are no more
favorable to the lienholders than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary;
(xiv) Leases or subleases granted to others that do not interfere
with the ordinary conduct of business of the Company or any Restricted
Subsidiary;
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(xv) Rights of a common owner of any interest in property held by the
Company or any Restricted Subsidiary and that common owner as tenants in
common or through other common ownership; and
(xvi) Liens or equitable encumbrances deemed to exist by reason of
(a) fraudulent conveyance or transfer laws or (b) negative pledge or other
agreements to refrain from giving Liens.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of that
Person's preferred or preference Capital Stock, whether outstanding on or after
the Issue Date, including, without limitation, all classes and series of
preferred or preference Capital Stock of that Person.
"PREMIER CONVERTIBLE NOTE" means the non-interest bearing, convertible
subordinated note in the original principal amount of $1.5 million that will (i)
be issued in connection with the Premier Acquisition, (ii) have a seven year
term from its date of issuance, (iii) not have or permit any principal payments
or prepayments and (iv) be redeemable and convertible into, and payable only
through the issuance of, 136,364 shares of the Company's Common Stock.
"PRINCIPALS" means, collectively, Equus II Incorporated, J. Ford Taylor,
F. Clayton Chambers and Alan B. Elenson.
"PUBLIC EQUITY OFFERING" means an offer and sale of Common Stock of the
Company for cash pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise relating to equity securities
issuable under any employee benefit plan of the Company).
"QUALIFIED CAPITAL STOCK" of any Person means any and all Capital Stock
of that Person other than Disqualified Capital Stock of that Person.
"REGULAR RECORD DATE" means, with respect to the interest payable on any
Interest Payment Date, the June 15 or December 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"RELATED BUSINESS" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the business of the Company and the Restricted Subsidiaries on
that date.
"RELATED BUSINESS INVESTMENT" means any Investment by the Company or any
Restricted Subsidiary in any Related Business.
"RESTRICTED INVESTMENT" means, with respect to any Person, any Investment
by such Person (other than a Permitted Investment) (i) in any Unrestricted
Subsidiary or (ii) any Person that is not a Wholly Owned Restricted Subsidiary
other than by reason of having outstanding Junior Preferred Stock.
"RESTRICTED PAYMENT" means, with respect to any Person:
(i) any declaration or payment of any dividend (other than a dividend
declared or paid by a Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary), or any other distribution, with respect to
any shares of Capital Stock of that Person (other than dividends or
distributions payable solely in shares of Qualified Capital Stock of that
Person or in options, warrants or other rights to purchase Qualified
Capital Stock of that Person);
(ii) any purchase, redemption, retirement or other acquisition for
value of any Capital Stock of that Person (other than the redemption of the
Company's Series A-1 and Series A-2 Preferred Stock from proceeds of the
Note Offering) or any other payment or distribution made in respect
thereof, either directly or indirectly (other than any payment made solely
in Qualified Capital Stock of that Person) by that Person or any Subsidiary
of that Person;
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(iii) any principal payment on or repurchase, redemption, defeasance
or other acquisition or retirement for value, prior to any scheduled
principal payment, scheduled sinking fund payment or maturity, of any
subordinated indebtedness (including, with respect to the Company and any
Subsidiary Guarantor, Subordinated Indebtedness) of that Person by that
Person or any Subsidiary of that Person; or
(iv) any Restricted Investment. "Restricted Subsidiary" means any
Subsidiary of the Company, whether existing on or after the Issue Date,
unless that Subsidiary is an Unrestricted Subsidiary or is designated as an
Unrestricted Subsidiary in the manner described in the definition of
"Unrestricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., and its successors.
"SALE/LEASEBACK TRANSACTION" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by the Company or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or a Restricted Subsidiary.
"SENIOR MANAGEMENT" means, with respect to the Company, the Chairman of
the Board of Directors, the president, the chief operating officer, the chief
financial officer, the chief accounting officer, the treasurer, the controller
and any vice president of the Company.
"STATED MATURITY" means, when used with respect to any Indebtedness or
any installment of interest thereon, the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of that Indebtedness or that installment of interest is due and
payable.
"SUBJECT ACQUISITIONS" means the acquisition by the Company or any
Restricted Subsidiary of (i) all the outstanding Capital Stock of SolarCo, Inc.,
a Washington corporation and the parent of Morning Sun, Inc., a Washington
corporation, and (ii) all the assets of Premier Sports Group, Inc., a Colorado
corporation.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Exchange Notes or Subsidiary Guarantees, respectively.
"SUBSIDIARY" means, with respect to any specified Person, (i) a
corporation a majority of the voting power of whose Voting Stock is at the time,
directly or indirectly, owned by the specified Person, by one or more
Subsidiaries of the specified Person or by the specified Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation),
including, without limitation, a joint venture, in which the specified Person,
one or more Subsidiaries thereof or the specified Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has or have at least a majority of the voting power of the Voting Stock
of that Person which is entitled to vote in the election of directors, managers
or trustees thereof (or other Persons performing similar functions).
"SUBSIDIARY GUARANTORS" mean (i) all Subsidiaries of the Company existing
as of the Issue Date and (ii) any other Subsidiary of the Company that executes
a Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at
the time of determination will be designated as an Unrestricted Subsidiary by
the Board of Directors as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company as an Unrestricted Subsidiary so long as: (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for the payment
of any Indebtedness of that Subsidiary; (ii) no default with respect to any
Indebtedness of that Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on that other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity or require the
Company or any Restricted Subsidiary to repurchase or secure that other
Indebtedness; (iii) such designation as an Unrestricted Subsidiary would be
permitted by the covenant described under " -- Certain
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Covenants -- Limitation on Restricted Payments" above; (iv) that designation
would not result in the creation or imposition of any Lien on any of the
properties or assets of the Company or any Restricted Subsidiary (other than any
Permitted Lien); and (v) the Company could incur at least $1.00 of additional
Indebtedness not constituting Permitted Indebtedness in accordance with the
Consolidated Fixed Charge Coverage Ratio test described under " -- Certain
Covenants -- Limitation on Indebtedness and Disqualified Capital Stock" above;
provided, however, that with respect to clause (i) of this sentence, the Company
or a Restricted Subsidiary may be liable for the payment of Indebtedness of an
Unrestricted Subsidiary if (x) the liability constituted a Permitted Investment
or a Restricted Payment permitted by the covenant described under " -- Certain
Covenants -- Limitation on Restricted Payments" above, in each case at the time
of incurrence, or (y) the liability would be a Permitted Investment at the time
of designation of that Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors must be evidenced to the Trustee by filing
a Board Resolution with the Trustee giving effect to that designation, together
with an Officers' Certificate stating that such designation complies with the
requirements of the Indenture. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation on a pro forma basis, (i) no Default or Event of
Default has occurred and is continuing, (ii) the Company could incur at least
$1.00 of additional Indebtedness not constituting Permitted Indebtedness in
accordance with the Consolidated Fixed Charge Coverage Ratio test described
under " -- Certain Covenants -- Limitation on Indebtedness and Disqualified
Capital Stock" above and (iii) if any of the properties and assets of the
Company or any Restricted Subsidiary would on such designation become subject to
any Lien (other than a Permitted Lien), the creation or imposition of that Lien
must comply with the covenant described under " -- Certain
Covenants -- Limitation on Liens" above.
"VOTING STOCK" means, with respect to any specified Person, any class or
classes of Capital Stock of the specified Person pursuant to which the holders
thereof have the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of the
specified Person (irrespective of whether or not, at the time, stock of any
other class or classes have, or might have, voting power by reason of the
happening of any contingency).
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary: (i)
all the outstanding shares of Capital Stock or other ownership interests in
which, other than any directors' qualifying shares mandated by applicable law,
are owned directly or indirectly by the Company; and (ii) if that Restricted
Subsidiary is organized in a foreign jurisdiction and is required by the
applicable laws and regulations of that jurisdiction to be partially owned by
the government of that jurisdiction or individual or corporate citizens of that
jurisdiction in order for that Restricted Subsidiary to transact business in
that jurisdiction, the Company, directly or indirectly, owns the remaining
Capital Stock or ownership interest in that Restricted Subsidiary and, by
contract or otherwise, controls the management and business of that Restricted
Subsidiary and derives the economic benefits of ownership of that Restricted
Subsidiary to substantially the same extent as if that Restricted Subsidiary
were a Wholly Owned Subsidiary of the type described in clause (i) of this
sentence.
"WORKING CAPITAL AGREEMENT" means, with respect to any specified Person,
(i) any agreement providing for the making of loans or advances on a revolving
basis, the issuance of letters of credit and/or the creation of bankers'
acceptances to fund the general working capital and other corporate requirements
of that Person and one or more of its Subsidiaries and (ii) any refinancings,
renewals, replacements, modification and extensions of any of the agreements
described in clause (i) of this sentence. Initially, "Working Capital
Agreement" means the Credit Facility among Brazos, Inc., a Texas corporation
and a Wholly Owned Restricted Subsidiary, and Morning Sun, Inc., a Washington
corporation and a Wholly Owned Restricted Subsidiary, Fleet Capital Corporation
and BankBoston, N.A., formerly known as The First National Bank of Boston.
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OPTIONAL REDEMPTION
The Company may, at its option, redeem the Exchange Notes in whole or from
time to time in part, on or after July 1, 2002, on not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, together with accrued and unpaid interest
thereon and Liquidated Damages, if any, to the date of redemption (subject to
the right of Holders of record on the relevant record date to receive interest
due on an interest payment date that is on or prior to the date of redemption),
if redeemed during the 12-month period beginning on July 1 of the year indicated
below:
REDEMPTION
YEAR PRICE
- ---------------------------------------- ----------
2002.................................... 105.25%
2003.................................... 103.50%
2004.................................... 101.75%
2005 and thereafter..................... 100.00%
Notwithstanding the foregoing, at any time on or prior to July 1, 2000, the
Company may redeem up to 35% of the aggregate principal amount of Exchange Notes
originally issued from the Net Cash Proceeds of a Public Equity Offering, at a
redemption price equal to 110.5% of the principal amount thereof, together with
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of redemption, PROVIDED that (i) at least $65 million of the aggregate principal
amount of Exchange Notes originally issued remains outstanding immediately after
that redemption and (ii) the Company effects that redemption within 60 days
after the Public Equity Offering closes.
If less than all the Exchange Notes are to be redeemed, the Trustee will,
not less than 30 nor more than 60 days prior to the redemption date, select the
particular Exchange Notes (or any portion thereof that is an integral multiple
of $1,000) to be redeemed, PRO RATA, by lot or by any other method the Indenture
permits.
No sinking fund or mandatory redemption is provided for the Exchange Notes.
RANKING
The Exchange Notes and each Subsidiary Guarantee will be senior unsecured
obligations of the Company and the applicable Subsidiary Guarantor,
respectively, and will rank PARI PASSU in right of payment with all other
existing and future unsecured and unsubordinated Indebtedness of the Company and
the applicable Subsidiary Guarantor, respectively, and senior to all existing
and future Subordinated Indebtedness of the Company and the Subsidiary
Guarantors, respectively. The Exchange Notes and Subsidiary Guarantees, however,
will be effectively subordinated to secured Indebtedness of the Company and the
Subsidiary Guarantors with respect to the assets securing that Indebtedness. At
July 2, 1997, the Company and the Subsidiary Guarantors have no unsecured and
unsubordinated Indebtedness outstanding other than the Exchange Notes and $31.4
million of secured Indebtedness outstanding. Subject to certain limitations, the
Company and its Subsidiaries (including the Subsidiary Guarantors) may incur
additional Indebtedness in the future. See " -- Certain Covenants"
" -- Limitation on Indebtedness and Disqualified Capital Stock."
SUBSIDIARY GUARANTEES
Each Restricted Subsidiary other than the Company's existing Japanese
subsidiary will unconditionally guarantee (each, a "Subsidiary Guarantee"),
jointly and severally, to each Holder of Exchange Notes and the Trustee, the
full and punctual performance of the Company's obligations under the Indenture
and the Exchange Notes, including the payment of principal of and premium, if
any, interest and Liquidated Damages, if any, on the Exchange Notes. All of the
Company's Subsidiaries are Wholly Owned Restricted Subsidiaries. Under certain
circumstances, the Board of Directors of the Company (the "Board of
Directors") will be able to designate its existing or future Subsidiaries as
Unrestricted Subsidiaries. See " -- Certain Covenants" " -- Future
Designation of Restricted and Unrestricted Subsidiaries" below. Unrestricted
Subsidiaries will not be subject to the restrictive covenants set forth in the
Indenture.
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Each Subsidiary Guarantee will be a senior unsecured obligation of the
applicable Subsidiary Guarantor and will rank PARI PASSU in right of payment
with all other existing and future unsecured and unsubordinated Indebtedness of
that Subsidiary Guarantor. Each Subsidiary Guarantee will be effectively
subordinated to any secured Indebtedness of the applicable Subsidiary Guarantor
with respect to the assets securing such Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount that, after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
that other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, will result in the obligations
of that Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under a Subsidiary
Guarantee will be entitled to a PRO RATA contribution from each other Subsidiary
Guarantor based on the net assets of each Subsidiary Guarantor, determined in
accordance with GAAP.
The Indenture will provide that no Subsidiary Guarantor (in this paragraph,
the "Subject Subsidiary Guarantor") may consolidate with or merge with or into
(whether or not the Subject Subsidiary Guarantor is the surviving Person)
another Person (other than the Company or another Subsidiary Guarantor), whether
or not affiliated with the Subject Subsidiary Guarantor, unless: (i) either (a)
the survivor is not a Subsidiary Guarantor following that consolidation or
merger and the consolidation or merger satisfies the provisions described under
" -- Certain Covenants" " -- Limitation on Asset Sales" below or (b) the
survivor is a Subsidiary Guarantor and the surviving Subsidiary Guarantor could
make the Investment in the Person that consolidated or merged with it in
accordance with the limitation on Restricted Payments described under
" -- Certain Covenants" " -- Limitation on Restricted Payments" below; or
(ii)(a) subject to the provisions of the following paragraph, the Person formed
by or surviving any such consolidation or merger (if other than the Subject
Subsidiary Guarantor) assumes all the obligations of the Subject Subsidiary
Guarantor under the Exchange Notes and the Indenture pursuant to a supplemental
indenture, in form and substance satisfactory to the Trustee; (b) immediately
after giving effect to such transaction, no Default or Event of Default exists;
and (c) immediately after giving effect to such transaction as if the same had
occurred at the beginning of the most recently ended period of four consecutive
fiscal quarters of the Company for which consolidated financial statements of
the Company and its Restricted Subsidiaries are available, the Company and the
Restricted Subsidiaries could incur at least $1.00 of additional Indebtedness
not constituting Permitted Indebtedness in accordance with the Consolidated
Fixed Charge Coverage Ratio test described under " -- Certain Covenants"
" -- Limitation on Indebtedness and Disqualified Capital Stock" below.
The Indenture will provide that in the event of a sale or other disposition
of all the properties and assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all the Capital
Stock of any Subsidiary Guarantor, then that Subsidiary Guarantor (in the event
of a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all the Capital Stock of that Subsidiary Guarantor) or the
corporation acquiring the properties and assets (in the event of a sale or other
disposition of the properties and assets of that Subsidiary Guarantor
substantially as an entirety) will be released and relieved of any obligations
under its Subsidiary Guarantee, provided that the Net Available Proceeds of such
sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See " -- Certain Covenants" " -- Limitation on
Asset Sales." In addition, any Subsidiary Guarantor that is designated by the
Board of Directors as an Unrestricted Subsidiary in accordance with the terms
and conditions of the Indenture will be released and relieved of any obligation
under its Subsidiary Guarantee.
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK. The Company
will not, and will not permit any Restricted Subsidiary to, (a) create, incur,
assume, guarantee or in any manner become directly
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or indirectly liable for the payment of (collectively, "incur") any
Indebtedness (including any Acquired Indebtedness, but excluding any Permitted
Indebtedness) or (b) issue any Disqualified Capital Stock, unless, on a pro
forma basis after giving effect to that incurrence or issuance and the
application of the net proceeds therefrom, the Company's Consolidated Fixed
Charge Coverage Ratio for the four most recent consecutive fiscal quarters of
the Company prior to the date of the proposed incurrence or issuance for which
consolidated financial statements of the Company and its Restricted Subsidiaries
are available would be at least 2.0 to 1.0.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any Restricted Subsidiary to issue any Preferred Stock (other than to the
Company or to a Wholly Owned Restricted Subsidiary) or permit any Person (other
than the Company or a Wholly Owned Restricted Subsidiary) to own any Preferred
Stock of any Restricted Subsidiary other than Junior Preferred Stock.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment unless, at the time of and after giving effect to the proposed
Restricted Payment: (i) no Default or Event of Default has occurred and is
continuing; (ii) the Company and its Restricted Subsidiaries would be permitted
to incur at least $1.00 of additional Indebtedness not constituting Permitted
Indebtedness in accordance with the Consolidated Fixed Charge Coverage Ratio
test described under "Limitation on Indebtedness and Disqualified Capital
Stock" above; and (iii) the amount of that Restricted Payment, when added to
the aggregate amount of all other Restricted Payments made after the Issue Date,
does not exceed the sum (without duplication) of the following:
(a) 50% of the Consolidated Net Income (or, if Consolidated Net Income
is a loss, minus 100% of such loss) accrued on a cumulative basis during
the period beginning on July 1, 1997 and ending on the last day of the
Company's last fiscal quarter for which quarterly or annual consolidated
financial statements are available next preceding the date of payment of
the proposed Restricted Payment;
(b) the aggregate Net Cash Proceeds received by the Company after the
Issue Date from the issuance or sale (other than to any Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase shares of Qualified Capital Stock
of the Company; and
(c) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for cash,
the cash proceeds of that sale, liquidation or repayment received by the
Company or any Restricted Subsidiary net of the fees and expenses actually
incurred in connection with such sale, liquidation or repayment and net of
taxes paid or payable as a result thereof.
The foregoing provisions (ii) and (iii) will not prohibit: (i) the payment
of any dividend within 60 days after the date of declaration thereof, if at said
date of declaration the payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to any Restricted Subsidiary) of
Qualified Capital Stock of the Company; (iii) the defeasance, redemption,
repurchase or other retirement of Subordinated Indebtedness in exchange for, or
out of the proceeds of, the substantially concurrent issue and sale of (a)
Subordinated Indebtedness so long as the new Subordinated Indebtedness has (1)
an Average Life equal to or longer than the Average Life of the Subordinated
Indebtedness being defeased, redeemed, repurchased or otherwise retired and (2)
terms of subordination no less favorable to the Holders of the Exchange Notes
than those applicable to the Subordinated Indebtedness being defeased, redeemed,
repurchased or otherwise retired or (b) Qualified Capital Stock of the Company
(other than to any Restricted Subsidiary); (iv) the repurchase, redemption or
other acquisition or retirement for value of any Capital Stock held by any
member of the Company's or any Restricted Subsidiary's management pursuant to
any management equity subscription agreement, employment agreement, stock option
agreement or other compensation agreement in an amount not to exceed in the
aggregate $500,000 in any fiscal year of the Company; (v) the making of one or
more Related Business Investments that are Restricted Investments in an
aggregate amount not in excess of $10.0 million; or (vi) subject to the
condition precedent that the Company has first satisfied all its obligations
described under
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" -- Change of Control" below, the redemption of any then outstanding shares
of Existing Preferred Stock upon the occurrence of a "Major Transaction" (as
such term is defined in the certificate of designation for each such series of
preferred stock as in effect on the Issue Date).
The amounts referred to in clauses (i), (ii), (iii), (iv), (v) or (vi) of
the immediately preceding paragraph will be included as Restricted Payments in
any computation made pursuant to clause (iii) of the second preceding paragraph.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted by and complies with the Indenture and setting forth in
reasonable detail the basis on which the required calculations were computed,
which calculations will be based upon the Company's latest consolidated
available financial statements.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, (i) issue or sell or otherwise dispose of any Capital Stock of
any Restricted Subsidiary (other than to the Company or a Wholly Owned
Restricted Subsidiary) other than Junior Preferred Stock or (ii) permit any
Person other than the Company or a Wholly Owned Restricted Subsidiary to own any
Capital Stock of any Restricted Subsidiary other than Junior Preferred Stock,
except, in the case of clause (i) or (ii), to the extent permitted by and in
accordance with the definition of "Wholly Owned Restricted Subsidiary" set
forth in " -- Certain Definitions" below. The sale of all the Capital Stock of
any Restricted Subsidiary is permitted by this covenant but is subject to the
limitations described under " -- Limitation on Asset Sales" below.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction unless (i) the Company or the Restricted Subsidiary, as the case may
be, would be permitted to incur Indebtedness not constituting Permitted
Indebtedness in accordance with the Consolidated Fixed Charge Coverage Ratio
test described under " -- Limitation on Indebtedness and Disqualified Capital
Stock" above in an amount equal to the Attributable Indebtedness arising from
the Sale/Leaseback Transaction, (ii) the Company or the Restricted Subsidiary
receives proceeds from the Sale/Leaseback Transaction at least equal to the fair
market value of the property or assets subject thereto (as determined in good
faith by the Board of Directors, whose determination in good faith and evidenced
by a Board Resolution will be conclusive), (iii) the Company applies an amount
in cash equal to the Net Available Proceeds of the Sale/Leaseback Transaction in
accordance with the provisions of the covenant described under " -- Limitation
on Asset Sales" below as if the Sale/Leaseback Transaction were an Asset Sale
and (iv) the Sale/Leaseback Transaction would not result in a violation of the
covenant described under " -- Limitation on Liens" below.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Restricted Subsidiary to, enter into, renew or extend any
contract or agreement relating to the sale, purchase or lease of assets (other
than Capital Stock of the Company), property or services from or to any
Affiliate of the Company (each of the foregoing, an "Affiliate Transaction")
(i) on terms less favorable to the Company or the Restricted Subsidiary, as the
case may be, than would be available in a comparable transaction with a Person
not an Affiliate of the Company or (ii) on terms that are not fair from a
financial point of view to the Company or the Restricted Subsidiary, as the case
may be, in the event no comparable transaction with a Person not an Affiliate of
the Company is available; PROVIDED, that the Company will not, and will not
permit any Restricted Subsidiary to, enter into, renew or extend any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
payments, value, remuneration or other consideration in excess of $1.0 million
after the Issue Date unless the prior approval thereof by the Board of Directors
(including a majority of the Disinterested Directors) has been obtained and the
Company delivers to the Trustee an Officers' Certificate (i) certifying that the
Affiliate Transaction or series of related Affiliate Transactions complies with
the foregoing restriction and (ii) if the Affiliate Transaction or series of
related Affiliate Transactions involves aggregate payments, value, remuneration
or other consideration in excess of $5.0 million after the Issue Date, to which
is attached a copy of a written opinion of an Independent Financial Advisor
specializing or having a speciality in the type and subject matter of the
transaction or series of
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related transactions at issue, to the effect that such transaction or series of
related transactions is fair from a financial point of view to the Company or
the Restricted Subsidiary, as the case may be; provided, however, that the
foregoing restriction will not apply to: (i) transactions between or among (a)
the Company and one or more Wholly Owned Restricted Subsidiaries or (b) Wholly
Owned Restricted Subsidiaries; (ii) transactions between the Company or any
Restricted Subsidiary and any qualified employee stock ownership plan
established for the benefit of the Company's employees, or the establishment or
maintenance of any such plan; (iii) reasonable director, officer and employee
compensation and other benefit, and indemnification, arrangements approved by
the Board of Directors; or (iv) transactions permitted by the covenant described
under " -- Limitation on Restricted Payments" above.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien upon any of its property or
assets, whether owned on or acquired after the Issue Date, or upon any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income or profits therefrom, except Permitted Liens, unless prior to, or
contemporaneously therewith, the Exchange Notes are equally and ratably secured
with (or prior to) the obligation or liability secured by that Lien; PROVIDED,
HOWEVER, that if a Lien is granted to secure Indebtedness and that Indebtedness
is expressly subordinated to the Exchange Notes, the Lien securing that
Indebtedness must be expressly subordinated and junior to the Lien securing the
Exchange Notes, with the same relative priority as such Indebtedness has with
respect to the Exchange Notes. The incurrence of additional secured Indebtedness
by the Company and the Restricted Subsidiaries is subject to further limitations
on the incurrence of Indebtedness as described under " -- Limitation on
Indebtedness and Disqualified Capital Stock" above.
CHANGE OF CONTROL. If a Change of Control occurs, the Company must make an
offer to purchase all the then outstanding Exchange Notes (a "Change of Control
Offer") and purchase, on a business day (the "Change of Control Purchase Date")
not more than 60 nor less than 30 days following the date notice is mailed, as
provided below, all the then outstanding Exchange Notes validly tendered
pursuant to that Change of Control Offer and not withdrawn, at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
thereof, together with accrued and unpaid interest thereon and Liquidated
Damages, if any, to the Change of Control Purchase Date. The Company must keep
the Change of Control Offer open for at least 20 business days and until the
close of business on the fifth business day prior to the Change of Control
Purchase Date.
To effect a Change of Control Offer, the Company will, not later than the
30th day after a Change of Control occurs, send, by first class mail, to the
Trustee and each Holder a notice of the Change of Control Offer, which notice
will govern the terms of the Change of Control Offer and state the procedures
Holders must follow to accept the Change of Control Offer.
There can be no assurance the Company will have available funds sufficient
to fund the purchase of the Exchange Notes that might be tendered by Holders
seeking to accept a Change of Control Offer. If a Change of Control occurs at a
time when the Company does not have available funds sufficient to pay the Change
of Control Purchase Price for all the Exchange Notes tendered by Holders seeking
to accept the Change of Control Offer, an Event of Default would occur under the
Indenture.
The Company will not be required to make a Change of Control Offer
following the occurrence of a Change of Control if another Person (i) makes the
Change of Control Offer (a) at the same purchase price, (b) at the same time and
(c) otherwise in substantial compliance with the requirements applicable to a
Change of Control Offer to be made by the Company and (ii) purchases all
Exchange Notes validly tendered and not withdrawn under that Person's Change of
Control Offer. The existence of a Holder's right to require, subject to certain
conditions, the Company to repurchase its Exchange Notes following the
occurrence of a Change of Control may deter a third party from acquiring the
Company in a transaction that constitutes, or results in, a Change of Control.
The Company will comply with Rule l4e-1 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and any other securities laws and
regulations thereunder, if applicable, if a Change of Control occurs and the
Company is required to purchase Exchange Notes as described above.
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LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless (i) the Company or
the Restricted Subsidiary, as the case may be, receives consideration at the
time of the Asset Sale at least equal to the fair market value of the assets and
properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors, whose determination in good faith will be
conclusive and evidenced by a Board Resolution), (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of the Asset Sale consists of cash or Cash Equivalents and
(iii) the Company delivers to the Trustee an Officers' Certificate certifying
that the Asset Sale complies with clauses (i) and (ii) of this sentence. The
amount (without duplication) of any Indebtedness (other than Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is expressly
assumed by the transferee in an Asset Sale and with respect to which the Company
or the Restricted Subsidiary, as the case may be, is unconditionally released by
the holder of that Indebtedness will be deemed (i) to be cash or Cash
Equivalents for purposes of clause (ii) of the preceding sentence and (ii) to
constitute a repayment of, and a permanent reduction in, the amount of that
Indebtedness for purposes of the second following paragraph. If at any time any
non-cash consideration received by the Company or any Restricted Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration) or Cash Equivalents, then such conversion or
disposition will constitute an Asset Sale and the Net Available Proceeds
therefrom must be applied in accordance with this covenant. A transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary will not
constitute an Asset Sale, and a transfer of assets that constitutes a Restricted
Investment and that is permitted under the covenant described under
" -- Limitation on Restricted Payments" above will not constitute an Asset
Sale.
If substantially all (but not all) the property and assets of the Company
and its Restricted Subsidiaries are transferred as an entirety to a Person in a
transaction permitted under the covenant described under "Merger, Consolidation
and Sale of Assets" below, the successor corporation will be deemed to have
sold the properties and assets of the Company and its Subsidiaries not so
transferred for purposes of this covenant (other than the provision described in
clause (ii) of the first sentence of the immediately preceding paragraph) and
must comply with the provisions of this covenant with respect to that deemed
sale as if it were an Asset Sale. In addition, the fair market value of the
properties and assets of the Company or its Subsidiaries deemed to be sold will
be deemed to be Net Available Proceeds for purposes of this covenant.
If the Company or any Restricted Subsidiary consummates an Asset Sale, the
Company or any Restricted Subsidiary, as the case may be, may either, no later
than 365 days after that Asset Sale, (i) apply all or any of the Net Available
Proceeds therefrom to repay Indebtedness (other than Subordinated Indebtedness)
of the Company or any Restricted Subsidiary, PROVIDED, in each case, that the
related loan commitment (if any) is thereby permanently reduced by the amount of
the Indebtedness so repaid or (ii) invest all or any part of the Net Available
Proceeds therefrom in properties and assets that replace the properties or
assets that were the subject of the Asset Sale or in other properties or assets
that will be used in the business of the Company and the Restricted
Subsidiaries. The amount of the Net Available Proceeds not applied or invested
as provided in this paragraph will constitute "Excess Proceeds."
NET PROCEEDS OFFER. When the aggregate amount of Excess Proceeds from one
or more Asset Sales equals or exceeds $5.0 million, the Company must make an
offer to purchase, from all Holders of the then outstanding Exchange Notes, an
aggregate principal amount of Exchange Notes equal to such Excess Proceeds, as
follows:
(i) The Company must make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Exchange Notes in accordance with the
procedures set forth in the Indenture the maximum aggregate principal
amount (expressed as a multiple of $1,000) of Exchange Notes that may be
purchased out of the amount (the "Payment Amount") of such Excess
Proceeds;
(ii) The offer price for the Exchange Notes will be payable in cash
in an amount equal to 100% of the principal amount of the Exchange Notes
tendered pursuant to a Net Proceeds Offer, together with accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date that Net
Proceeds
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Offer is consummated (the "Offered Price"), in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate
Offered Price of Exchange Notes tendered pursuant to a Net Proceeds Offer
is less than the Payment Amount relating thereto (such shortfall
constituting a "Net Proceeds Deficiency"), subject to the limitations of
the covenant described under "-- Limitation on Restricted Payments"
above, the Company may use any or all of such Net Proceeds Deficiency for
general corporate purposes;
(iii) If the aggregate Offered Price of Exchange Notes validly
tendered and not withdrawn by Holders thereof exceeds the Payment Amount,
the Trustee will select the Exchange Notes to be purchased on a PRO RATA
basis in accordance with the relative aggregate principal amounts of the
Exchange Notes so tendered and not withdrawn; and
(iv) When a Net Proceeds Offer is completed, the amount of Excess
Proceeds will be zero.
The Company will not, and will not permit any Restricted Subsidiary to, enter
into or suffer to exist any agreement that would place any restriction of any
kind (other than pursuant to law or regulation) on the ability of the Company to
make a Net Proceeds Offer following any Asset Sale. The Company will comply with
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder, if applicable, if an Asset Sale occurs and the Company is required
to purchase Exchange Notes as described above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or allow to become effective any consensual Payment Restriction with
respect to any Restricted Subsidiary, except for any such Payment Restriction
existing under or by reason of (i) applicable law, (ii) customary non-assignment
provisions in leases or other contracts entered into in the ordinary course of
business and consistent with past practices, (iii) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions on the property so acquired, (iv) customary restrictions imposed on
the transfer of copyrighted or patented materials, (v) the entering into of a
contract for the sale or other disposition of assets, directly or indirectly, so
long as such restrictions do not extend to assets that are not subject to such
sale or other disposition, (vi) the terms of any agreement evidencing any
Indebtedness of Restricted Subsidiaries that was permitted by the Indenture to
be incurred that only restrict the transfer of the assets purchased with the
proceeds of such Indebtedness, (vii) the terms of the Working Capital Agreement
in effect on the Issue Date and any similar Payment Restriction under any
similar revolving credit facility or any replacement thereof, provided that such
similar Payment Restriction is no more restrictive than the Payment Restriction
in effect on the Issue Date and (viii) the terms of any agreement evidencing any
Acquired Indebtedness that was permitted by the Indenture to be incurred,
provided that such Payment Restriction only applies to assets that were subject
to such restrictions prior to the acquisition of such assets by the Company or
any Restricted Subsidiary.
LIMITATION ON CONDUCT OF BUSINESS. The Company will not, and will not
permit any Restricted Subsidiary to, engage in the conduct of any business other
than any Related Business.
FUTURE DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "-- Certain Definitions" below
describes the circumstances under which the Board of Directors may designate a
Subsidiary of the Company as an Unrestricted Subsidiary. Any Investment made by
the Company or any Restricted Subsidiary that is redesignated from a Restricted
Subsidiary to an Unrestricted Subsidiary will be subject to the covenant
described under "-- Limitation on Restricted Payments" above and will be
treated as a Restricted Payment (to the extent not previously included as a
Restricted Payment) made on the day of redesignation in an amount equal to the
greater of (i) the fair market value (as determined by the Board of Directors in
good faith and evidenced by a Board Resolution) of the Capital Stock of such
redesignated Subsidiary held by the Company and its Restricted Subsidiaries on
that date, and
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(ii) the amount of the Investments determined in accordance with GAAP made by
the Company and its Restricted Subsidiaries in that redesignated Subsidiary.
ADDITIONAL SUBSIDIARY GUARANTORS. If the Company or any Restricted
Subsidiary acquires or creates another Subsidiary of the Company after the Issue
Date, that newly acquired or created Subsidiary must execute a Subsidiary
Guarantee and deliver an Opinion of Counsel, in accordance with the terms of the
Indenture, unless the Board of Directors has duly designated that Subsidiary as
an Unrestricted Subsidiary in accordance with the definition of Unrestricted
Subsidiary under the caption "-- Certain Definitions" below.
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium, if any, and interest
and Liquidated Damages, if any; (ii) maintenance of an office or agency in The
City of New York; (iii) arrangements regarding the handling of money held in
trust; (iv) maintenance of corporate existence; (v) payment of taxes and other
claims; and (vi) maintenance of properties.
REPORTS. The Company will file on a timely basis with the Commission, to
the extent the Commission accepts such filings and whether or not the Company
has a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Section 13 or 15(d) of the Exchange Act. The Company also
will (i) file with the Trustee (with exhibits), and provide to each Holder
(without exhibits), without cost to that Holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were subject to
Section 13 or 15(d) of the Exchange Act and (ii) if filing such reports and
documents with the Commission is not accepted by the Commission or is prohibited
under the Exchange Act, supply at its cost copies of such reports and documents
(including any exhibits thereto) to any Holder promptly on its written request.
For so long as the Exchange Notes remain outstanding, the Company will also
furnish to the Holders and beneficial holders of Exchange Notes and to
prospective purchasers of Exchange Notes designated by the Holders of Transfer
Restricted Securities (as defined in the Registration Rights Agreement) and to
broker-dealers, on their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in any single transaction or series of related
transactions, consolidate or merge with any other Person, or sell, assign,
convey, transfer, lease or otherwise dispose of the properties and assets of the
Company and the Restricted Subsidiaries on a consolidated basis substantially as
an entirety to any Person or group of Persons that are Affiliates of each other
(an "Affiliated Group"), and the Company will not permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions, if,
in any event, such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of the properties and assets of the Company and the Restricted
Subsidiaries on a consolidated basis substantially as an entirety to any other
Person or Affiliated Group, unless: (i) either (a) if the transaction is a
merger, the Company will be the surviving Person of that merger, or (b) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or the Person or Affiliated Group that acquires the
properties and assets of the Company and the Restricted Subsidiaries on a
consolidated basis substantially as an entirety (any such surviving Person or
acquiring Person or member of an acquiring Affiliated Group being the
"Surviving Entity") is a corporation organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia and
expressly assumes by a supplemental indenture to the Indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company or the Restricted Subsidiary, as the case may be,
with respect to the Exchange Notes and the Indenture, including, with respect to
each Restricted Subsidiary that is a Subsidiary Guarantor, the obligations under
the Subsidiary Guarantee of that Restricted Subsidiary, and, in any case, the
Indenture remains in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (and treating any Indebtedness not previously an obligation of
the
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Company or any Restricted Subsidiary that becomes an obligation of the Company
or any Restricted Subsidiary in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default has occurred and is
continuing; (iii) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving effect
to such transaction or transactions on a pro forma basis, the Consolidated Net
Worth of the Company (or of the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is at least equal to the Consolidated
Net Worth of the Company immediately before such transaction or series of
transactions; (iv) except in the case of the consolidation or merger of the
Company with or into a Restricted Subsidiary or any Restricted Subsidiary with
or into the Company or another Restricted Subsidiary, immediately before and
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (assuming that the transaction or series of transactions
occurred on the first day of the most recent period of four consecutive fiscal
quarters of the Company prior to the consummation of such transaction or series
of transactions for which consolidated financial statements of the Company are
available, with the appropriate adjustments with respect to the transaction or
transactions being included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur at least $1.00 of additional Indebtedness not
constituting Permitted Indebtedness in accordance with the Consolidated Fixed
Charge Coverage Ratio test described under "-- Certain Covenants -- Limitation
on Indebtedness and Disqualified Capital Stock" above; (v) if any of the
properties or assets of the Company or any Restricted Subsidiary would on such
transaction or series of transactions become subject to any Lien (other than a
Permitted Lien), the creation and imposition of that Lien complies with the
covenant described under "-- Certain Covenants -- Limitation on Liens" above;
(vi) each Subsidiary Guarantor, unless it is the other party to the transaction
or series of transactions, confirms by amendment to its Subsidiary Guarantee
that its guarantee of the Exchange Notes will apply to the obligations of the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) under the Exchange Notes and the Indenture; and (vii) the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) delivers to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction or series of transactions and any
supplemental indenture in respect thereof comply with the requirements the
Indenture and that all conditions precedent in the Indenture relating to such
transaction or series of transactions have been satisfied.
When any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis substantially as
an entirety becomes effective in accordance with the foregoing in which the
Company is not the Surviving Entity, the Surviving Entity will succeed to, and
be substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if the Surviving Entity had been named as
the Company in the Indenture, and thereafter the Company, except in the case of
a lease, will be discharged from all obligations and covenants under the
Indenture and the Exchange Notes and may be liquidated and dissolved.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) any default in the payment of the principal of or premium, if any,
on any of the Exchange Notes, whether such payment is due at Stated
Maturity or on redemption, repurchase pursuant to a Change of Control Offer
or a Net Proceeds Offer, acceleration or otherwise; or
(ii) any default in the payment of any installment of interest or
Liquidated Damages, if any, on any Exchange Note, when due, and the
continuance of that default for a period of 30 days; or
(iii) any default in the performance or breach by the Company or any
Restricted Subsidiary of the covenants described under "-- Merger,
Consolidation and Sale of Assets" above, or any failure of the Company to
make or consummate either a Change of Control Offer or a Net Proceeds Offer
in accordance with the applicable provisions of the Indenture; or
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(iv) any failure of the Company or any Subsidiary Guarantor to perform
or observe any other term, covenant or agreement applicable to it and
contained in the Exchange Notes, the Indenture (other than a default
specified in clause (i), (ii) or (iii) above) or the Subsidiary Guarantees,
as the case may be, for a period of 30 days after written notice of that
failure is given (a) to the Company or the Subsidiary Guarantor, as the
case may be, by the Trustee or (b) to the Company or the Subsidiary
Guarantor, as the case may be, and the Trustee by the Holders of at least
25% in aggregate principal amount of the Exchange Notes then outstanding;
or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of any Indebtedness of the
Company (other than the Exchange Notes) or any Restricted Subsidiary for
money borrowed when due at final Stated Maturity, or any other default
resulting in acceleration of any Indebtedness of the Company or any
Restricted Subsidiary for money borrowed, PROVIDED that the aggregate
principal amount of such Indebtedness exceeds $5.0 million; or
(vi) one or more final judgments or orders rendered against the
Company or any Restricted Subsidiary that are unsatisfied and require the
payment in money, either individually or in an aggregate amount, in excess
of $5.0 million are not paid, discharged or stayed for a period of 60 days;
or
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary; or
(viii) except as permitted by the Indenture and the Exchange Notes,
the cessation of the effectiveness of any Subsidiary Guarantee or the
repudiation by any Subsidiary Guarantor (or by any Person acting on behalf
of any Subsidiary Guarantor) of its obligations under its Subsidiary
Guarantee.
If an Event of Default (other than one of the types described in clause
(vii) above) occurs and is continuing, the Trustee, by written notice to the
Company, or the Holders of at least 25% in aggregate principal amount of the
Exchange Notes then outstanding, by written notice to the Trustee and the
Company, may, and the Trustee on the request of the Holders of not less than 25%
in aggregate principal amount of the Exchange Notes then outstanding will,
declare the principal of and premium, if any, accrued and unpaid interest and
Liquidated Damages, if any, on all the Exchange Notes due and payable
immediately, on which declaration all amounts payable in respect of the Exchange
Notes will be immediately due and payable. If an Event of Default of any type
described in clause (vii) above occurs, then the principal of and premium, if
any, and accrued and unpaid interest and Liquidated Damages, if any, on all
Exchange Notes will become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
After a declaration of acceleration under the Indenture, but before the
Trustee obtains a judgment or decree for payment of the money due, the Holders
of a majority in aggregate principal amount of the outstanding Exchange Notes,
by written notice to the Company and the Trustee, may, under certain
circumstances, rescind and annul that declaration and its consequences if all
Events of Default, other than the non-payment of principal of and premium, if
any, interest or Liquidated Damages, if any, on the Exchange Notes that has
become due solely because of that declaration, have been cured or waived. No
such rescission will affect any subsequent Default or Event of Default or impair
any right consequent thereto.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless (i) that Holder has notified the
Trustee of a continuing Event of Default and the Holders of not less than 25% in
aggregate principal amount of the outstanding Exchange Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute that
proceeding as Trustee under the Exchange Notes and the Indenture, (ii) the
Trustee has failed to institute that proceeding within 60 days after receipt of
that notice and offer and (iii) the Trustee, within that 60-day period, has not
received directions inconsistent with that written request by Holders of a
majority in aggregate principal amount of the outstanding Exchange Notes. These
limitations will not apply, however, to a suit instituted by any Holder to
enforce the payment of the principal of and premium, if any, interest or
Liquidated Damages, if
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any, on that Holder's Exchange Note on or after the respective due dates
expressed in that Exchange Note or in the Registration Rights Agreement
described below.
The Holders of a majority in principal amount of the Exchange Notes may
waive any existing Default or Event of Default under the Indenture and its
consequences, except a default (i) in the payment of the principal of or
premium, if any, interest or Liquidated Damages, if any, on any Exchange Notes
or (ii) in respect of any provision that cannot be modified or amended without
the consent of the Holder of each Exchange Note.
The Company has agreed (i) to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in that performance and (ii) to notify the
Trustee within 30 days after Senior Management becomes aware of any Default or
Event of Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate its obligations
respecting the outstanding Exchange Notes (that action being a "legal
defeasance"). If legal defeasance occurs, the Company will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Exchange Notes and to have been discharged from all its other obligations with
respect to the Exchange Notes, except for (i) the rights of Holders to receive
payment in respect of the principal of and premium, if any, interest and
Liquidated Damages, if any, on their outstanding Exchange Notes when those
payments are due, (ii) the Company's obligations to replace any temporary
Exchange Notes, register the transfer or exchange of any Exchange Notes, replace
mutilated, destroyed, lost or stolen Exchange Notes and maintain an office or
agency for payments in respect of the Exchange Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee and (iv) the legal defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to terminate its obligation to comply with certain covenants in
the Indenture, some of which are described under " -- Certain Covenants"
above, and any omission to comply with those covenants will not constitute a
Default or an Event of Default respecting the Exchange Notes (that action being
a "covenant defeasance"). If covenant defeasance occurs, certain events (not
including nonpayment, bankruptcy, insolvency and reorganization events)
described under " -- Events of Default" will no longer constitute Events of
Default respecting the Exchange Notes.
In order to exercise either legal defeasance or covenant defeasance: (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders, cash in United States dollars or U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, if any, interest and
Liquidated Damages, if any, on the outstanding Exchange Notes to redemption or
maturity; (ii) the Company must deliver to the Trustee an Opinion of Counsel to
the effect that the Holders of the outstanding Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such legal
defeasance or covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such legal defeasance or covenant defeasance had not occurred (in
the case of legal defeasance, this opinion must refer to and be based on a
published ruling of the Internal Revenue Service or a change in applicable
federal income tax laws); (iii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as clauses
(vii) and (viii) under the first paragraph of " -- Events of Default" above
are concerned, at any time during the period ending on the 91st day after the
date of deposit; (iv) such legal defeasance or covenant defeasance must not
cause the Trustee to have a conflicting interest under the Indenture or the
Trust Indenture Act with respect to any securities of the Company; (v) such
legal defeasance or covenant defeasance will not result in a breach or violation
of, or constitute a default under, any material agreement or instrument to which
the Company or any Restricted Subsidiary is a party or by which the Company or
any Restricted Subsidiary is bound; (vi) the Company must deliver to the Trustee
an Opinion of Counsel experienced in bankruptcy matters to the effect that the
use of the trust funds to pay the principal of and premium, if any, interest and
Liquidated Damages, if any, on the outstanding Exchange Notes would not be
avoidable as a preferential payment under Section 547 of
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the Bankruptcy Code (or any similar provision then in force) or recoverable
under Section 550 of the Bankruptcy Code (or any similar provision then in
force) in the event the Company became a debtor in a proceeding commenced
thereunder; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel, satisfactory to the Trustee, each stating that all
conditions precedent under the Indenture to either legal defeasance or covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when: (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen, mutilated or
destroyed Exchange Notes that have been replaced or paid and Exchange Notes for
whose payment money or certain U.S. Government Obligations have been deposited
in trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all Exchange Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable at their Stated Maturity within one year, or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the serving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Exchange Notes not theretofore delivered to the
Trustee for cancellation, for principal of and premium, if any, interest and
Liquidated Damages, if any, on the Exchange Notes to the date of deposit (in the
case of Exchange Notes that have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, together with instructions from
the Company irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an Officers' Certificate stating and an Opinion of
Counsel opining that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
any Holder, amend or supplement the Indenture or the Exchange Notes to: (i)
evidence the succession of another Person to the Company or any Subsidiary
Guarantor and the assumption by any such successor of the covenants of the
Company or the Subsidiary Guarantor, as the case may be, in the Indenture and
the Exchange Notes; (ii) add to the covenants of the Company for the benefit of
Holders or to surrender any right or power conferred on the Company in the
Indenture; (iii) comply with any requirement of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act; (iv) secure the Exchange Notes; (v) provide for uncertificated Exchange
Notes in addition to or in place of certificated Exchange Notes; (vi) reflect
the release of any Subsidiary Guarantor from its Subsidiary Guarantee or add any
Subsidiary of the Company as a Subsidiary Guarantor pursuant to and in the
manner provided by the Indenture; (vii) evidence and provide for the acceptance
of appointment under the Indenture by a successor Trustee; or (viii) cure any
ambiguity or omission in the Indenture or the Exchange Notes, correct or
supplement any provision in the Indenture or the Exchange Notes that may be
defective or inconsistent with any other provision in the Indenture or the
Exchange Notes and make any other provisions with respect to matters or
questions arising under the Indenture; PROVIDED, HOWEVER, that no modification
or amendment described in this clause (ix) may adversely affect the interests of
the Holders in any material respect. Other amendments and modifications of the
Indenture or the Exchange Notes may be made by the Company and the Trustee with
the consent of the Holders of not less than a majority of the aggregate
principal amount of the outstanding Exchange Notes; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Exchange Note affected thereby: (i) change the Stated
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Maturity of the principal of, or any installment of interest on, any Exchange
Note or alter the provisions with respect to redemption of the Exchange Notes;
(ii) reduce the principal amount of or premium, if any, the rate of interest or
Liquidated Damages, if any, on any Exchange Note; (iii) change the coin or
currency in which principal of or premium, if any, interest or Liquidated
Damages, if any, on any Exchange Note is payable; (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Exchange Note; (v) reduce the above-stated percentage of aggregate principal
amount of outstanding Exchange Notes necessary to modify or amend the Indenture;
(vi) reduce the percentage of aggregate principal amount of outstanding Exchange
Notes necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults; (vii) modify any provisions of the
Indenture relating to the modification and amendment of the Indenture or the
waiver of past Defaults or covenants, except as otherwise specified, or the
rights of any Holder to receive payments of principal of or premium, if any,
interest or Liquidated Damages, if any, on the Exchange Notes; (viii) change the
ranking of the Exchange Notes in a manner adverse to the Holders or expressly
subordinate in right of payment the Exchange Notes to any other Indebtedness;
(ix) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer if a Change of Control occurs or make and
consummate a Net Proceeds Offer with respect to any Asset Sale or modify any of
the provisions or definitions in the Indenture insofar as they relate thereto;
or (x) release any security that may have been granted in respect of the
Exchange Notes except as expressly provided in the Indenture.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Exchange Notes may, on behalf of the Holders of all Exchange
Notes, waive any past default under the Indenture, except a default in the
payment of principal of or premium, if any, interest or Liquidated Damages, if
any, on the Exchange Notes, or in respect of a covenant or provision that under
the Indenture cannot be modified or amended without the consent of the Holder of
each Exchange Note outstanding.
THE TRUSTEE
Norwest Bank Minnesota, National Association will serve as trustee under
the Indenture.
The Indenture (including provisions of the Trust Indenture Act incorporated
therein) will contain limitations on the rights of the Trustee thereunder, if it
becomes a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Indenture will permit the Trustee to engage in
other transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest
(as defined in the Trust Indenture Act), it must eliminate such conflict or
resign.
GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE
The Indenture and the Exchange Notes will be governed by the laws of the
State of New York, without regard to the principles of conflicts of law. The
Company and the Subsidiary Guarantors will expressly submit to the nonexclusive
jurisdiction of the State of New York and the U.S. federal courts sitting in The
City of New York for the purposes of any suit, action or proceeding with respect
to the Indenture, the Exchange Notes and the Subsidiary Guarantees and for
actions brought under federal or state securities laws with respect to the
Exchange Notes. The Company and the Subsidiary Guarantors will appoint CT
Corporation as their agent upon which process may be served in any such action
or proceeding with respect to the Indenture, the Exchange Notes or the
Subsidiary Guarantees.
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
Exchange Notes will be issued only in fully registered form, without
interest coupons, in denominations of $1,000 and integral multiples thereof. The
Exchange Notes generally will be represented by one or more fully-registered
global notes (collectively, the "Global Exchange Note"). Notwithstanding the
foregoing, Notes held in certificated form will be exchanged solely for Exchange
Notes in certificated form, as discussed below. The Global Exchange Note will be
deposited upon issuance with The Depository Trust Company ("DTC") and
registered in the name of DTC or a nominee of DTC (the "Global Exchange Note
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Registered Owner"). Except as set forth below, the Global Exchange Note may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
A Holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Notes selected for redemption. Also, the Company is not required to
transfer or exchange Exchange Notes for a period of 15 days before a selection
of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
such Exchange Note for all purposes.
EXCHANGES OF BOOK-ENTRY EXCHANGE NOTES FOR CERTIFICATED EXCHANGE NOTES
A beneficial interest in a Global Exchange Note may not be exchanged for an
Exchange Note in certificated form unless (i) DTC (x) notifies the Company that
it is unwilling or unable to continue as Depositary for the Global Exchange Note
or (y) has ceased to be a clearing agency registered under the Exchange Act, and
in either case the Company thereupon fails to appoint a successor Depositary,
(ii) the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of the Exchange Notes in certificated form or (iii) there
shall have occurred and be continuing an Event of Default or any event which
after notice or lapse of time or both would be an Event of Default with respect
to the Exchange Notes. In all cases, certificated Exchange Notes delivered in
exchange for any Global Exchange Note or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the Depositary (in accordance with its customary procedures).
Any such exchange will be effected through the DWAC System and an appropriate
adjustment will be made in the records of the Security Registrar to reflect a
decrease in the principal amount of the relevant Global Exchange Note.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL EXCHANGE NOTES
The descriptions of the operations and procedures of DTC that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC had advised the Company that its current practice, upon the issuance of
the Global Exchange Notes, is to credit, on its internal system, the respective
principal amount of the individual beneficial interests represented by such
Global Exchange Notes to the accounts with DTC of the participants through which
such interests are to be held. Ownership of beneficial interests in the Global
Exchange Notes will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominees (with respect
to interests of participants) and the records of participants and indirect
participants (with respect to interests of persons other than participants).
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AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL
EXCHANGE NOTE, DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE
SOLE OWNER AND HOLDER OF THE EXCHANGE NOTES REPRESENTED BY SUCH GLOBAL EXCHANGE
NOTE FOR ALL PURPOSES UNDER THE INDENTURE AND THE EXCHANGE NOTES. Except in the
limited circumstances described above under " -- Exchanges of Book-Entry Notes
for Certificated Notes," owners of beneficial interests in a Global Exchange
Note will not be entitled to have any portions of such Global Exchange Note
registered in their names, will not receive or be entitled to receive physical
delivery of Exchange Notes in definitive form and will not be considered the
owners or Holders of the Global Exchange Note (or any Exchange Notes represented
thereby) under the Indenture or the Exchange Notes.
Investors may hold their interests in the Global Exchange Note directly
through DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are participants in such
system. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Exchange Note to such
persons may be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global Exchange
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee as the registered owner
thereof. Neither the Company, the Trustee nor any of their respective agents
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Exchange Note representing any
Exchange Notes held by it or its nominee, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Exchange Note for such Exchange Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Exchange Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name." Such payments will
be the responsibility of such participants. None of the Company or the Trustee
will be liable for any delay by DTC or any of its participants in identifying
the beneficial owners of the Exchange Notes, and the Company and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the Exchange Notes for all purposes.
Interests in the Global Exchange Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between participants
in DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Exchange Note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Exchange Note by or through
a Euroclear or CEDEL participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant Euroclear
or CEDEL cash account only as of the business day for Euroclear or CEDEL
following the DTC settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
participants to whose accounts with DTC interests in the Global Exchange Notes
are credited and only in respect of such portion of the aggregate principal
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amount of the Exchange Notes as to which such participant or participants has or
have given such direction. However, if there is an Event of Default (as defined
below) under the Exchange Notes, DTC reserves the right to exchange the Global
Exchange Notes for Exchange Notes in certificated form, and to distribute such
Exchange Notes to its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Exchange Notes among
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Exchange Notes.
REGISTRATION RIGHTS
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed with the Commission as an exhibit to the
Registration Statement.
The Company, the Subsidiary Guarantors and the Initial Purchasers have
entered into the Registration Rights Agreement pursuant to which the Company has
agreed to file with the Commission this Registration Statement with respect to
the Exchange Offer. If (i) the Exchange Offer is not permitted by applicable law
or Commission policy, (ii) the Exchange Offer is not consummated within 165 days
following July 2, 1997 (or if such 165th day is not a business day, the first
business day thereafter), (iii) the Initial Purchasers so request within six
months after consummation of the Exchange Offer with respect to the Notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer and held by
either of them following consummation of the Exchange Offer or (iv) any Holder
(other than certain broker-dealers) is not eligible to participate in the
Exchange Offer or, in the case of any Holder (other than certain broker-dealers)
that participates in the Exchange Offer, such Holder does not receive freely
tradeable Exchange Notes on the date of the consummation of the Exchange Offer
and such Holder notifies the Company within six months of such date, the Company
will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Notes or Exchange Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement to cover resales
of the Notes or the Exchange Notes by the holders thereof. The Company will use
its best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission.
The Registration Rights Agreement provides that the Company will at its
cost, (i) within 60 days after July 2, 1997 (or, if such 60th day is not a
business day, the first business day thereafter), file a registration statement
regarding the Exchange Offer (the "Exchange Offer Registration Statement")
with the Commission; (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective by the Commission within 120
days after July 2, 1997 (or, if such 120th day is not a business day, the first
business day thereafter); (iii) following the declaration of effectiveness of
the Exchange Offer Registration Statement, the Company will promptly commence
the Exchange Offer and will issue promptly after the date of consummation of the
Exchange Offer (the "Exchange Offer Effective Date") Exchange Notes in
exchange for all Notes tendered prior thereto in the Exchange Offer; and (iv) if
obligated to file the Shelf Registration Statement, the Company will, at its
cost, as promptly as practicable, file the Shelf Registration Statement with the
Commission and use its best efforts to cause the Shelf Registration Statement to
be declared effective by the Commission. If (a) by the 60th day (or if such 60th
day is not a business day, the first business day thereafter) after July 2,
1997, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission; (b) by the 120th day
(or if such 120th day is not a business day, the first business day thereafter)
after July 2, 1997, neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement is declared effective; (c) by the 165th day (or if
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such 165th day is not a business day, the first business day thereafter) after
July 2, 1997, the Exchange Offer has not been consummated; or (d) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Notes or Exchange Notes in accordance with and during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) a "Registration Default"), then the Company will pay Liquidated
Damages to each holder of Transfer Restricted Securities, during the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $.05 per week per $1,000 principal amount of Notes or
Exchange Notes constituting Transfer Restricted Securities held by such holder.
The amount of the Liquidated Damages will increase an additional $.05 per week
per $1,000 principal amount of Notes or Exchange Notes constituting Transfer
Restricted Securities for each subsequent 90-day period until the applicable
Registration Default has been cured, up to a maximum amount of Liquidated
Damages of $.30 per week per $1,000 principal amount of Notes or Exchange Notes
constituting Transfer Restricted Securities. All accrued Liquidated Damages will
be paid by the Company on each interest payment date to the Global Note Holders
by wire transfer of immediately available funds or by federal funds check and to
the holders of certified securities by mailing a check to such holders'
registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease. As used herein, "Transfer Restricted
Securities" means each Note or Exchange Note until (i) the date on which such
Note has been exchanged by the person other than a broker-dealer for a freely
transferable Exchange Note in the Exchange Offer, (ii) following the exchange by
a broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date
on which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Note or Exchange Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Note or Exchange Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Exchange
Notes by holders who acquire the Exchange Notes at original issue for cash. The
following summary does not discuss all of the aspects of federal income taxation
that may be relevant to a prospective holder of the Exchange Notes in light of
his or her particular circumstances, or to certain types of holders (including
dealers in securities, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, S corporations, and except as discussed below,
foreign corporations and persons who are not citizens or residents of the U.S.
nor does it include persons who hold the Exchange Notes as part of a hedge,
straddle, "synthetic security" or other integrated investment) which are
subject to special treatment under the federal income tax laws. In addition,
this summary does not describe any tax consequences under state, local, or
foreign tax laws.
The discussion is based upon the IRC, Treasury Regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions now in effect,
all of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect a holder of the Exchange Notes. The Company has not
sought and will not seek any rulings or opinions from the IRS or counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the purchase,
ownership or disposition of the Exchange Notes which are different from those
discussed herein.
PROSPECTIVE PURCHASERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE
SPECIFIC TO THEM OF ACQUIRING, OWING AND DISPOSING OF THE EXCHANGE NOTES, AS
WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
TAXATION OF STATED INTEREST. In general, interest on an Exchange Note will
be taxable to a U.S. holder as ordinary interest income at the time it accrues
or is received, in accordance with the holder's regular method of accounting for
federal income tax purposes. A U.S. holder means any person who or which is (i)
a citizen or resident of the U.S.; (ii) a corporation or partnership created or
organized in the U.S. or under the laws of the U.S. or of any state; (iii) any
estate or trust whose income is included in gross income for U.S. federal income
tax purposes regardless of its source; and (iv) a person otherwise subject to
U.S. federal income taxation on its worldwide income.
POSSIBLE ORIGINAL ISSUE DISCOUNT ON THE EXCHANGE NOTE. Depending on the
initial offering price to the public at which a substantial amount of the
Exchange Notes are sold, the Exchange Notes may be issued with original issue
discount for federal income tax purposes. The amount of original issue discount
with respect to each Exchange Note will be equal to the excess of the "stated
redemption price at maturity" of such Exchange Note over its "issue price."
For these purposes, the "issue price" of an Exchange Note is the initial
offering price to the public at which a substantial amount of the Notes were
sold. The "stated redemption price at maturity" of each Exchange Note will
include all cash payments (other than stated interest to the extent that it is
unconditionally payable at least annually at a single fixed rate ("qualified
stated interest")) required to be made thereunder until maturity. The amount of
original issue discount with respect to a debt instrument is considered to be
zero if such discount is less than one-fourth of one percent of its stated
redemption price at maturity (as defined above) multiplied by the number of
complete years from the issue date to the maturity date of the debt instrument
("de minimis" original issue discount).
TAXATION OF ORIGINAL ISSUE DISCOUNT ON THE EXCHANGE NOTES. If there is
more than de minimis original issue discount, each Holder of an Exchange Note
will be required to include in gross income (as ordinary interest income) an
amount equal to the sum of the "daily portions" of the original issue discount
on the Exchange Notes for each day such Holder holds an Exchange Note. The daily
portions of original issue discount required to be included in a Holder's gross
income will be determined on a constant yield basis by allocating to each day
during the taxable year in which the Holder holds the Exchange Notes a PRO RATA
portion of the original issue discount thereon which is attributable to the
"accrual period."
The amount of the original issue discount attributable to each accrual
period will be the product of the "adjusted issue price" of the Exchange Notes
at the beginning of such accrual period multiplied by the "yield to maturity"
of the Exchange Notes, less the amount of any qualified stated interest
allocable to the accrual period. Appropriate adjustments will be made in
computing the amount of original issue discount attributable to the initial
accrual period. The adjusted issue price of the Exchange Notes at the beginning
of the first accrual period is the issue price. Thereafter the adjusted issue
price of an Exchange Note is the issue price of the Exchange Note plus the
aggregate amount of original issue discount that accrued in all prior accrual
periods, less payments (other than payments of qualified stated interest) on the
Exchange Note. The yield to maturity of an Exchange Note will be the discount
rate that, when used to compute the present value (on a semi-annual compounded
basis) of all principal and interest payments to be made under an Exchange Note,
produces a present value equal to the issue price of the Exchange Note.
The "accrual periods" of an Exchange Note (other than the initial accrual
period) are each of the six-month periods during the term of the Exchange Note
that end on the biannual payment dates of each year.
EFFECT OF MANDATORY REPURCHASE AND OPTIONAL REDEMPTION ON ORIGINAL ISSUE
DISCOUNT OF THE EXCHANGE NOTES. In the event the Company is required to make an
Offer to Purchase, each Holder may require the Company to repurchase such
Holder's Exchange Notes in accordance with such offer. In addition, in the event
of certain sales or other dispositions of assets the Company may be required to
make an Offer to Purchase the Exchange Notes. Treasury Regulations contain
special rules for calculating the yield to maturity and maturity on a note in
the event the debt instrument provides for a contingency that could result in
the acceleration or deferral of one or more payments. Further, Treasury
Regulations contain special rules for determining the yield to maturity or
maturity of a debt instrument if either the holder or the issuer has an option
to defer or accelerate payments. Because neither of these rules should apply to
an Offer to Purchase for either of the reasons described above, the Company has
no present intention of treating such repurchase
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provisions of the Exchange Notes as affecting the computation of the yield to
maturity or maturity date of any Exchange Notes.
The Company may redeem the Exchange Notes, in whole or in part, at any time
on or after July 1, 2001. The Company may also redeem up to 35% of the Exchange
Notes prior to July 1, 2000, in connection with a Public Equity Offering.
Treasury Regulations set forth special rules relating to the determination of
yield to maturity and maturity for a debt instrument that may be redeemed prior
to its stated maturity date at the option of the issuer. These rules should not
apply to a debt instrument, and, hence, should not affect the determination of
the yield to maturity or the maturity date of such debt instrument, unless the
issuer's exercise of its redemption rights would reduce the yield to maturity on
such instruments. The Company's exercise of these redemption rights would not
reduce the yield to maturity on the Exchange Notes; therefore the special option
rules will not apply to the Exchange Notes.
SALE OR OTHER TAXABLE DISPOSITION OF THE EXCHANGE NOTES. The sale or other
taxable disposition of an Exchange Note will result in the recognition of gain
or loss to the holder in an amount equal to the difference between (a) the
amount of cash and fair market value of property received in exchange therefor
(except to the extent attributable to the payment of accrued stated interest)
and (b) the holder's adjusted tax basis in such Note.
A holder's initial tax basis in an Exchange Note purchased by such holder
will be equal to the issue price of the Notes. The holder's initial tax basis in
an Exchange Note will be increased by the amount of original issue discount
included in gross income with respect to such Note to the date of disposition
and decreased by the amount of payments (other than payments of stated interest)
with respect to such Note.
Any gain or loss on the sale or other taxable disposition of an Exchange
Note will be capital gain or loss, assuming a purchaser of the Exchange Note
holds such security as a "capital asset" (generally property held for
investment) within the meaning of Section 1221 of the IRC. Any capital gain or
loss will be long-term capital gain or loss if the Exchange Note had been held
for more than one year and otherwise will be short-term capital gain or loss.
Payments on such disposition for accrued qualified stated interest not
previously included in income will be treated as ordinary interest income.
BACKUP WITHHOLDING. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") to the payor, (ii) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the payee has failed to report
properly the receipt of "reportable payments" and the IRS has notified the
payor that withholding is required, or (iv) there has been a failure of the
payee to certify under the penalty of perjury that a payee is not subject to
withholding under section 3406 of the IRC. As a result, if any one of the events
discussed above occurs with respect to a holder of Exchange Notes, the Company,
its paying agent or other withholding agent will be required to withhold a tax
equal to 31% of any "reportable payment" made in connection with the Exchange
Notes of such holder. A "reportable payment" includes, among other things,
amounts paid in respect of interest or original issue discount and amounts paid
through brokers in retirement of securities. Any amounts withheld from a payment
to a holder under the backup withholding rules will be allowed as a refund or
credit against such holder's federal income tax, PROVIDED that the required
information is furnished to the IRS. Certain holders (including, among others,
corporations and certain tax-exempt organizations) are not subject to backup
withholding.
CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a summary of certain U.S. federal income and estate tax
consequences of the ownership and disposition of Exchange Notes by holders who
are Non-U.S. Holders (as defined below). This summary discusses only Exchange
Notes held as "capital assets" (as defined in the IRC) by the holders thereof.
This summary does not discuss all aspects of U.S. federal income and estate
taxation that may be relevant to a particular Non-U.S. Holder (as defined
herein) of the Exchange Notes in light of its particular investment
circumstances. This discussion also does not address the tax consequences to
stockholders, partners or beneficiaries in a Non-U.S. Holder. Further, it does
not consider Non-U.S. Holders subject to special tax treatment under the federal
income tax laws (including dealers in securities, holders of
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securities held as part of a "straddle," hedge or "conversion transaction,"
or situations in which the "functional currency" of a Holder, within the
meaning of Section 985(b) of the IRC, is not the U.S. dollar).
The following discussion is based upon the IRC, the applicable Treasury
regulations promulgated and proposed thereunder, judicial authority and current
administrative rulings and practices. All of the foregoing are subject to change
(possibly on a retroactive basis) and any such change could affect the
continuing validity of this discussion.
For purposes hereof, a "Non-U.S. Holder" means any person other than (i)
a citizen or resident of the U.S.; (ii) a corporation or partnership created or
organized in the U.S. or under the laws of the U.S. or of any state; or (iii)
any estate or trust whose income is included in gross income for U.S. federal
income tax purposes regardless of its source. For purposes of the withholding
tax on interest discussed below, a non-resident alien or other non-resident
fiduciary of an estate or trust will be considered a Non-U.S. Holder.
For purposes of the following discussion, interest income and gain on the
sale, exchange or retirement of an Exchange Note will be "U.S. trade or
business income" if such income or gain is (i) effectively connected with a
trade or business carried on by the Non-U.S. Holder within the U.S. or (ii) if a
tax treaty applies, attributable to a permanent establishment (or in the case of
an individual, a fixed place of business) in the U.S. trade or business income
will be taxed at regular U.S. federal income tax rates. See, generally,
"Certain U.S. Federal Income Tax Considerations for U.S. Holders" above. In
the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business
income may also be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the actual or deemed repatriation from the U.S. of
earnings and profits attributable to U.S. trade or business income) at a 30%
rate. The branch profits tax may not apply (or may apply at a reduced rate) if
the recipient is a qualified resident of certain countries with which the U.S.
has an income tax treaty.
INTEREST. Payments of interest to a Non-U.S. Holder that do not qualify
for the portfolio interest exception discussed below and which are not U.S.
trade or business income will be subject to withholding of U.S. federal income
tax at a rate of 30% unless a U.S. income tax treaty applies to reduce the rate
of withholding. To claim a treaty reduced rate or an exemption from withholding
because the interest is U.S. trade or business income, the Non-U.S. Holder must
provide a properly executed Form 1001 or Form 4224, respectively.
Interest that is paid to a Non-U.S. Holder on an Exchange Note that is not
U.S. trade or business income will not be subject to U.S. tax if the interest
qualifies as "portfolio interest." Generally, interest on the Exchange Notes
that is paid by the Company will qualify as portfolio interest if (i) the
Non-U.S. Holder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote within the meaning of Section 871(h)(3) of the IRC and the regulations
thereunder; (ii) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company through stock ownership for U.S. federal income
tax purposes; (iii) the Non-U.S. Holder is not a bank whose receipt of interest
on an Exchange Note is described in Section 881(c)(3)(A) of the IRC; and (iv)
the Company, or its paying agent, receives a properly executed certification as
set forth in Section 871(h) and 881(c) of the IRC and the regulations
thereunder, signed under penalties of perjury that the beneficial owner is not a
"U.S. person" for U.S. federal income tax purposes and which provides the
beneficial owner's name and address.
SALE, EXCHANGE OR RETIREMENT OF EXCHANGE NOTES. Any gain realized by a
Non-U.S. Holder on the sale exchange or retirement of Exchange Notes, will
generally not be subject to U.S. federal income tax provided that (i) such gain
is not U.S. trade or business income; (ii) the Non-U.S. Holder is not an
individual who is present in the U.S. for 183 days or more in the taxable year
of the disposition and meets certain other requirements; and (iii) the Non-U.S.
Holder is not subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates. For the treatment of amounts received in
respect of accrued and unpaid interest, see discussion above under "Interest."
FEDERAL ESTATE TAX. Exchange Notes held (or treated as held) by an
individual who is a Non-U.S. Holder at the time of his or her death (or
theretofore transferred subject to certain retained rights or powers)
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will not be subject to U.S. federal estate tax provided that any interest
thereon would be exempt as portfolio interest if such interest were received by
the Non-U.S. Holder at the time of his or her death.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. The Company
generally must report annually on Form 1042-S to the IRS and to each Non-U.S.
Holder the amount of interest paid to, and the tax withheld, if any, with
respect to each Non-U.S. Holder. These reporting requirements apply whether or
not withholding is reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides.
The U.S. backup withholding tax (in general, a tax imposed at the rate of
31% on interest payments to persons that fail to furnish the information
required under the U.S. information reporting requirements) will generally not
apply to payments of interest that qualify as portfolio interest as described
above (PROVIDED that the Company has no actual knowledge that the holder is a
U.S. person). Non-U.S. Holders will be required to provide certification to the
Company of qualification for the portfolio interest or treaty exemption to avoid
withholding.
Payments of the proceeds of the sale of Exchange Notes to or through a
foreign office of a "broker" (as defined in the pertinent regulations) will
not be subject to backup withholding (absent actual knowledge that the payee is
a U.S. person) but will be subject to information reporting if the broker is a
U.S. person, a controlled foreign corporation for U.S. federal income tax
purposes, or a foreign person 50% or more of whose gross income is from a U.S.
trade or business for a specified three-year period, unless the broker has in
its records documentary evidence that the holder is not a U.S. person and
certain conditions are met (including that the broker has no actual knowledge
that the holder is a U.S. person) or the holder otherwise establishes an
exemption. Payment of the proceeds of a sale to or through the U.S. office of a
broker is subject to backup withholding and information reporting, unless the
holder certifies that it is a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
regular federal income tax liability, PROVIDED that certain information is
provided by the holder to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Notes where such Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1997 (90 days after
commencement of the Exchange Offer), all dealers effecting transactions in the
Exchange Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
98
<PAGE>
Securities Act. The Letters of Transmittal state that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer, other than commission or concessions of any
brokers or dealers, and will indemnify the holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed on for the Company by Porter & Hedges, L.L.P., Houston, Texas.
EXPERTS
The audited consolidated financial statements of BSI Holdings, Inc.
included in this prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The financial statements of Sun Sportswear, Inc. as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The audited financial statements of Plymouth Mills, Inc. included in this
Prospectus have been audited by Mahoney Cohen & Company, CPA, PC, independent
public accountants, as indicated in their report thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The audited consolidated financial statements of SolarCo, Inc. and
Subsidiary included in this prospectus and elsewhere in the Registration
Statement have been audited by Moss Adams LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
99
<PAGE>
BRAZOS SPORTSWEAR, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
BSI HOLDINGS, INC. AND BRAZOS
SPORTSWEAR, INC.
Report of Independent Public
Accountants............................... F-3
Consolidated balance sheet at
December 30, 1995 and December 28,
1996.................................... F-4
Consolidated statement of operations
for the years ended December 31,
1994,
December 30, 1995 and December 28,
1996.................................... F-6
Consolidated statement of
shareholders' equity (deficit) for
the years ended
December 31, 1994, December 30,
1995 and December 28, 1996.............. F-7
Consolidated statement of cash flows
for the years ended December 31,
1994,
December 30, 1995 and December 28,
1996.................................... F-8
Notes to consolidated financial
statements.............................. F-9
Consolidated condensed balance sheets
at December 28, 1996 and March 29,
1997
(unaudited)............................. F-25
Consolidated condensed statements of
operations for the thirteen week
periods ended
March 30, 1996 and March 29, 1997
(unaudited)............................. F-27
Consolidated condensed statement of
cash flows for the thirteen week
periods ended March 30, 1996 and
March 29, 1997 (unaudited).............. F-28
Notes to consolidated condensed
unaudited financial statements.......... F-29
SUN SPORTSWEAR, INC.
Report of Independent Public
Accountants............................... F-32
Balance sheets at December 31, 1995
and 1996................................ F-33
Statements of income for each of the
years ended December 31, 1994, 1995
and 1996................................ F-35
Statements of changes in
shareholders' equity for the years
ended December 31, 1994, 1995 and
1996.................................... F-36
Statements of cash flows for the
years ended December 31, 1994, 1995
and 1996................................ F-37
Notes to financial statements............. F-38
PLYMOUTH MILLS, INC.
Report of Independent Public
Accountants............................... F-48
Balance sheets as of September 30,
1995 and August 2, 1996................. F-49
Statements of income and retained
earnings for the years ended
September 30, 1994 and 1995 and for
the period from October 1, 1995
through August 2, 1996.................. F-50
Statements of cash flows for the
years ended September 30, 1994 and
1995 and for the period from
October 1, 1995 through August 2,
1996.................................... F-51
Notes to financial statements............. F-52
F-1
<PAGE>
PAGE
----
SOLARCO, INC. AND SUBSIDIARY
Report of Independent Public
Accountants............................... F-55
Consolidated balance sheet at
December 31, 1995 and December 29,
1996.................................... F-56
Consolidated statement of income for
the years ended January 1, 1995,
December 31, 1995 and December 29,
1996.................................... F-57
Consolidated statement of
stockholders' equity for the years
ended
January 1, 1995, December 31, 1995
and December 29, 1996................... F-58
Consolidated statement of cash flows
for the years ended January 1,
1995, December 31, 1995 and
December 29, 1996....................... F-59
Notes to consolidated financial
statements..........................l... F-60
Consolidated condensed balance sheet
at December 29, 1996 and March 30,
1997
(unaudited)............................. F-64
Consolidated condensed statement of
income for the thirteen-week
periods ended
March 31, 1996 and March 30, 1997
(unaudited)............................. F-65
Consolidated condensed statement of
cash flows for the thirteen-week
periods ended March 31, 1996 and
March 30, 1997 (unaudited).............. F-66
Notes to consolidated condensed
unaudited financial statements.......... F-67
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
BSI Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of BSI
Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 30, 1995
and December 28, 1996 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years ended December 31,
1994, December 30, 1995 and December 28, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BSI Holdings, Inc. and
subsidiaries as of December 30, 1995 and December 28, 1996, and the results of
their operations and their cash flows for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 28, 1997
F-3
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1995 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash............................... $ 755 $ 561
Accounts receivable, net of
allowance for doubtful accounts of
$967 and $2,760, respectively
(Note 4).......................... 13,294 22,118
Inventory (Notes 2(e) and 4)....... 23,571 25,338
Prepaid expenses................... 690 1,786
Income tax receivable.............. 300 --
Deferred tax assets (Note 5)....... -- 1,797
--------- ---------
Total current assets.......... 38,610 51,600
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
(Notes 2(f) and 4):
Land............................... 90 90
Buildings.......................... 670 670
Machinery and equipment............ 3,866 6,468
Furniture and fixtures............. 2,598 2,823
Construction in progress........... -- 154
--------- ---------
7,224 10,205
Less -- accumulated depreciation... (2,144) (3,332)
--------- ---------
5,080 6,873
--------- ---------
INTANGIBLE ASSETS (Note 2(g)):
Costs in excess of fair value of
assets acquired................... 2,461 21,456
Less -- accumulated amortization... (336) (624)
--------- ---------
2,125 20,832
--------- ---------
Other.............................. 1,320 3,359
Less -- accumulated amortization... (541) (922)
--------- ---------
779 2,437
--------- ---------
Total intangible assets....... 2,904 23,269
--------- ---------
OTHER ASSETS............................ 476 940
--------- ---------
$ 47,070 $ 82,682
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-4
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1995 1996
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Borrowings pursuant to revolving
credit agreement (Note 4)......... $ 20,693 $ 23,524
Current portion of other debt (Note
4)................................ 2,531 3,419
Payable to former owners of
Plymouth (Note 3(a)).............. -- 2,950
Accounts payable................... 13,662 9,998
Accrued liabilities................ 3,316 7,042
--------- ---------
Total current liabilities..... 40,202 46,933
--------- ---------
LONG-TERM OBLIGATIONS -- LESS SCHEDULED
MATURITIES (Note 4):
Borrowings pursuant to revolving
credit agreement.................. 1,900 8,800
Notes payable...................... 118 41
Subordinated debt due to related
parties........................... 3,716 13,590
Capital lease liability............ 878 1,175
--------- ---------
6,612 23,606
--------- ---------
DEFERRED INCOME TAXES PAYABLE (Note
5).................................... -- 934
OTHER LIABILITIES....................... -- 367
MANDATORILY REDEEMABLE PREFERRED STOCK
(Note 7).............................. 945 7,613
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 6):
Common stock, $.01 par value,
50,000,000 shares authorized and
2,015,718 and 3,676,008 shares
issued and outstanding at December
30, 1995 and December 28, 1996,
respectively...................... 3 5
Additional paid-in capital......... 2,860 2,927
Retained earnings (deficit)........ (3,490) 297
Notes receivable from
shareholders...................... (62) --
--------- ---------
Total shareholders' equity
(deficit)................... (689) 3,229
--------- ---------
$ 47,070 $ 82,682
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-5
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1995 1996
----------- ----------- -----------
NET SALES............................ $ 76,754 $ 131,020 $ 169,452
COST OF GOODS SOLD................... 64,846 106,576 127,845
----------- ----------- -----------
Gross profit............... 11,908 24,444 41,607
OPERATING EXPENSES:
Selling, general and
administrative expenses....... 9,997 25,264 31,830
Amortization of intangible
assets and non-compete
payments...................... 224 285 699
----------- ----------- -----------
Total operating expenses... 10,221 25,549 32,529
----------- ----------- -----------
Operating income (loss).... 1,687 (1,105) 9,078
OTHER EXPENSE (INCOME):
Interest expense................ 1,663 3,695 4,491
Other, net...................... -- (22) (234)
----------- ----------- -----------
Income (loss) before
provision (credit) for
income taxes and
extraordinary item...... 24 (4,778) 4,821
PROVISION (CREDIT) FOR INCOME TAXES
(Note 5)........................... 99 (338) 789
----------- ----------- -----------
Net income (loss) before
extraordinary item...... (75) (4,440) 4,032
EXTRAORDINARY ITEM:
Gain on extinguishment of debt
(Note 4)...................... -- 500 --
----------- ----------- -----------
Net income (loss).......... (75) (3,940) 4,032
DIVIDENDS AND ACCRETION ON PREFERRED
STOCK (Note 7)..................... -- -- 245
----------- ----------- -----------
Net income (loss) available for
common shareholders........... $ (75) $ (3,940) $ 3,787
=========== =========== ===========
PER SHARE DATA:
Earnings (loss) per common and
common equivalent share before
extraordinary item............ $ (.02) $ (1.47) $ .90
Extraordinary gain per common
and common equivalent share... -- .17 --
----------- ----------- -----------
Earnings (loss) per common and
common equivalent share....... $ (.02) $ (1.30) $ .90
=========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note
2(i)).............................. 3,029,803 3,029,803 4,198,907
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-6
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
----------------- ----------------- PAID-IN EARNINGS FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDERS
--------- ------ --------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993........... 150,000 $ 1 2,015,718 $ 3 $2,265 $ 525 $ (140)
Stock purchase warrants issued...... -- -- -- -- 744 -- --
Payments received from
shareholders...................... -- -- -- -- -- -- 48
Redemption (Note 6)................. (150,000) (1 ) -- -- (149) -- --
Net loss............................ -- -- -- -- -- (75) --
--------- ------ --------- ------ ---------- --------- -------------
BALANCES AT DECEMBER 31, 1994........... -- -- 2,015,718 3 2,860 450 (92)
Payments received from
shareholders...................... -- -- -- -- -- -- 30
Net loss............................ -- -- -- -- -- (3,940) --
--------- ------ --------- ------ ---------- --------- -------------
BALANCES AT DECEMBER 30, 1995........... -- -- 2,015,718 3 2,860 (3,490) (62)
Stock purchase warrants issued...... -- -- -- -- 815 -- --
Conversion of warrants to common
stock............................. -- -- 1,660,290 2 -- -- --
Payments received from
shareholders...................... -- -- -- -- -- -- 62
Loss on conversion of subordinated
debt.............................. -- -- -- -- (738) -- --
Redeemable preferred stock issuance
costs............................. -- -- -- -- (10) -- --
Accretion of redeemable preferred
stock discount.................... -- -- -- -- -- (28) --
Payment of PIK dividends (Note 7)... -- -- -- -- -- (217) --
Net income.......................... -- -- -- -- -- 4,032 --
--------- ------ --------- ------ ---------- --------- -------------
BALANCES AT DECEMBER 28, 1996........... -- $-- 3,676,008 $ 5 $2,927 $ 297 $--
========= ====== ========= ====== ========== ========= =============
</TABLE>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
BALANCES AT DECEMBER 31, 1993........... $ 2,654
Stock purchase warrants issued...... 744
Payments received from
shareholders...................... 48
Redemption (Note 6)................. (150)
Net loss............................ (75)
-------------
BALANCES AT DECEMBER 31, 1994........... 3,221
Payments received from
shareholders...................... 30
Net loss............................ (3,940)
-------------
BALANCES AT DECEMBER 30, 1995........... (689)
Stock purchase warrants issued...... 815
Conversion of warrants to common
stock............................. 2
Payments received from
shareholders...................... 62
Loss on conversion of subordinated
debt.............................. (738)
Redeemable preferred stock issuance
costs............................. (10)
Accretion of redeemable preferred
stock discount.................... (28)
Payment of PIK dividends (Note 7)... (217)
Net income.......................... 4,032
-------------
BALANCES AT DECEMBER 28, 1996........... $ 3,229
=============
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-7
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1994 1995 1996
---------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (75) $ (3,940) $ 4,032
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities --
Depreciation.................. 435 824 1,291
Amortization of intangible
assets..................... 192 253 699
Gain on extinguishment of
debt....................... -- (500) --
Decrease (increase) in
deferred income taxes...... (120) 78 (863)
Decrease (increase) in
accounts receivable........ (1,495) (614) 92
Decrease (increase) in
inventory.................. (2,945) 906 4,328
Decrease (increase) in prepaid
expenses................... (522) 113 (985)
Decrease (increase) in income
tax receivable............. (318) 18 300
Decrease (increase) in other
noncurrent assets.......... 166 (20) (1,825)
Increase (decrease) in
accounts payable and
accrued liabilities........ 1,094 3,621 (1,991)
---------- --------- ----------
Net cash provided by
(used in) operating
activities............ (3,588) 739 5,078
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Velva Sheen
Manufacturing Co., net of cash
acquired......................... (11,735) -- --
Purchase of Plymouth Mills, Inc.... -- -- (20,256)
Purchases of property, plant and
equipment, net................... (528) (518) (1,137)
Additional payments on prior-year
asset purchase................... (10) -- --
---------- --------- ----------
Net cash used in
investing
activities............ (12,273) (518) (21,393)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings pursuant to revolving
credit agreement, net............ 9,846 1,808 2,831
Borrowings of long-term debt
pursuant to credit agreement..... 3,569 1,000 9,568
Repayments of long-term debt
pursuant to credit agreement..... (203) (1,409) (1,868)
Proceeds from (repayments of)
subordinated debt and stock
purchase warrants................ 2,500 (996) 3,500
Repayment of capital lease
obligations and industrial
revenue bonds.................... -- (48) (379)
Payments made under non-compete
agreements....................... -- -- (84)
Payments for deferred financing
costs............................ (119) (5) (11)
Payments received on notes
receivable from shareholders..... 48 30 62
Issuance of common stock........... -- -- 2
Issuance of preferred stock and
related warrants................. -- -- 2,500
---------- --------- ----------
Net cash provided by
financing
activities............ 15,641 380 16,121
---------- --------- ----------
NET INCREASE (DECREASE) IN CASH......... (220) 601 (194)
CASH AT BEGINNING OF YEAR............... 374 154 755
---------- --------- ----------
CASH AT END OF YEAR..................... $ 154 $ 755 $ 561
========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. $ 1,434 $ 3,500 $ 3,906
Cash paid for income taxes (refunds
received)........................ 648 (453) (258)
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Capital lease financing............ -- 377 686
Payments of PIK dividends.......... -- -- 217
Conversion of subordinated debt to
preferred stock (Note 4)......... -- -- 3,719
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-8
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(1) ORGANIZATION, NATURE OF OPERATIONS AND SUBSEQUENT EVENT --
(a) SUBSEQUENT EVENT -- On March 14, 1997, BSI Holdings, Inc. (BSI or the
Company) consummated a merger with Sun Sportswear, Inc. (Sun) (hereinafter
referred to as the "Merger") whereby BSI acquired an 86% ownership interest in
Sun. The Merger will be accounted for as a reverse acquisition with Sun being
the surviving legal entity and BSI being the acquiror for accounting purposes.
Concurrent with the Merger, Sun was reincorporated in the State of Delaware
under the name Brazos Sportswear, Inc. (New Brazos).
As of March 14, 1997, all of the former directors and officers of Sun
resigned and six directors designated by BSI became the directors of New Brazos.
The chief executive officer and vice president and chief financial officer of
BSI assumed identical responsibilities for New Brazos.
Sun shareholders prior to the Merger, other than Seafirst Bank (Seafirst),
who elected not to retain their shares received $11.00 per share ($2.20 per
share prior to the 1-for-5 reverse stock split pursuant to the Merger) for 50%
of such shares and the remaining shares were converted into New Brazos common
stock. Seafirst, Sun's majority shareholder prior to the Merger, received $11.00
per share ($2.20 per share prior to the 1-for-5 reverse stock split pursuant to
the Merger) for 59.5% of its Sun shares in a combination of cash and a note,
with its remaining shares being converted into New Brazos common stock.
A preliminary summary of the Merger, pending completion of certain
appraisals and analysis of the net assets acquired, utilizing March 14, 1997
balances, is as follows:
(000'S
OMITTED)
---------
Fair value of assets acquired,
including:
Accounts receivable............. $ 7,928
Inventories..................... 12,994
Other current assets............ 2,059
---------
Total fair value of assets
acquired............................. 22,981
---------
Less:
Purchase Price:
Cash....................... $ 4,680
Subordinated note to
Seafirst................. 1,500
Equity interest in BSI
subsequent to the Merger
(587,915 remaining Sun
shares at $11.00 per
share (2,939,574 shares
at $2.20 per share on a
pre-split basis))........ 6,467
---------
12,647
Transaction costs.......... 1,389
Financing costs............ 150
---------
Total purchase price................. 14,186
---------
Liabilities assumed.................. $ 8,795
=========
The purchase price was financed through a combination of borrowings under
Brazos' credit agreement ($6.3 million short-term, $1.0 million long-term), the
issuance of BSI convertible, mandatorily redeemable preferred stock ($2.0
million), and the issuance of a subordinated debenture to Seafirst ($1.5
million). In connection with this transaction, the above proceeds were used to
retire $3.0 million of the subordinated debentures payable to the seller of
Plymouth. In connection with this transaction, the Company increased its
F-9
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit facility to approximately $85 million (see Note 4). The credit facility
includes a $73.2 million revolving line of credit.
The accompanying consolidated financial statements of BSI reflect its
historical results of operations prior to the Merger.
(b) ORGANIZATION AND NATURE OF OPERATIONS -- BSI, a Delaware corporation,
is the parent company for two wholly-owned subsidiaries: Brazos Sportswear, Inc.
(Brazos), a Texas corporation, and Brazos Embroidery, Inc. (BEI), a Pennsylvania
corporation.
Brazos designs, manufactures and distributes sportswear for adults and
children. Products manufactured and sold by Brazos under license agreements
include those decorated with classic cartoon characters and collegiate logos.
Brazos also markets sportswear decorated with its proprietary designs and
creates garments under private labels of major retailers. In addition, Brazos
distributes undecorated garments to other imprinters of sportswear.
The Company had net sales of $24 million and $29 million to a single
customer in 1994 and 1995, respectively, and $53 million to two customers in
1996. These amounts represented 32%, 22% and 31% of total net sales during 1994,
1995 and 1996, respectively. The accompanying consolidated balance sheets
include accounts receivable of $3.7 million and $5.4 million at December 30,
1995 and December 28, 1996, respectively, due from such customers.
The Company sells licensed products which are decorated with classic
cartoon characters and logos. The Company acquires rights to use characters and
logos only on specified types of garments, pays each licensor royalties on
products sold which display the licensed character or logo, and typically
guarantees a minimum annual royalty.
The three largest suppliers of blank garments to the Company represented
approximately 51%, 59% and 39% of cost of goods sold included in the
accompanying consolidated statements of operations during 1994, 1995 and 1996,
respectively. Management believes that a loss of any single supplier would not
significantly impact operations as alternative products are available from other
sources.
(2) SIGNIFICANT ACCOUNTING POLICIES --
(a) PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and its two wholly owned
subsidiaries, Brazos and BEI. All significant intercompany accounts and
transactions have been eliminated.
(b) MANAGEMENT'S USE OF ESTIMATES -- The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) YEAR-END -- The Company uses a 52-53 week accounting period ending on
the last Saturday in December. Prior to fiscal 1995, the Company's year-end was
December 31. Fiscal 1995 and 1996 each had 52 weeks.
(d) REVENUE RECOGNITION -- Sales are recognized when finished garments are
shipped to customers from the Company's facilities.
F-10
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) INVENTORY -- The Company's inventories are stated at cost, which is
not in excess of market utilizing both the last-in, first-out (LIFO) method and
the first-in, first-out (FIFO) method depending on the specific division
location. The following is a summary of inventories at year-end, by costing
method (in thousands):
INVENTORY CATEGORY METHOD 1995 1996
- ------------------------------------- ------ --------- ---------
Blank garments....................... LIFO $ 11,074 $ 12,126
Printed garments..................... LIFO 3,174 1,481
--------- ---------
14,248 13,607
Less -- LIFO reserve................. (231) (182)
--------- ---------
Total LIFO................. 14,017 13,425
--------- ---------
Manufactured garments................ FIFO 1,676 2,486
Blank and printed garments........... FIFO 7,878 9,427
--------- ---------
Total FIFO................. 9,554 11,913
--------- ---------
Total inventory............ $ 23,571 $ 25,338
========= =========
For financial statement purposes, the Company follows the specific
identification method whereby LIFO is determined on an item-by-item basis. For
federal income tax reporting purposes, LIFO is determined utilizing the
dollar-value method using one homogenous pool. For federal income tax reporting
purposes, the Company's LIFO inventories were as follows (in thousands):
1995 1996
--------- ---------
Tax LIFO cost........................ $ 12,991 $ 12,710
Book LIFO cost....................... 14,017 13,425
Cost of goods sold reflects charges of $4,000 and $36,000 in 1994 and 1995,
respectively, and a LIFO credit of $49,000 in 1996.
(f) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
stated at cost. Depreciation is provided over the estimated useful lives of the
respective assets using the straight-line method. Expenditures for additions,
major renewals and betterments are capitalized, and expenditures for maintenance
and repairs are charged against income as incurred. When properties are retired
or otherwise disposed of, the cost thereof and the applicable accumulated
depreciation are removed from the respective accounts and the resulting gain or
loss is reflected in the consolidated statements of operations.
The estimated useful life for each of the major asset categories is as
follows:
Land................................. --
Buildings............................ 39 years
Machinery and equipment.............. 3-7 years
Furniture and fixtures............... 5-7 years
(g) INTANGIBLE ASSETS -- Amounts paid in excess of the fair value of the
tangible net assets acquired are being amortized over periods ranging from 15 to
40 years.
Other intangible assets at December 30, 1995 and December 28, 1996 include
non-compete agreements, deferred financing costs, licenses and copyrights. The
costs of non-compete agreements are being amortized over the respective lives of
the agreements (five years) using the straight-line method. The deferred
financing costs are being amortized over the life of the credit facility to
which they relate using a method which approximates the effective interest
method. The costs of licenses are being amortized over a
F-11
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period of 15 years using the straight-line method. The costs of copyrights are
being amortized over a period of 40 years using the straight-line method.
The Company regularly evaluates whether later events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived and
intangible assets acquired may warrant revisions or that the remaining balance
of such costs may not be recoverable, utilizing undiscounted future cash flows.
(h) ADVERTISING -- The Company expenses the production cost of advertising
the first time the advertising takes place, except for direct-response
advertising which is capitalized and amortized over its expected period of
future benefits.
Direct-response advertising consists primarily of catalogues that include
order phone numbers for the Company's products. The capitalized costs of the
advertising are amortized over the year to which the catalogue relates.
At December 30, 1995 and December 28, 1996, $176,000 and $107,000,
respectively, of advertising was reported as an asset. Advertising expense was
approximately $579,000, $930,000 and $645,000 in 1994, 1995 and 1996,
respectively.
(i) EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE -- Earnings
(loss) per share is based on the weighted average number of common shares
outstanding and includes the effect of the issuance of shares in connection with
the assumed exercise of stock options and warrants. Such stock options and
warrants were in excess of 20% of total common shares issued and outstanding for
all periods presented.
Earnings (loss) per share has also been computed in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83 (SAB No.
83). SAB No. 83 requires that options and warrants granted in the twelve-month
period immediately preceding a proposed public offering transaction at prices
substantially less than the initial public offering price be included in the
calculation of common and common equivalent shares as if they were outstanding
for all periods presented. Warrants issued in 1996 to purchase 1,014,206 shares
(133,757 shares on a pre-split basis) of common stock at $.0013 per share were
subject to this requirement.
All share and per share information included in the accompanying
consolidated financial statements has been retroactively restated for all
periods presented to reflect a 37.912252-for-1 stock split and 1-for-5 reverse
stock split pursuant to the Merger.
(j) NEW ACCOUNTING PRONOUNCEMENTS -- In March 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121). SFAS No. 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets to be disposed of in
the future. The adoption of the provisions of SFAS No. 121 during the first
quarter of 1996 did not have a material effect on the Company's consolidated
financial condition or results of operations.
(k) RECLASSIFICATIONS -- Certain amounts in the 1995 consolidated
financial statements have been reclassified to conform to the 1996 presentation.
(3) ACQUISITIONS --
(a) PLYMOUTH MILLS, INC. ACQUISITION -- Effective August 2, 1996, BSI
acquired certain assets and assumed certain liabilities of Plymouth Mills, Inc.
("Plymouth") for approximately $36 million. This transaction has been
accounted for as a purchase with approximately $19 million of the excess of the
acquisition cost over the fair value of net assets acquired being assigned to
goodwill. Goodwill is being
F-12
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized over 40 years on a straight-line basis. Results of operations of
Plymouth from August 2, 1996 are included in the consolidated statement of
operations for the fifty-two weeks ended December 28, 1996.
Pro forma operating results of BSI and Plymouth combined, assuming the
acquisition had been made as of January 1, 1995 follow. Such information
reflects adjustments to reflect amortization of goodwill and intangible assets
acquired, changes in compensation expense to reflect compensation levels
included in post-acquisition employment agreements, additional interest expense
related to increased net indebtedness, additional income tax expense to reflect
termination of Plymouth's S-corporation status, and dividends on additional
preferred stock issued.
(UNAUDITED)
YEAR ENDED
----------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(000'S OMITTED EXCEPT PER
SHARE AMOUNTS)
Net sales............................... $163,358 $195,312
Net income (loss) before extraordinary
items................................. (3,977) 5,384
Net income (loss) available for common
shareholders.......................... (4,034) 4,816
Earnings (loss) per common and common
equivalent share...................... (1.33) 1.15
In connection with the acquisition, assets were acquired and liabilities
were assumed as follows:
(000'S
OMITTED)
--------
Fair value of assets acquired including:
Accounts receivable................ $ 8,804
Inventories........................ 6,128
Other current assets............... 150
Property, plant and equipment...... 1,269
Intangible assets.................. 400
Goodwill........................... 18,985
--------
35,736
Less: Cash paid for net assets.......... (18,000)
--------
$ 17,736
========
Liabilities assumed, including:
Subordinated debt to sellers....... $ 10,414
Liabilities assumed and acquisition
costs............................. 2,115
Earnout (for the 12-month period
ended September 30, 1996) and
net worth (as of August 2, 1996)
payments.......................... 5,207
--------
$ 17,736
========
Of the $5,207,000 earnout and net worth payments above, at December 28,
1996, the Company had an obligation outstanding to the former owners of Plymouth
of $2,950,000.
Pursuant to the related asset purchase agreement, the purchase price has
been financed through a combination of borrowings under Brazos' revolving credit
agreement ($18.6 million), the issuance of subordinated debentures in the
capital markets ($3.5 million), the issuance of Brazos mandatorily redeemable
preferred stock, Series A ($2.5 million), and the issuance of subordinated
debentures to the seller ($10.4 million).
F-13
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective with the completion of this transaction, the seller became a
member of the board of directors of the Company. The subordinated debentures due
the seller consist of the following notes (000's omitted):
Note bearing annual interest at 10%,
maturing December 31, 1997(i)......... $ 3,000
Note bearing annual interest at 7.75%,
maturing December 31, 2003............ 4,464
Note bearing annual interest at 7.75%,
payable in two equal installments on
March 31, 1998 and March 31, 1999..... 2,950
---------
$ 10,414
=========
(i) This note has been repaid as part of the Merger.
The $3.5 million principal amount of subordinated debt contained detachable
warrants to purchase 342,939 shares (45,228 shares on a pre-split basis) of the
Company's common stock at a purchase price of $.0013 per share. The warrants
were valued at $330,000 which represents the difference between the exercise
price and management's estimate of the fair market value of 342,939 shares of
the Company's common stock issuable pursuant to the exercise of the warrants at
the date of grant. These warrants have been recorded as additional paid-in
capital and were exercised during 1996 (see Note 6).
The Series A mandatorily redeemable preferred stock contained detachable
warrants to purchase 504,316 shares (66,511 shares on a pre-split basis) of the
Company's common stock at a purchase price of $.0013 per share. The warrants
were valued at $485,000 which represents the difference between the exercise
price and management's estimate of the fair market value of the 504,316 shares
of the Company's common stock issuable pursuant to the exercise of the warrants
at the date of grant. These warrants have been recorded as additional paid-in
capital and were exercised during 1996 (see Note 6).
The Company also issued to the seller warrants to purchase 227,474 shares
(30,000 shares on a pre-split basis) of its common stock at a purchase price of
$3.96 per share. These warrants were assigned a value of zero because in the
opinion of management, these warrants were granted at an exercise price which is
not less than the fair value of the Company's stock at the date of grant.
(b) NEEDLEWORKS, INC. ACQUISITION -- On December 1, 1995, BEI acquired
certain of the assets and assumed certain liabilities of Needleworks, Inc. for
approximately $2.7 million. The acquisition was accounted for using the purchase
method of accounting with the $357,000 excess of the acquisition cost over the
fair value of net assets acquired being assigned to goodwill. Goodwill is being
amortized over 15 years on a straight-line basis. The operations of BEI for the
periods from December 1, 1995 have been included in the Company's consolidated
statements of operations.
(c) VELVA SHEEN ACQUISITION -- On November 10, 1994, Brazos acquired
certain of the assets and assumed certain liabilities of Velva Sheen
Manufacturing Co. (Velva Sheen) from American Marketing Industries (AMI) for
approximately $20 million. The acquisition was accounted for using the purchase
method of accounting with the $115,000 excess of the acquisition cost over the
fair value of net assets acquired being assigned to goodwill. Goodwill is being
amortized over 15 years on a straight-line basis. The operations of Velva Sheen
for the periods from November 10, 1994, have been included in the Company's
consolidated statements of operations.
F-14
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT OBLIGATIONS --
Long-term obligations consist of the following:
(000'S OMITTED)
--------------------
1995 1996
--------- ---------
Industrial revenue bonds, variable
interest rate (5.8% at December 28,
1996), due in monthly installments
of $4,166 through April, 2002 and
$6,250 through April, 2007, secured
by substantially all assets of
BEI................................ $ 681 $ 638
Equipment note, variable interest
rate of prime plus 1% (9.25% at
December 28, 1996), interest
payable monthly, principal due in
monthly installments of $4,545
through May, 1998, secured by
related equipment.................. 150 73
Term loans, variable interest rate
(9% to 9.75% at December 28, 1996),
interest payable monthly, principal
due in monthly installments of
$200,000 through August, 1999 with
balance due at that time, secured
by all assets of Brazos............ 3,500 11,200
Subordinated notes due to
shareholders of BSI, fixed interest
rate of 12%, interest payable
quarterly, principal due in
quarterly installments of $218,750
beginning 3/31/98 through maturity
at 12/31/01........................ 2,760 --
Subordinated notes due to
shareholders of BSI, fixed interest
rates
from 10% to 12%, interest payable
quarterly, principal due in
quarterly installments of $47,814
beginning 3/31/98 through maturity
at 12/31/02........................ 956 --
Subordinated note, fixed interest
rate of 13%, interest payable
monthly, principal due in quarterly
installments of $250,000 beginning
9/1/01 through 8/31/03 with balance
due at that time................... -- 3,176
Subordinated note due to former
owners of Plymouth, fixed interest
rate of 7.75%, interest payable
quarterly, principal due upon
maturity at 12/31/03............... -- 4,464
Subordinated note due to former
owners of Plymouth, fixed interest
rate of 10%, interest payable
quarterly, principal due upon
maturity at 12/31/97............... -- 3,000
Subordinated note due to former
owners of Plymouth, fixed interest
rate of 7.75%, interest payable
quarterly, principal due in two
equal payments of $1,475,000 on
3/31/98 and 3/31/99................ -- 2,950
Capital lease obligations (net of
$346,000 of interest).............. 1,096 1,524
--------- ---------
9,143 27,025
Less -- current portion.............. 2,531 3,419
--------- ---------
Long -- term obligations............. $ 6,612 $ 23,606
========= =========
Brazos has a credit agreement, as amended through March 14, 1997, with a
financial institution which provides for borrowings of up to approximately $85
million which is reduced by amounts borrowed pursuant to a term loan provided by
the credit agreement, outstanding letters of credit and a specified percentage
of outstanding documentary letters of credit. The credit agreement provides for
a term loan of $11.6 million with the balance available as a revolving loan or
letters of credit. Principal amounts borrowed together with interest borrowed
pursuant to the revolving loan are due upon demand; however, if no demand is
made, interest is payable monthly and the principal is due August 9, 1999, with
an option to renew for two additional one-year periods. Amounts borrowed
pursuant to the revolver bear interest at the lender's base rate, as defined,
plus .5% or the lender's Eurodollar base rate, as defined, plus 2.75% or a
combination of both rates. Amounts borrowed pursuant to the term loan bear
interest at the lender's base rate, as defined,
F-15
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus 1.5% or the lender's Eurodollar base rate, as defined, plus 3.5% or a
combination of both rates. Available borrowings under the credit agreement are
subject to the level of the eligible accounts receivable and inventory. At
December 28, 1996, Brazos had approximately $23.5 million outstanding on its
line of credit at interest rates ranging from 8.2% to 8.75% and $2.9 million in
additional borrowings available pursuant to the credit agreement.
The credit agreement may be terminated subject to a prepayment fee. Amounts
borrowed pursuant to the credit agreement are secured by substantially all of
the assets of Brazos. The credit agreement requires compliance with certain
financial covenants, as defined, including a minimum adjusted net worth, debt
service coverage ratio, current ratio and leverage ratio, and prohibits BSI from
paying cash dividends on common stock, incurring additional debt and prepaying
subordinated debt. BSI was in compliance with these provisions at December 28,
1996.
Pursuant to the purchase of Plymouth in August, 1996, the Company issued
subordinated debentures in capital markets of $3.5 million as well as
subordinated debentures to the seller of $10.4 million. The subordinated
debentures related to the $3.5 million were issued at a discount of $330,000 to
give effect to the estimated fair value of warrants issued in connection with
the new debt. The discount is being amortized into interest expense using the
effective interest rate method during the period of issuance through the
maturity date of the debt. An earnout payment to the sellers of approximately
$2.95 million is reflected as a current liability as it is due upon completion
of an earnout calculation, as defined in the asset purchase agreement.
Effective August 8, 1996, BSI issued 4,456,000 shares of Series B
mandatorily redeemable preferred stock in exchange for subordinated debt
(carrying value of $3,719,000 at August 8, 1996) to all subordinated debt
holders of record at BSI. BSI then forgave the subordinated debt due from its
subsidiary. The resulting $737,000 loss on retirement was recorded to additional
paid-in capital due to the related party nature of the transaction (see Note 7).
In connection with the Needleworks, Inc. acquisition, BEI assumed
Industrial Revenue Bonds (the Bonds) which bear interest at a floating weekly
rate. The bonds are secured by substantially all of the assets of BEI and a bank
letter of credit which expires August 15, 1998. The bank letter of credit is
essentially guaranteed by another bank under a reimbursement agreement which
requires BEI to make monthly principal payments. BEI has the option to establish
the Bond's interest rate form (variable or fixed interest rate). When a fixed
interest rate is selected, the fixed rate assigned will approximate the market
rate for comparable securities. When a variable rate is selected or at the end
of a fixed interest rate period, the Bondholders reserve the right to demand
payment of the Bonds. In the event that any of the Bondholders exercise their
rights, a remarketing agent is responsible for remarketing the Bonds on a best
efforts basis for not less than the outstanding principal and accrued interest.
In the event the Bonds are not able to be remarketed and borrowings on the
letters of credit occur, funding through the reimbursement agreement occurs and
BEI could be required to repay the debt at that time. Thus, the Bonds are
classified as current debt in the accompanying consolidated balance sheets.
In 1995, the Company exercised its option as part of the Velva Sheen
purchase agreement to prepay subordinated debt issued to the seller whereby a
discount of $500,000 was negotiated and recorded as extraordinary income.
F-16
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of all borrowings, exclusive of approximately $324,000 of
interest remaining to be accreted pertaining to a discounted obligation, are as
follows at December 28, 1996 (000's omitted):
AMOUNT
-------
1997.................................... $26,943
1998.................................... 7,343
1999.................................... 8,309
2000.................................... 230
2001.................................... 584
Thereafter.............................. 7,464
-------
$50,873
=======
The revolving loan, term loans and Bonds bear interest at variable rates
which approximate current rates. Accordingly, the amounts as stated for these
loans approximate fair value. The fair value of the subordinated debt is based
on the current rate offered for debt of the same remaining maturities. At
December 30, 1995 and December 28, 1996, the estimated fair value of the
Company's fixed rate debt approximated carrying value.
(5) INCOME TAXES --
The Company complies with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing differences between the financial
reporting and tax reporting bases of assets and liabilities.
The provision (credit) for income taxes includes the following components
(000's omitted):
1994 1995 1996
--------- --------- ---------
Current:
Federal............................ $ 136 $ (300) $ 1,370
State and local.................... 83 -- 282
--------- --------- ---------
219 (300) 1,652
--------- --------- ---------
Deferred:
Federal --
Depreciation.................. $ 32 $ 204 $ 102
Tax net operating loss
carryforward............... -- (640) 640
Inventory reserves and
other...................... (105) (200) 4
Accounts receivable
reserves................... 20 (228) (515)
Valuation allowance........... -- 1,123 (1,123)
Other, net.................... (67) (297) 193
--------- --------- ---------
(120) (38) (699)
--------- --------- ---------
State and local.................... -- -- (164)
--------- --------- ---------
$ 99 $ (338) $ 789
========= ========= =========
F-17
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation between the statutory federal income tax
rate and the effective rate shown above (000's omitted):
<TABLE>
<CAPTION>
1994 1995 1996
-------------- --------------- ---------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed provision (credit) for federal
income taxes at the statutory rate.... $ 8 34 % $(1,459) 34 % $ 1,637 34 %
State and local income taxes, net of
federal income tax benefit............ 24 100 % -- -- 118 2 %
Valuation allowance..................... -- -- 1,123 26 % (1,123) (23 )%
Other................................... 67 279 % (2) -- 157 3 %
------ ---- ------- ---- ------- ----
$ 99 413 % $ (338) 8 % $ 789 16 %
====== ==== ======= ==== ======= ====
</TABLE>
At December 30, 1995 and December 28, 1996, the net deferred tax asset
consisted of the following (000's omitted):
1995 1996
--------- ---------
Deferred tax liabilities:
Tax depreciation over book
depreciation..................... $ (227) $ (356)
LIFO inventory..................... (455) (441)
Intangible assets.................. (336) (478)
Other.............................. (97) (100)
--------- ---------
(1,115) (1,375)
--------- ---------
Deferred tax assets:
Inventory reserves................. 519 444
Inventory cost capitalization...... 476 544
Accounts receivable reserves....... 387 1,018
Employee benefits.................. 155 203
Other, net......................... (53) 29
Net operating loss carryforward.... 754 --
Valuation allowance................ (1,123) --
--------- ---------
1,115 2,238
--------- ---------
Net deferred tax asset.................. $ -- $ 863
========= =========
The 1995 regular tax net operating loss of approximately $2.8 million was
partially utilized in 1995 to offset approximately $900,000 of taxable income
from prior years as a loss carryback claim. The remainder was utilized to reduce
taxable income in 1996.
(6) SHAREHOLDERS' EQUITY --
(a) COMMON STOCK -- During 1992, the Company issued 379,123 shares (50,000
shares on a pre-split basis) of common stock to existing shareholders in
exchange for cash, principal reductions of certain subordinated notes payable to
shareholders and notes receivable with original principal amounts aggregating
$200,000 with aggregate payments of $12,000 per quarter, plus interest, through
December 31, 1996.
(b) PREFERRED STOCK -- On August 29, 1994, Brazos distributed its
investment in another company to its shareholders to redeem its preferred stock
(Series 1).
F-18
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) STOCK BASED COMPENSATION -- The Company accounts for stock based
compensation related to its stock option plan (discussed in Note 6(d) below)
pursuant to Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, under which stock option-type awards are recorded at
intrinsic value. Net income and earnings per share for 1995 and 1996, assuming
compensation cost for the stock option plan had been determined at fair value,
consistent with the provisions of Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS No. 123), would have been
as follows:
1995 1996
--------- ---------
Net income (loss) (000's omitted)
As reported........................ $ (3,940) $ 3,787
Pro forma.......................... (4,151) 3,487
Earnings (loss) per share
As reported........................ $ (1.30) $ .90
Pro forma.......................... (1.37) .83
Pursuant to the provisions of SFAS No. 123, in estimating the pro forma
amounts, the fair value method of accounting was not applied to options granted
prior to January 1, 1995. As a result, the pro forma effect on net income and
earnings per share may not be representative of future years. In addition, the
pro forma amounts reflect certain assumptions used in estimating fair values.
The fair value of options granted was estimated as of the dates of grant
using a Black-Scholes option pricing model. The weighted averages for the
assumptions used in determining the fair values of options granted were as
follows:
1995 1996
--------- ---------
Risk-free interest rate................. 7.49% 6.18%
Expected lives.......................... 6.5 yrs. 5.5 yrs.
Expected common stock volatility........ 48.5% 48.5%
As the Company had little prior history regarding its expected volatility
factor, the above assumption was determined based on historical volatility
factors of similar entities at corresponding points in their corporate lives.
F-19
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) EMPLOYEE STOCK OPTIONS -- The Company maintains a stock option plan in
which stock options may be granted to key employees and officers. Options are
granted at exercise prices not less than the fair value of the Company's stock
on the date of grant. Options generally vest over three years and expire 10
years from the date of grant. The total number of shares of common stock
available under this plan may not exceed 454,947 shares (60,000 shares on a
pre-split basis). Plan activity for 1994, 1995, and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year....... 17,136 $ 1.12 17,136 $ 1.12 431,821 $ 2.95
Granted......................... -- -- 431,821 2.95 227,853 3.09
Exercised....................... -- -- -- -- -- --
Forfeited....................... -- -- (17,136) 1.12 (204,727) 2.97
--------- --------- ----------
Outstanding, end of year............. 17,136 $ 1.12 431,821 $ 2.95 454,947 $ 3.01
========= ========= ==========
Exercisable, end of year............. 17,136 $ 1.12 7,582 $ 1.98 153,355 $ 2.92
========= ========= ==========
Weighted average fair value of
options granted during the year.... -- $ .92 $ 1.46
========= ========= ==========
</TABLE>
Price ranges, along with certain other information, for options outstanding
at December 28, 1996, are as follows:
OUTSTANDING EXERCISABLE
------------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE RANGE NUMBER PRICE LIFE NUMBER PRICE
------------- --------- -------- ----------- ------ --------
$1.98 - $3.96 227,094 $ 2.87 8.2 yrs. 80,753 $ 1.98
$1.98 125,111 $ 1.98 9.3 yrs. -- --
$3.96 72,602 $ 3.96 9.6 yrs. 72,602 $ 3.96
$4.62 - $6.59 30,140 $ 5.61 9.7 yrs. -- --
(e) STOCK PURCHASE WARRANTS -- Warrant activity for 1994, 1995 and 1996 is
summarized as follows:
RANGE OF
SHARES SUBJECT EXERCISE PRICES
TO WARRANTS PER SHARE
-------------- ---------------
Outstanding at January 1, 1994....... 55,246 $1.65
Granted (i)..................... 522,029 $.0013
--------------
Outstanding at December 31, 1994..... 577,275 $.0013-$1.65
Granted (ii).................... 124,056 $.0013
--------------
Outstanding at December 30, 1995..... 701,331 $.0013-$1.65
Granted (iii), (iv)............. 1,292,110 $.0013-$4.62
Exercised....................... (1,660,290) $.0013
--------------
Outstanding at December 28, 1996..... 333,151 $1.65-$4.62
==============
(i) In connection with the Velva Sheen acquisition, the Company issued
warrants to the purchasers of its senior subordinated debt. The warrants allow
the holders to purchase 522,029 shares (68,847 shares on a pre-split basis) of
the Company's common stock at a purchase price of $.0013 per share. The warrants
were valued at $744,000 which represents the difference between the exercise
price and management's estimate
F-20
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the fair market value of the 522,029 shares of the Company's common stock
issuable pursuant to the exercise of the warrants at the date of grant. The
warrants have been recorded as additional paid-in capital and were exercised
during 1996.
(ii) In connection with the Needleworks, Inc. acquisition, the Company
issued warrants to the seller to purchase 124,056 shares (16,361 shares on a
pre-split basis) of the Company's common stock at a purchase price of $.0013 per
share. The warrants were valued at zero at the date of the acquisition. The
warrants were exercised during 1996.
(iii) As discussed in Note 4, warrants representing 166,950 common shares
(22,018 shares on a pre-split basis) were issued to the Company's majority
shareholder in January 1996. The warrants, which have an exercise price of
$.0013 per share were valued at zero on the date of grant. The warrants were
exercised during 1996.
(iv) As discussed in Note 3(a), in connection with the acquisition of
Plymouth, warrants were issued as follows:
EXERCISE
SHARES PRICE
--------- --------
Attached to Series A preferred stock.... 504,316 $ .0013
Attached to subordinated debt........... 342,939 $ .0013
Issued to the seller.................... 227,474 $ 3.96
Fee warrants............................ 50,431 $ 4.62
The warrants shown above attached to the Series A preferred stock and the
subordinated debt were exercised in 1996.
In connection with the Merger (see Note 1), warrants to purchase 272,968
shares (36,000 shares on a pre-split basis) of the Company's common stock at a
purchase price of $6.59 per share were issued.
(7) MANDATORILY REDEEMABLE PREFERRED STOCK --
Mandatorily redeemable preferred stock consisted of the following at
December 30, 1995 and December 28, 1996:
1995 1996
--------- ---------
(000'S OMITTED)
BSI HOLDINGS, INC.
Series B -- Redeemable preferred
stock, $.01 par, 8,000,000 shares
authorized; 4,594,991 shares issued
and outstanding at December 28,
1996, redeemable at $1.00 per
share.............................. $ -- $ 4,595
Series A-1 -- Redeemable preferred
stock, $.01 par, 650,000 shares
authorized, issued and outstanding;
$645,000 and $598,000 redemption
value at December 30, 1995 and
December 28, 1996, respectively.... 645 598
Series A-2 -- Redeemable preferred
stock, $.01 par, 300,000 shares
authorized, issued and outstanding;
$300,000 redemption value at
December 30, 1995 and December 28,
1996............................... 300 300
BRAZOS SPORTSWEAR, INC.
Series A -- Redeemable preferred
stock, $.01 par, 5,000,000 shares
authorized, 2,577,815 shares issued
and outstanding at December 28,
1996, redeemable at $1.00 per
share.............................. -- 2,120
--------- ---------
$ 945 $ 7,613
========= =========
Pursuant to the Merger, BSI Holdings, Inc. Series B preferred stock will be
exchanged for an equivalent number of shares of New Brazos Series B-1 preferred
stock. Holders of the New Brazos
F-21
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B-1 preferred stock are entitled to receive cumulative dividends of 8%
annually, payable "in-kind" (PIK) on a quarterly basis. The New Brazos Series
B-1 preferred stock is redeemable at the option of New Brazos at any time, at a
redemption price of $.01 per share, if the market price of a share of New Brazos
common stock trades at or above $17.50 for a period of 20 consecutive trading
days. The shares are subject to mandatory redemption on the earlier to occur of
(i) a qualified public offering, but only to the extent the offering price per
share exceeds $17.50, (ii) the consummation of a sale, as defined, or (iii)
December 31, 2003, at $1.00 per share plus declared and unpaid dividends through
the date of redemption. Each share of Series B-1 preferred stock is convertible
at the option of the holder at any time prior to the time set for redemption
into .0909 shares of New Brazos common stock.
Pursuant to the Merger, BSI Holdings, Inc. Series A-1 and Series A-2
preferred stock will be exchanged for the equivalent shares of New Brazos Series
A-1 and Series A-2 preferred stock, respectively. The New Brazos Series A-1
preferred shares are redeemable at any time at $.919 per share at the option of
New Brazos and have a mandatory redemption date at the earlier of (i) the date
of a major transaction, as defined, (ii) a qualified public offering, or (iii)
the later of the date all of the shares of New Brazos convertible preferred
stock are redeemed or converted or December 31, 2003. The preferences, rights
and limitations associated with the New Brazos Series A-2 preferred stock are
identical to those in respect of the New Brazos Series A-1 preferred stock,
except that the redemption price is $1.00 per share. The New Brazos Series A-1
and A-2 preferred stock are not convertible.
Prior to the Merger, Brazos Series A preferred stock will be exchanged for
equivalent shares of BSI Series B-2 preferred stock, which stock, pursuant to
the Merger, will be exchanged for equivalent shares of New Brazos Series B-2
preferred stock. The preferences, rights and limitations associated with the New
Brazos Series B-2 preferred stock are identical to those in respect of the New
Brazos Series B-1 preferred stock, except such stock will have voting rights
similar to holders of New Brazos common stock based on the number of shares of
New Brazos common stock into which it is convertible and such shares have a
redemption and liquidation preference over the New Brazos Series B-1 preferred
stock.
As discussed in Note 3(a), the Brazos Series A preferred stock was issued
with detachable warrants to purchase 504,316 shares (66,511 shares on a
pre-split basis) of the Company's common stock at a purchase price of $.0013 per
share. The Brazos Series A preferred stock has been issued at a discount of
$485,000 to give effect to the estimated fair value of the stock purchase
warrants. The discount is being amortized into retained earnings, essentially as
dividends, using the effective interest method during the period of issuance
through the mandatory redemption date of December 31, 2003.
(8) EMPLOYEE BENEFIT PLANS --
(a) EMPLOYEES' 401(K) PLAN -- In January 1994, the Company adopted a
401(k) savings plan (the Plan) covering substantially all employees. Under the
Plan, the Company will match 50% of employee contributions, up to 6% of
compensation, for employees with annual compensation of $75,000 or less.
Contributions by employees earning $75,000 or more are not matched by the
Company. During 1995 and 1996, the Company contributed $159,000 and $123,000,
respectively, pursuant to the Plan.
(b) DEFINED BENEFIT PENSION PLAN -- Certain Velva Sheen division employees
covered by a collective bargaining agreement participate in a defined benefit
plan. The benefits to eligible employees are based primarily on years of
service. The Company's policy is to contribute at least the amount required by
the Employee Retirement Income Security Act of 1977 as determined by consulting
actuaries. The assets of this plan are invested primarily in mutual funds.
F-22
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the net periodic pension cost, the status of the
defined benefit plan and the assumptions used in computing this information
(000's omitted):
1994 1995 1996
--------- --------- ---------
Service cost......................... $ 4 $ 25 $ 33
Interest cost........................ 14 79 90
Actual loss (return) on plan
assets............................... 6 (161) (129)
Net amortization and deferral........ (24) 57 32
--------- --------- ---------
Total net periodic pension
cost.......................... $ -- $ -- $ 26
========= ========= =========
Actuarial present value of benefit
obligations:
Vested benefit obligation....... $ (1,207) $ (1,362)
Non-vested benefit obligation... (38) (15)
--------- ---------
Accumulated benefit obligation....... (1,245) (1,377)
Plan assets at fair value............ 1,498 1,545
--------- ---------
Plan assets in excess of
projected benefit
obligation.................... 253 168
Unrecognized net loss................ 118 177
--------- ---------
Prepaid pension cost............ $ 371 $ 345
========= =========
The actuarial assumptions were:
1994 1995 1996
---- ---- ----
Discount rate........................ 7.75% 7.0 % 6.75%
Rate of return on assets............. 7.5% 7.5 % 7.5%
The Company does not offer post-retirement benefits (other than the defined
benefit pension plan described above) or post-employment benefits to its
employees.
(9) COMMITMENTS AND CONTINGENCIES --
(a) LEASES -- The Company leases various office and warehouse facilities
and equipment from both related and unrelated parties under noncancellable
operating leases. The Company leases office space from two of BSI's
shareholders. In addition, the Company leases an office and manufacturing
facility from one of BSI's directors. The Company also has two leases for
facilities in College Station, Texas, with a partnership which is controlled by
certain shareholders of BSI. The Company is obligated to pay all applicable
taxes and insurance expenses pursuant to the terms of all of these leases.
Future minimum lease payments under noncancellable operating leases with initial
or remaining terms of one year or more at December 28, 1996, are as follows
(000's omitted):
RELATED UNRELATED
PARTIES PARTIES
------- ---------
1997.................................... $ 417 $ 1,281
1998.................................... 417 1,266
1999.................................... 405 936
2000.................................... 462 652
2001.................................... 362 333
Thereafter.............................. 190 26
------- ---------
$ 2,253 $ 4,494
======= =========
F-23
<PAGE>
BSI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total lease expense recorded during 1994, 1995 and 1996 was approximately
$793,000, $1,713,000 and $1,932,000, respectively, of which $266,000, $258,000
and $347,000, respectively, was to related parties.
(b) EMPLOYMENT AND NON-COMPETE AGREEMENTS -- The Company has entered into
employment and non-compete agreements with certain key employees providing for
payment of salaries and incentive compensation up to a specified maximum amount
of incentive compensation. Such employment and non-compete agreements expire at
various times through December 31, 2001. The minimum payments for salaries to be
made under these agreements subsequent to December 28, 1996 are $1,092,000 in
1997, $1,100,000 in 1998 and $672,000 in 1999. During 1994, 1995 and 1996,
respectively, compensation expense recognized by the Company pursuant to such
employment and non-compete agreements was $489,000, $416,000 and $1,010,000,
including incentive compensation.
(c) PURCHASES OF INVENTORY -- The Company has agreements with vendors to
purchase garments used in production. The most restrictive agreements have
noncancellable provisions which bind the Company to purchase all garments
scheduled to be shipped within 60 days. At December 28, 1996, the Company was
committed to purchase approximately $5 million under such agreements.
F-24
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 28, 1996 AND MARCH 29, 1997
(DOLLARS IN THOUSANDS)
1996 1997
---------- ----------
ASSETS
CURRENT ASSETS:
Cash............................ $ 561 $ 357
Accounts receivable, net of
allowance for doubtful accounts
of $2,760 and $2,612,
respectively................... 22,118 29,390
Inventory (note 2(b))........... 25,338 47,838
Prepaid expenses................ 1,786 3,069
Income tax receivable........... -- 1,817
Deferred tax assets............. 1,797 1,460
---------- ----------
Total current
assets............. 51,600 83,931
---------- ----------
PROPERTY, PLANT AND EQUIPMENT-net, at
cost............................... 6,873 6,471
---------- ----------
INTANGIBLE ASSETS:
Costs in excess of fair value of
assets acquired................ 21,456 21,476
Less -- accumulated
amortization................... (624) (800)
---------- ----------
20,832 20,676
---------- ----------
Other........................... 3,359 3,351
Less -- accumulated
amortization................... (922) (1,048)
---------- ----------
2,437 2,303
---------- ----------
Total intangible
assets............. 23,269 22,979
---------- ----------
OTHER ASSETS......................... 940 435
---------- ----------
$ 82,682 $ 113,816
========== ==========
The accompanying notes are an integral part of these
consolidated condensed balance sheets.
F-25
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 28, 1996 AND MARCH 29, 1997
(DOLLARS IN THOUSANDS)
1996 1997
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings pursuant to revolving
credit agreement............... $ 23,524 $ 36,273
Current portion of other debt... 3,070 3,238
Current portion of capital
leases......................... 349 358
Earnout payable................. 2,950 2,950
Accounts payable................ 9,998 23,838
Accrued liabilities............. 7,042 5,207
---------- ----------
Total current
liabilities........ 46,933 71,864
---------- ----------
LONG-TERM OBLIGATIONS -- LESS
SCHEDULED MATURITIES:
Borrowings pursuant to credit
agreement...................... 8,800 9,000
Notes payable................... 41 --
Subordinated debt due to related
parties........................ 13,590 12,092
Capital lease liability......... 1,175 1,078
---------- ----------
23,606 22,170
---------- ----------
DEFERRED INCOME TAXES PAYABLE........ 934 954
OTHER LIABILITIES.................... 367 295
MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK.................... 6,715 7,836
MANDATORILY REDEEMABLE PREFERRED
STOCK.............................. 898 898
COMMITMENTS AND CONTINGENCIES (Note
5)
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value,
15,000,000 shares authorized
and 3,676,008 and 4,319,170
shares issued and outstanding
at December 28, 1996 and March
29, 1997, respectively......... 5 4
Additional paid-in capital...... 2,927 10,539
Retained earnings (deficit)..... 297 (744)
---------- ----------
Total shareholders'
equity............. 3,229 9,799
---------- ----------
$ 82,682 $ 113,816
========== ==========
The accompanying notes are an integral part of these
consolidated condensed balance sheets.
F-26
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRTEEN-WEEK PERIODS ENDED MARCH 30, 1996 AND MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1997
----------- -----------
NET SALES............................... $ 30,132 $ 34,907
COST OF GOODS SOLD...................... 22,761 26,520
----------- -----------
Gross profit.................. 7,371 8,387
OPERATING EXPENSES:
Selling, general and administrative
expenses......................... 6,259 8,317
Amortization of intangible assets
and non-compete payments......... 82 285
----------- -----------
Total operating expenses...... 6,341 8,602
----------- -----------
Operating income (loss)....... 1,030 (215)
OTHER EXPENSE (INCOME):
Interest expense................... 811 1,145
Other, net......................... (233) 125
----------- -----------
Income (loss) before credit
for income taxes........... 452 (1,485)
CREDIT FOR INCOME TAXES................. -- (609)
----------- -----------
Net income (loss)............. 452 (876)
DIVIDENDS AND ACCRETION ON PREFERRED
STOCK................................. -- 165
----------- -----------
Net income (loss) available for
common shareholders.............. $ 452 $ (1,041)
=========== ===========
PER SHARE DATA:
Earnings (loss) per common and
common equivalent share.......... $ .11 $ (.27)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note
2(c))................................. 4,113,580 3,889,538
=========== ===========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
F-27
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN-WEEK PERIODS ENDED MARCH 30, 1996 AND MARCH 29, 1997
(DOLLARS IN THOUSANDS)
1996 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 452 $ (876)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation............... 262 381
Amortization of intangible
assets.................. 82 285
Increase in accounts
receivable.............. (4,156) (328)
Increase in inventory...... (2,963) (9,244)
Increase in prepaid
expenses................ (364) (344)
Increase in income tax
receivable.............. -- (426)
Increase in other
noncurrent assets....... 5 (946)
Increase in accounts
payable and accrued
liabilities............. 7,216 7,663
--------- ---------
Net cash provided by
(used in) operating
activities............ 534 (3,835)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Sun Sportswear,
Inc., net of cash acquired..... -- (4,613)
Purchases of property, plant and
equipment, net................. (211) 21
--------- ---------
Net cash used in
investing
activities......... (211) (4,592)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings pursuant to revolving
credit agreement, net.......... (560) 9,045
Borrowings of long-term debt
pursuant to credit agreement... -- 1,000
Repayments of long-term debt
pursuant to credit agreement... (400) (600)
Repayments of subordinated
debt........................... -- (3,000)
Repayment of capital lease
obligations and industrial
revenue bonds.................. (68) (157)
Payments made under non-compete
agreements..................... -- (25)
Payments for deferred financing
costs.......................... -- (140)
Payments received on notes
receivable from shareholders... 18 --
Issuance of common stock........ -- 100
Issuance of preferred stock and
related stock purchase
warrants....................... -- 2,000
--------- ---------
Net cash provided by
(used in) financing
activities......... (1,010) 8,223
--------- ---------
NET DECREASE IN CASH................. (687) (204)
CASH AT BEGINNING OF YEAR............ 755 561
--------- ---------
CASH AT END OF YEAR.................. $ 68 $ 357
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 672 $ 1,687
Cash paid for income taxes...... 3 1,404
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Payments of PIK dividends....... -- 149
The accompanying notes are an integral part of these
consolidated condensed financial statements.
F-28
<PAGE>
BRAZOS SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ACQUISITIONS --
On March 14, 1997, BSI Holdings, Inc. (Holdings) consummated a merger with
Sun Sportswear, Inc. (Sun) (hereinafter referred to as the "Merger") whereby
the shareholders of Holdings acquired an 86% ownership interest in Sun. The
Merger has been accounted for as a reverse acquisition with Sun being the
surviving legal entity and Holdings being the aquiror for accounting purposes.
Concurrent with the Merger, Sun was reincorporated in the State of Delaware
under the name Brazos Sportswear, Inc. (BSI or the Company). See Note 3.
(2) SIGNIFICANT ACCOUNTING POLICIES --
(a) INTERIM FINANCIAL STATEMENTS -- The accompanying consolidated
condensed financial statements of BSI for the thirteen-week period ended March
29, 1997 reflect the results of operations of Sun from the date of acquisition,
March 14, 1997. The accompanying consolidated condensed financial statements of
BSI prior to March 14, 1997, reflect Holdings' historical results prior to the
Merger.
The accompanying consolidated condensed financial statements of BSI are
unaudited. These unaudited interim financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. However, in the opinion of management, the accompanying
consolidated condensed financial statements include all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods. These consolidated condensed financial
statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto included in BSI's Current Report on Form
8-K/A dated May 12, 1997.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
(b) INVENTORIES -- Inventories are comprised of:
DECEMBER 28, MARCH 29,
INVENTORY CATEGORY METHOD 1996 1997
- ------------------------------------- ------- ------------ ---------
Blank garments....................... LIFO $ 12,126 $19,743
Printed garments..................... LIFO 1,481 1,593
------------ ---------
13,607 21,336
Less -- LIFO reserve................. (182) (182)
------------ ---------
Total LIFO................. 13,425 21,154
------------ ---------
Manufactured garments................ FIFO 2,486 2,877
Blank and printed garments........... FIFO 9,427 23,807
------------ ---------
Total FIFO................. 11,913 26,684
------------ ---------
Total inventory............ $ 25,338 $47,838
============ =========
(c) EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE -- Earnings
(loss) per share is based on the weighted average number of common shares
outstanding and includes the effect of the issuance of shares in connection with
the assumed exercise of stock options and warrants.
Earnings (loss) per share has also been computed in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83 (SAB No.
83). SAB No. 83 requires that options and warrants granted in the twelve-month
period preceding a proposed public offering be included in the calculation of
common and common equivalent shares as if they were outstanding for all periods
presented.
F-29
<PAGE>
Warrants issued in 1996 and 1997 to purchase 1,287,174 shares of common stock at
prices ranging from $.0013 per share to $6.59 per share were subject to this
requirement.
Fully-diluted earnings (loss) per share has not been presented because such
per share amounts were anti-dilutive to primary earnings (loss) per share.
All share and per share information included in the accompanying
consolidated condensed financial statements has been restated for all periods
presented to reflect the 37.912252-for-1 stock split and 1-for-5 reverse stock
split pursuant to the Merger.
(d) NEW ACCOUNTING PRONOUNCEMENTS -- During February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE (SFAS No. 128). SFAS No. 128 replaces the current
presentation of primary and fully-diluted earnings per share with a presentation
of basic and diluted earnings per share. Pursuant to the provisions of SFAS No.
128, basic earnings per share excludes any dilution. The current presentation of
primary earnings per share includes the dilutive effect of common stock
equivalents such as options and warrants. BSI intends to adopt the provisions of
SFAS No. 128 during the fourth quarter of 1997.
Assuming profitable results of operations, management expects that the
adoption of the provisions of SFAS No. 128 will have the effect of reporting an
amount of basic earnings per share which is greater than the current
presentation of primary earnings per share because the dilutive effect of common
stock equivalents, such as options and warrants, will be excluded from the
calculation of basic earnings per share.
Pro forma earnings (loss) per share assuming the provisions of SFAS No. 128
had been applied follow.
THIRTEEN-WEEK
PERIODS ENDED
--------------------------
MARCH 30, MARCH 29,
1996 1997
---------- ----------
Basic earnings (loss) per share...... $ .14 $ (.27)
Diluted earnings (loss) per share.... .11 (.27)
(3) ACQUISITION OF SUN --
Pro forma results of BSI and Sun combined, assuming that the acquisition
had been made as of the beginning of fiscal 1996, or December 31, 1995, follow.
Such information reflects adjustments to reflect elimination of Sun's historical
depreciation expense for the write-off of net equipment and leasehold
improvements resulting from the application of purchase accounting, elimination
of pre-merger acquisition expenses incurred by Sun, additional interest expense
related to increased net indebtedness, and dividends and accretion on additional
preferred stock issued.
THIRTEEN-WEEK
PERIODS ENDED
--------------------------
MARCH 30, MARCH 29,
1996 1997
---------- ----------
(000'S EXCEPT PER
SHARE AMOUNTS)
Net sales............................ $ 63,725 $ 44,097
Net income (loss).................... 1,223 (1,754)
Net income (loss) available to common
shareholders....................... 1,145 (2,000)
Earnings (loss) per common and common
equivalent share................... $ .24 $ (.46)
F-30
<PAGE>
A preliminary summary of the Merger, pending completion of certain
appraisals and analysis of the net assets acquired, utilizing March 14, 1997
balances, is as follows:
(000'S OMITTED)
Fair value of assets acquired,
including:
Accounts receivable............. $ 6,912
Inventories..................... 13,256
Other current assets............ 2,059
------------------
Total fair value of assets
acquired........................... 22,227
------------------
Less:
Purchase Price --
Cash....................... $ 4,680
Subordinated note to
Seafirst................. 1,500
Equity interest in BSI
subsequent to the Merger
(587,927 remaining Sun
shares at $11.00 per
share)................... 6,467
------------------
12,647
Transaction costs.......... 1,451
Financing costs............ 137
------------------
Total purchase price................. 14,235
------------------
Liabilities assumed.................. $ 7,992
==================
The purchase price was financed through a combination of borrowings under
BSI's credit agreement ($6.3 million short-term, $1.0 million long-term), the
issuance of BSI convertible, mandatorily redeemable preferred stock ($2.0
million--Series B-3), and the issuance of a subordinated debenture to Seafirst
($1.5 million). In connection with this transaction, the above proceeds were
used to retire $3.0 million of the subordinated debentures payable to the seller
of Plymouth Mills, Inc. In connection with this transaction, BSI increased its
credit facility to approximately $85 million. The credit facility includes a
$73.2 million revolving line of credit.
The Series B-3 mandatorily redeemable preferred stock contained detachable
warrants to purchase 272,968 shares of BSI's common stock at a purchase price of
$6.59 per share. The warrants were valued at $1,044,000 which represents the
portion of the $2,000,000 proceeds allocated to the warrants based on the
relative individual fair values of the preferred stock and warrants on the date
of grant. These warrants have been recorded as additional paid-in capital.
(4) SIGNIFICANT CUSTOMERS --
BSI had net sales of $9.6 million to two customers for the thirteen-week
period ended March 30, 1996 and $7.1 million to two customers for the
thirteen-week period ended March 29, 1997. These amounts represented 32% and 20%
of total net sales during the thirteen-week periods ended March 30, 1996 and
March 29, 1997, respectively. The accompanying consolidated condensed balance
sheets include accounts receivable of $5.4 million and $8.8 million at December
28, 1996 and March 29, 1997, respectively, due from such customers.
(5) COMMITMENTS AND CONTINGENCIES --
During May 1997, BSI agreed to acquire all of the outstanding common stock
of SolarCo, Inc. and its wholly-owned subsidiary Morning Sun, Inc., a
privately-held, Seattle based designer and manufacturer of embroidered and
screen-printed fleece wear, T-shirts and other women's tops, for approximately
$30 million plus the assumption of liabilities of approximately $12 million.
During fiscal 1996, Morning Sun, Inc. had net sales of approximately $55
million. The acquisition, which is subject to the satisfactory completion of due
diligence and other conditions, including regulatory approvals and financing, is
expected to close during the second quarter of 1997. BSI has committed to pay a
termination fee of $650,000 to SolarCo, Inc. if this transaction does not close
within a specified timeframe during the third quarter of 1997.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
and Stockholders of
Brazos Sportswear, Inc.
In our opinion, the accompanying balance sheets and related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Brazos Sportswear, Inc.
(formerly Sun Sportswear, Inc.) at December 31, 1995 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Seattle, Washington
February 12, 1997, except for Note 1 ("Merger and Subsequent Reincorporation")
for which the date is March 14, 1997
F-32
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
BALANCE SHEETS
DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash............................ $ 2,006,633 $ 84,532
Accounts receivable, net of
allowance for doubtful accounts
of $46,317 and $33,930,
respectively (Note 11)......... 13,102,275 7,180,833
Inventories, net (Note 3)....... 23,631,358 15,760,393
Prepaid expenses and other
current assets................. 959,872 847,641
Deferred income taxes (Note
9)............................. 788,332 19,740
Federal income tax receivable... 1,979,535 1,033,985
-------------- --------------
Total current assets....... 42,468,005 24,927,124
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net: (Note 4)...................... 4,831,994 3,492,013
OTHER ASSETS:........................ 15,107 14,506
-------------- --------------
Total assets............... $ 47,315,106 $ 28,433,643
============== ==============
See accompanying notes to financial statements
F-33
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
BALANCE SHEETS
DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 5).......... $ 13,500,000 $ 2,960,513
Accounts payable................ 4,985,953 3,592,365
Accrued royalties payable....... 1,753,745 1,061,597
Accrued wages and taxes
payable........................ 512,078 591,971
Accrued interest payable........ 51,263 25,381
Current portion of long-term
debt (Note 6).................. 245,652 -0-
-------------- --------------
Total current
liabilities............ 21,048,691 8,231,827
-------------- --------------
NONCURRENT LIABILITIES:
Long-term debt, net of current
portion (Note 6)............... 92,354 -0-
Deferred income taxes (Note
9)............................. 155,642 19,740
-------------- --------------
Total noncurrent
liabilities............ 247,996 19,740
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock, no par value,
20,000,000 shares authorized;
5,748,500 shares issued and
outstanding.................... 21,618,339 21,618,339
Retained (deficit) earnings..... 4,400,080 (1,436,263)
-------------- --------------
Total shareholders'
equity................. 26,018,419 20,182,076
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 2
and Note 10)
Total liabilities and
shareholders' equity... $ 47,315,106 $ 28,433,643
============== ==============
See accompanying notes to financial statements
F-34
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Net sales (Note 8)................... $ 113,212,896 $ 93,965,325 $ 65,534,545
Cost of goods sold................... 95,878,764 84,569,855 57,679,610
--------------- -------------- --------------
Gross margin......................... 17,334,132 9,395,470 7,854,935
--------------- -------------- --------------
Operating expenses:
Selling......................... 3,781,116 3,649,256 3,342,014
Design and pattern.............. 2,527,013 2,492,222 2,503,370
General and administrative...... 6,712,365 7,690,321 7,210,176
Provision for doubtful accounts
and factoring fees (Note 11).. 71,586 132,284 95,694
--------------- -------------- --------------
13,092,080 13,964,083 13,151,254
Operating (loss) income............ 4,242,052 (4,568,613) (5,296,319)
--------------- -------------- --------------
Other expense (income):
Interest expense................ 676,612 1,267,442 584,046
Other, net...................... (111,236) (200,981) (37,114)
--------------- -------------- --------------
565,376 1,066,461 546,932
--------------- -------------- --------------
(Loss) income before provision for
income taxes....................... 3,676,676 (5,635,074) (5,843,251)
(Benefit) provision for income taxes
(Note 9)........................... 1,228,000 (1,898,620) (6,908)
--------------- -------------- --------------
Net (loss) income.................... $ 2,448,676 $ (3,736,454) $ (5,836,343)
=============== ============== ==============
(Loss) earnings per share............ $0.43 $(0.65) $(1.02)
=============== ============== ==============
Weighted average shares
outstanding........................ 5,722,121 5,748,249 5,748,500
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------------- (DEFICIT)
SHARES AMOUNT EARNINGS TOTAL
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993........... 5,637,500 $ 21,132,521 $ 5,687,858 $ 26,820,379
Exercise of stock options including
tax benefit of $109,498............ 109,625 481,170 -- 481,170
Net income for the year ended
December 31, 1994.................. -- -- 2,448,676 2,448,676
--------- ------------ ------------ ------------
Balance, December 31, 1994........... 5,747,125 21,613,691 8,136,534 29,750,225
Exercise of stock options, -0- tax
benefit............................ 1,375 4,648 -- 4,648
Net loss for the year ended December
31, 1995........................... -- -- (3,736,454) (3,736,454)
--------- ------------ ------------ ------------
Balance, December 31, 1995........... 5,748,500 21,618,339 4,400,080 26,018,419
Net loss for the year ended December
31, 1996........................... -- -- (5,836,343) (5,836,343)
--------- ------------ ------------ ------------
Balance, December 31, 1996........... 5,748,500 $ 21,618,339 $ (1,436,263) $ 20,182,076
========= ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-36
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income............... $ 2,448,676 $ (3,736,454) $ (5,836,343)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............... 1,225,139 1,526,015 1,723,025
Loss (gain) on disposal of
equipment.................. 1,025 (18,054) 18,609
Decrease (increase) in
accounts receivable........ (10,644,227) 11,322,559 5,921,442
Decrease (increase) in
inventories................ (8,094,570) 6,524,260 7,870,965
Decrease (increase) in federal
income tax receivable, and
net deferred tax assets.... 92,158 (2,189,620) 1,578,240
Decrease (increase) in other
assets..................... (84,790) (366,117) 112,832
(Decrease) increase in
accounts payable........... 5,925,735 (6,754,384) (880,571)
(Decrease) increase in accrued
liabilities................ 938,153 (238,914) (638,137)
--------------- -------------- ---------------
Net cash provided by (used in)
operating activities............... (8,192,701) 6,069,291 9,870,062
--------------- -------------- ---------------
Cash flows from investing activities:
Capital expenditures............ (1,953,218) (1,169,168) (416,199)
Proceeds from sale of
equipment..................... 70,956 46,133 14,545
--------------- -------------- ---------------
Net cash used in investing
activities.................... (1,882,262) (1,123,035) (401,654)
--------------- -------------- ---------------
Cash flows from financing activities:
(Decrease) increase in
outstanding checks in
excess of funds on deposit.... 186,329 (1,297,807) (513,015)
Net (repayments) borrowings
under line of credit
agreement..................... 12,534,000 (2,487,000) (10,539,488)
Principal payments under
long-term debt................ (2,558,454) (376,635) (338,006)
Proceeds from issuance of common
stock for employee stock
options....................... 481,171 4,648 -0-
--------------- -------------- ---------------
Net cash (used in) provided by
financing activities............... 10,643,046 (4,156,794) (11,390,509)
--------------- -------------- ---------------
Net (decrease) increase in cash...... 568,083 789,462 (1,922,101)
Cash at beginning of period.......... 649,088 1,217,171 2,006,633
--------------- -------------- ---------------
Cash at end of period................ $ 1,217,171 $ 2,006,633 $ 84,532
=============== ============== ===============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................... $ 688,174 $ 1,269,992 $ 609,927
Income taxes............... $ 1,251,000 $ 291,000 $ 137,607
</TABLE>
F-37
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
MERGER AND SUBSEQUENT REINCORPORATION
On March 14, 1997, Sun Sportswear, Inc. (the "Company") merged with BSI
Holdings, Inc. ("BSI") and was reincorporated as a Delaware corporation which
was renamed Brazos Sportswear, Inc. The merger was accounted for as a reverse
acquisition with the Company being the surviving legal entity and BSI being the
predecessor entity for accounting purposes. The merger will be accounted for as
a purchase. In connection with the reincorporation, a one for five reverse stock
split was implemented.
Except for Seafirst Bank, shareholders of the Company prior to the merger
who did not elect to retain their shares received $2.20 per share ($11.00 per
share as adjusted for the effective one-for-five reverse stock split (the
"Reverse Split")) for 50% of such shares and the remaining shares were
converted into common stock of Brazos Sportswear, Inc. Seafirst Bank received
$2.20 per share ($11.00 per share as adjusted for the Reverse Split) for 59.5%
of its shares in a combination of a note and cash, with its remaining shares
being converted into shares of Brazos Sportswear, Inc.
The Company underwent a change in a control as of the effective date of the
merger. As of March 14, 1997, all the former directors of the Company resigned
and six directors designated by BSI became the directors of Brazos Sportswear,
Inc. In addition, on or before the effective date of the merger, the president,
executive vice president, and two senior vice presidents resigned. The financial
statements of the Company for the year ended December 31, 1996 include the costs
associated with these resignations as well as the merger related charges
incurred by the Company through December 31, 1996, which totaled $1.2 million.
The merger, including the Reverse Split, was not otherwise reflected in the
December 31, 1996 financial statements.
OPERATIONS
The Company is engaged in designing, sourcing, printing and marketing
moderately priced apparel. Products consist primarily of garments printed with
designs which are subject to licenses or distributor agreements with third
parties, and proprietary designs developed by the Company. Revenues from
operations are principally generated in the United States.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform
to the presentation of the December 31, 1996 financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out (FIFO) method. Cost includes the
purchase price of unprinted garments, the cost of manufacturing "cut-and-sewn"
garments and the cost of production of printed garments.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, vehicles, equipment and leasehold improvements are stated at
cost. Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the respective assets for furniture, vehicles
and equipment and over the lease term or useful life for leasehold improvements.
ACCOUNTS PAYABLE
Outstanding checks in excess of funds on deposit of $1,003,000 and $490,000
at December 31, 1995 and 1996, respectively, have been classified as accounts
payable.
F-38
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED ROYALTIES PAYABLE
Royalties are accrued when the related licensed garments are shipped.
Additionally, the Company periodically reviews its royalty agreements, which
contain guaranteed minimum payments, and accrues the amount of the guaranteed
minimum royalties not expected to be met by sales of the licensed product.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (FAS 109), ACCOUNTING FOR INCOME TAXES.
Deferred taxes have been provided on income and expense items that are reported
in different periods for financial and tax reporting purposes, net of
appropriate valuation allowance.
REVENUE RECOGNITION
Sales are recognized when finished garments are shipped from the Company's
facilities.
SALES DEDUCTIONS
Sales discounts and allowances are accrued as sales are recorded. Sales
returns, the other component of sales deductions, are accrued when the Company
believes sales returns will occur.
ESTIMATES BY MANAGEMENT
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET (LOSS) INCOME PER SHARE
Net (loss) income per share has been computed based upon the weighted
average number of shares outstanding for all periods presented. Fully diluted
per share amounts do not differ materially from primary per share amounts.
NOTE 2 -- COMMITMENTS:
The Company has historically leased office, warehouse and manufacturing
space in Kent, Washington from a company owned by David Sabey, the majority
shareholder until December 1992 (at which time Mr. Sabey divested himself of all
his shares in the Company). The current lease requires monthly payments of
$115,000 plus operating and maintenance expense of the facility. Rent expense
for leases with Sabey totaled $1,386,000, $1,389,000 and $1,392,000 in 1994,
1995 and 1996, respectively. The Company has an option to purchase the facility
it presently occupies during the five year period October 6, 1994 through
October 5, 1999 for a mutually agreeable fair market price. This lease expires
in 1999.
F-39
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also leases warehouse space in Kent, Washington from a third
party. The lease expires in June 1997. Rent expense for this third party lease,
and other expired leases, in 1994, 1995 and 1996 totaled $89,000, $181,000 and
$227,000, respectively.
Future minimum rent commitments under all operating leases for periods
after December 31, 1996 are as follows:
RENT COMMITMENTS
- -------------------------------------
1997............................ 1,437,300
1998............................ 1,380,000
1999............................ 1,035,000
------------
$ 3,852,300
============
Sun acquires rights to use trademarks and characters on specified types of
garments, under license agreements from third parties. At December 31, 1996, the
Company was party to approximately 28 such license agreements. Under these
license agreements, the Company pays royalties of between 4% and 14% of the
sales price of products sold displaying the licensed character or trademark.
Royalty expense for Sun's license agreements totaled $9,354,684, $9,004,513 and
$5,917,049 in 1994, 1995 and 1996, respectively. These license agreements
typically require that the Company guarantee a minimum royalty payment. Unmet
guaranteed minimum royalty commitments under all licensing agreements in place
at December 31, 1996, are as follows:
ROYALTY COMMITMENTS
- -------------------------------------
1997............................ $ 900,000
1998............................ 3,600,000
------------
$ 4,500,000
============
At December 31, 1996, the Company had an allowance of $198,753 recorded on
its balance sheet primarily to cover 1997 and 1998 minimum royalty commitments
which are not anticipated to be recovered through licensed product sales. (See
"Note 11 -- Valuation and Qualifying Accounts")
NOTE 3 -- INVENTORIES:
Inventories are composed of:
DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
Garments in process.................. $ 2,244,781 $ 1,480,782
Unprinted finished garments.......... 19,827,823 14,542,492
Printed finished garments............ 5,617,347 1,096,859
Supplies............................. 407,064 651,978
Lower of cost or market allowance.... (4,465,657) (2,011,718)
-------------- --------------
$ 23,631,358 $ 15,760,393
============== ==============
F-40
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are summarized by major
classifications as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------------------
USEFUL LIVES 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Production equipment................. 5-7 $ 3,658,352 $ 3,707,247
Leasehold improvements............... 5-10 2,380,317 2,369,882
Design system hardware and
software........................... 3-5 851,056 967,294
Information system hardware and
software........................... 3-5 2,145,582 1,837,237
Furniture and fixtures............... 5 1,116,112 937,675
Distribution equipment............... 5-10 343,941 371,033
Warehouse equipment.................. 5-7 395,797 357,814
Vehicles............................. 5 12,417 12,417
-------------- --------------
10,903,574 10,560,599
Construction in progress............. 509 -0-
Less -- Accumulated depreciation..... (6,072,089) (7,068,586)
-------------- --------------
$ 4,831,994 $ 3,492,013
============== ==============
</TABLE>
NOTE 5 -- NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
INTEREST RATE AT DECEMBER 31,
DECEMBER 31, ----------------------------
1996 1995 1996
---------------- -------------- ------------
<S> <C> <C> <C>
Heller line of credit, Prime based... 8.50% $ -0- $ 2,960,513
Bank line of credit, LIBOR based..... -- 13,500,000 -0-
-------------- ------------
$ 13,500,000 $ 2,960,513
============== ============
</TABLE>
At December 31, 1996, the Company's credit agreement with Heller Financial,
Inc. provided for a line of credit (including commercial letters of credit) of
up to $24,000,000. The borrowing rate for the revolving portion of the line is
the prime rate and all the Company's assets, including accounts receivable and
inventories, are pledged as security for borrowings under the Heller credit
agreement. The Heller credit agreement requires compliance with certain
financial covenants principally relating to working capital, tangible net worth,
ratio of debt to equity, expenditures for fixed assets, minimum earnings (before
taxes, interest and depreciation), interest coverage, restrictions on the
payment of dividends and restrictions on the incurrence of long-term debt. At
December 31, 1996, approximately $8.9 million was available for borrowing.
F-41
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
--------------------------
1995 1996
------------ ------------
Notes payable to GE Capital in
monthly installments of $25,694.... $ 338,006 $ -0-
------------ ------------
338,006
Less -- Current installments......... (245,652) -0-
------------ ------------
Long-term debt....................... $ 92,354 $ -0-
============ ============
The notes payable to GE Capital were repaid in February 1996.
NOTE 7 -- CASH PROFIT SHARING, 401-K PROFIT SHARING PLAN, STOCK OPTION PLANS,
AND RETIREMENT BENEFITS:
CASH PROFIT SHARING AND SALES BONUS PLAN. The Company has a Cash Profit
Sharing and Sales Bonus Plan for its employees ("Cash Plan"). Under the Cash
Plan, the Board of Directors determines, at its discretion, a percentage of the
Company's net profits to be distributed to employees on an annual basis. The
amount of the distribution to any employee is based upon the employee's
compensation level or sales performance and in some instances, length of service
with the Company. The Cash Plan is administered by a committee of senior
management employees appointed by the Board of Directors. The amount charged to
expense under the Cash Plan totaled $194,000, $94,000 and $63,000 in 1994, 1995
and 1996, respectively.
401-K PROFIT SHARING PLAN. Effective January 1, 1992, the Company
established a 401-K profit sharing plan for qualifying employees. Employee
contributions to the 401-K plan are matched by the Company dollar for dollar on
the first $200 contributed to the plan; then $.25 for every $1 up to 6.0% of the
employee's gross earnings. Employees are fully vested in the 401-K plan after
three years of service. The 401-K plan is administered by a non-related, third
party. The amount charged to expense under the 401-K plan totaled $57,000,
$66,000 and $55,000 in 1994, 1995 and 1996, respectively.
FASB 123 -- EFFECT ON NET INCOME AND EARNINGS PER SHARE. At December 31,
1996, the Company has two stock-based compensation plans, which are described
below. In October 1995, the Financial Accounting Standards Board issued FASB
123, "Accounting for Stock-Based Compensation", which established financial
accounting and reporting standards for stock-based employee compensation plans
and for the issuance of equity instruments to acquire goods and services from
non-employees. The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's two stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method
of FASB Statement 123, the Company's net income and earnings per share would
have been reduced to the amounts indicated below:
1995 1996
-------------- --------------
Net Income................... As reported $ (3,736,454) $ (5,836,343)
Pro forma (3,780,796) (5,886,443)
Primary earnings per share... As reported $(0.65) $(1.02)
Pro forma (0.66) (1.02)
The pro forma effect on net income and primary earnings per share resulting
from the compensation expense attributed to stock options as calculated under
FASB Statement 123 may not be representative of
F-42
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the effects on future years as options vest over several years and additional
awards may be granted in the future.
STOCK OPTION PLANS. In October 1989, the Board of Directors approved stock
option plans for Company employees and directors coincident with the completion
of the public offering of common stock of the Company. The plans provide for the
issuance of options to purchase common stock to employees and non-employee
directors of the Company, at an exercise price in most cases equal to the fair
market value at the date of grant. The maximum term of options granted is ten
years, vesting from one to five years depending on the specific grant. Options
to employees are granted at the discretion of the Compensation Committee of the
Board of Directors. Options granted to non-employee directors are granted in
accordance with a formula set forth in the director plan. A total of 660,000
common stock shares have been reserved for issuance under these plans.
A summary of the status of the Company's stock option plans as of December
31, 1995 and 1996, and changes during the years then ended are presented below.
The stock option exercise prices do not reflect the Reverse Split described in
Note 1.
<TABLE>
<CAPTION>
EMPLOYEE PLAN DIRECTOR PLAN
---------------------------- ---------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------------- ---------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994..... 321,250 $4.32 18,000 $4.61
Options granted...................... 54,500 $4.13 2,000 $4.13
Options exercised.................... (1,375) $3.38 -- --
Options canceled..................... (8,875) $5.44 (1,000) $4.13
---------- ---------
Outstanding at December 31, 1995..... 365,500 $4.27 19,000 $4.84
Options granted...................... 10,500 $2.88 -- --
Options exercised.................... -0- -- -- --
Options canceled..................... (111,437) $4.13 (11,000) $4.97
---------- ---------
Outstanding at December 31, 1996..... 264,563 $4.27 8,000 $4.06
========== =========
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: expected volatility
of 70% and 64%, risk-free interest rates of 6.49% and 6.5%, and expected lives
of 6 years and 5.98 years. The Company does not anticipate declaring dividends
during the expected lives of the options.
At December 31, 1995, 268,541 options were exercisable under the Employee
Plan and 18,000 options were exercisable under the Director Plan. The weighted
fair market value of options granted during calendar year 1995 was $2.34 for
both plans. At December 31, 1996, 254,063 options were exercisable under the
Employee Plan, and 8,000 options were exercisable under the Director Plan. The
weighted-average fair value of options granted during the calendar year 1996 was
$1.54 under the Employee Plan. No options were granted in the calendar year 1996
under the Director Plan.
F-43
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------------------------- ------------ ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
EMPLOYEE PLAN
$2.88 to $3.38....................... 112,750 5.44 years $3.28 102,250 $3.30
$4.25 to $4.50....................... 83,313 6.59 years $4.30 83,313 $4.30
$5.88................................ 68,500 7.42 years $5.88 68,500 $5.88
DIRECTOR PLAN
$3.75 to $5.88....................... 8,000 1.79 years $4.06 8,000 $4.06
</TABLE>
NOTE 8 -- INDUSTRY PROFILE AND MAJOR CUSTOMERS:
The Company operates almost exclusively in one industry, which is the
wholesale distribution of imprinted, dyed and decorated casual apparel. The
Company's customers consist of large retail mass merchants. A substantial
portion of the Company's customers' ability to honor their obligations is
dependent on the retail apparel economic sector.
The Company has three major customers who are mass merchants. The
percentage of gross sales for each customer and the total percentage of gross
sales for the three customers are as follows:
PERCENTAGE OF GROSS SALES TOTAL PERCENTAGE
FOR KMART, TARGET AND OF GROSS SALES FOR
FOR THE YEAR ENDED DECEMBER 31, WAL-MART, RESPECTIVELY THE THREE CUSTOMERS
- ------------------------------- ------------------------- -------------------
1996...................... 10%, 26% and 41% 77%
1995...................... 17%, 24% and 47% 88%
1994...................... 19%, 29% and 40% 88%
NOTE 9 -- INCOME TAXES:
The (benefit) provision for income taxes was as follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ -------------- ------------
Current.......................... $ 1,554,000 $ (1,854,594) $ (896,378)
Deferred......................... (326,000) (44,026) 889,470
------------ -------------- ------------
$ 1,228,000 $ (1,898,620) $ (6,908)
============ ============== ============
F-44
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Federal Income Tax Rate Schedule:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ -------------- --------------
Income taxes (benefit) at
federal rate................... $ 1,250,070 $ (1,915,925) $ (1,986,705)
Non-deductible merger expenses... -0- -0- 325,962
Change in valuation allowance.... -0- -0- 1,567,237
Other............................ (22,070) 17,305 86,598
------------ -------------- --------------
Income tax (benefit) provision... $ 1,228,000 $ (1,898,620) $ (6,908)
============ ============== ==============
Deferred tax assets (liabilities) at December 31 comprised the following:
1995 1996
---------- --------------
Inventory capitalization............. $ 463,749 $ 583,897
Allowance for doubtful accounts...... 15,748 11,537
Accrued expenses..................... 39,116 28,365
Accrued royalties.................... 235,077 136,065
AMT credits.......................... -0- 78,203
Net operating loss carry forward..... -0- 673,552
Other................................ 78,907 119,623
---------- --------------
Gross deferred tax assets............ 832,597 1,631,242
Less -- Depreciation................. (199,907) (64,005)
Valuation Allowance.................. -0- (1,567,237)
---------- --------------
$ 632,690 $ -0-
========== ==============
1995 1996
------------ ----------
Net current deferred tax asset....... $ 788,332 $ 19,740
Net noncurrent deferred tax
liability.......................... (155,642) (19,740)
------------ ----------
$ 632,690 $ -0-
============ ==========
Due to uncertainty in the realization of certain tax assets, including
those representing the net operating loss and alternative minimum tax credit
carryforwards, the Company has established a valuation allowance of $1,567,237
in the quarter and fiscal year ended December 31, 1996. At December 31, 1996,
the Company had net operating loss carryforwards of approximately $2.0 million
for federal tax purposes which begin to expire in 2010. Due to changes in the
ownership structure of the Company, the availability of certain net operating
loss carryforwards may be limited.
NOTE 10 -- CONTINGENCIES:
The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material effect on
the Company's financial position or results of operations.
F-45
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- VALUATION AND QUALIFYING ACCOUNTS:
Activity of the Company's allowance for doubtful accounts follows:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
---------- --------- ----------
Balance, beginning of the year....... $ 88,000 $ 46,524 $ 46,317
Provision for doubtful accounts...... -0- -0- -0-
Chargeoffs/collections............... (41,476) (207) (12,387)
---------- --------- ----------
Balance, end of the year............. $ 46,524 $ 46,317 $ 33,930
========== ========= ==========
During 1994, 1995 and 1996, the Company had an agreement with Heller
Financial, Inc. intended to transfer the collection risk to Heller for Sun's
accounts receivable for essentially all of its customers other than Target,
Kmart and Wal-Mart. Under the agreement, Heller assumed 100% of the collection
risk associated with the Company's covered receivables. Heller received a fee
equal to .55% of the gross amount of covered receivables for assuming such
collection risk. The amount charged to expense for factoring fees was $80,000,
$48,000, and $119,000 in 1994, 1995 and 1996, respectively. This agreement
expired in March 1997.
In February 1996, Sun amended the risk-transfer agreement with Heller,
whereby Heller also assumes 70% of the collection risk associated with the Kmart
receivables for a fee equal to .65% of the gross amount of such receivables.
Activity of the Company's lower of cost or market inventory reserves
follows:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ -------------- --------------
Balance, beginning of the year... $ 1,501,876 $ 3,080,755 $ 4,465,657
Accruals......................... 2,470,097 3,773,078 1,938,999
Chargeoffs....................... (891,218) (2,388,176) (4,392,938)
------------ -------------- --------------
Balance, end of the year......... $ 3,080,755 $ 4,465,657 $ 2,011,718
============ ============== ==============
Activity of the Company's unmet guaranteed minimum royalty reserves
follows:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
Balance, beginning of the year....... $ 147,333 $ 301,085 $ 691,403
Accruals............................. 350,000 693,643 173,315
Chargeoffs........................... (196,248) (303,325) (665,965)
------------ ------------ ------------
Balance, end of the year............. $ 301,085 $ 691,403 $ 198,753
============ ============ ============
NOTE 12 -- RELATED PARTY TRANSACTIONS:
During 1995, Sun hired the consulting firm of Wiley, Pene and Company to
assist in the Company's re-engineering efforts. Wiley, Pene and Company was paid
$243,000 from March to October 1995 for its services. Wiley, Pene and Company is
owned by Robert Pene, a former director of Sun, who resigned from the Company's
Board of Directors in September 1995; and by William S. Wiley, who was appointed
as the Company's Chief Executive Officer, President and Director in October
1995, and subsequently resigned as Chief Executive Officer in January of 1997.
Mr. Wiley remained as Chairman and Director through March 14, 1997, the date of
the merger.
F-46
<PAGE>
BRAZOS SPORTSWEAR, INC.
(FORMERLY SUN SPORTSWEAR, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarterly financial information for the years ended December 31, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1995
Net sales............................ $ 25,720,562 $ 30,581,505 $ 16,224,578 $ 21,438,680 $ 93,965,325
Cost of goods sold................... 22,522,498 25,310,087 17,097,761 19,639,509 84,569,855
-------------- -------------- -------------- -------------- --------------
Gross margin......................... 3,198,064 5,271,418 (873,183) 1,799,171 9,395,470
Operating expenses................... 3,627,428 3,662,095 3,504,743 3,169,817 13,964,083
Other expense........................ 330,034 314,033 152,794 269,600 1,066,461
-------------- -------------- -------------- -------------- --------------
(Loss) income before provision for
income taxes....................... (759,398) 1,295,290 (4,530,720) (1,640,246) (5,635,074)
(Benefit) provision for
income taxes....................... (258,000) 440,000 (1,540,500) (540,120) (1,898,620)
-------------- -------------- -------------- -------------- --------------
Net (loss) income.................... $ (501,398) $ 855,290 $ (2,990,220) $ (1,100,126) $ (3,736,454)
============== ============== ============== ============== ==============
Net (loss) income per share.......... $(0.09) $0.15 $(0.52) $(0.19) $(0.65)
</TABLE>
The sum of quarterly earnings per share will not necessarily equal the
earnings per share reported for the entire year, due to rounding.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................ $ 24,433,440 $ 20,034,565 $ 9,133,714 $ 11,932,826 $ 65,534,545
Cost of goods sold................... 20,623,529 16,871,903 9,101,063 11,083,115 57,679,610
-------------- -------------- -------------- -------------- --------------
Gross margin......................... 3,809,911 3,162,662 32,651 849,711 7,854,935
Operating expenses................... 3,181,998 2,984,052 3,333,181 3,652,023 13,151,254
Other expenses....................... 223,187 149,338 68,373 106,034 546,932
-------------- -------------- -------------- -------------- --------------
(Loss) income before provision for
income taxes....................... 404,726 29,272 (3,368,903) (2,908,346) (5,843,251)
(Benefit) provision for
income taxes....................... 138,000 9,000 (1,145,000) 991,092 (6,908)
-------------- -------------- -------------- -------------- --------------
Net (loss) income.................... $ 266,726 $ 20,272 $ (2,223,903) $ (3,899,438) $ (5,836,343)
============== ============== ============== ============== ==============
Net (loss) income per share.......... $0.05 $0.00 $(0.39) $(0.68) $(1.02)
</TABLE>
During the fourth quarter of 1996, the Company reevaluated the likely
realization of its deferred tax assets given its continuing pre-tax losses.
Accordingly, a charge of $1,567,237 was recorded to write-off the net deferred
tax asset.
F-47
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Plymouth Mills, Inc.
We have audited the accompanying balance sheets of Plymouth Mills, Inc. as
of September 30, 1995 and August 2, 1996, and the related statements of income
and retained earnings and cash flows for the years ended September 30, 1994 and
1995 and for the period from October 1, 1995 through August 2, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Plymouth Mills, Inc. as of
September 30, 1995 and August 2, 1996, and the results of its operations and its
cash flows for the years ended September 30, 1994 and 1995 and for the period
from October 1, 1995 through August 2, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements reflect the financial position,
results of operations and cash flows of Plymouth Mills, Inc., immediately prior
to the sale of certain assets and assumption of certain liabilities, as further
discussed in Note 1.
MAHONEY COHEN RASHBA & POKART, CPA, PC
New York, New York
February 5, 1997
F-48
<PAGE>
PLYMOUTH MILLS, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND AUGUST 2, 1996
SEPTEMBER 30, AUGUST 2,
1995 1996
------------------ ---------------
ASSETS (NOTE 1)
CURRENT ASSETS:
Cash............................ $ 33,933 $ 110,561
Accounts receivable, net of
allowance for doubtful
accounts of $10,000 (Notes 1
and 4)........................ 6,883,540 8,980,765
Inventories (Notes 2(a) and
3)............................ 4,954,722 6,398,180
Other current assets............ 282,857 135,876
------------------ ---------------
Total current
assets............. 12,155,052 15,625,382
------------------ ---------------
PROPERTY AND EQUIPMENT, at cost
(Notes 2(b) and 4):
Machinery and equipment......... 1,134,749 1,224,764
Leasehold improvements.......... 537,926 537,926
Office equipment................ 254,377 254,377
Furniture and fixtures.......... 83,732 83,732
Automobiles..................... 181,439 205,459
------------------ ---------------
2,192,223 2,306,258
Less -- accumulated depreciation
and amortization.............. 1,798,779 1,911,593
------------------ ---------------
393,444 394,665
------------------ ---------------
OTHER ASSETS......................... 458,135 360,778
------------------ ---------------
$ 13,006,631 $16,380,825
================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
(NOTE 1)
CURRENT LIABILITIES:
Note payable -- bank (Note 4)... $ -- $ 1,300,000
Acceptances payable (Note 4).... -- 162,066
Subordinated notes payable to
stockholders (Note 6)......... 482,792 --
Accounts payable................ 2,376,815 1,047,725
Accrued salaries, wages and
payroll taxes................. 786,408 420,123
Other current liabilities....... 411,725 287,133
Income taxes payable............ 68,341 329,650
Due to stockholders (Note 5).... 848,423 531,809
------------------ ---------------
Total current
liabilities........ 4,974,504 4,078,506
------------------ ---------------
COMMITMENTS (Notes 4, 8, and 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value:
Authorized -- 200 shares...
Issued and outstanding --
120 shares................. 5,000 5,000
Retained earnings............... 8,027,127 12,297,319
------------------ ---------------
Total stockholders'
equity............. 8,032,127 12,302,319
------------------ ---------------
$ 13,006,631 $16,380,825
================== ===============
The accompanying notes to financial statements
are an integral part of these statements.
F-49
<PAGE>
PLYMOUTH MILLS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995 AND
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH
AUGUST 2, 1996
OCTOBER 1,
1995
YEAR ENDED YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, AUGUST 2,
1994 1995 1996
----------- -------------- -----------
NET SALES............................ $30,131,427 $ 31,995,743 $32,747,666
COST OF GOODS SOLD................... 19,445,328 21,575,679 21,487,363
----------- -------------- -----------
Gross profit............... 10,686,099 10,420,064 11,260,303
OPERATING EXPENSES:
Art and design.................. 1,167,555 1,398,029 1,366,877
Selling......................... 2,038,257 1,657,191 1,736,665
Royalty expense................. 918,271 452,110 478,340
Shipping........................ 745,085 878,677 852,659
General and administrative...... 1,399,856 1,712,129 1,543,614
Officers' salaries.............. 2,320,060 2,319,600 300,572
----------- -------------- -----------
Total operating
expenses........... 8,589,084 8,417,736 6,278,727
----------- -------------- -----------
Operating income........... 2,097,015 2,002,328 4,981,576
OTHER (INCOME) EXPENSE:
Rental expense, net of rental
income........................ 203,302 68,290 57,488
Other rental income............. -- (273,748) --
Interest expense................ 279,681 171,448 174,119
----------- -------------- -----------
Net other (income)
expense............ 482,983 (34,010) 231,607
----------- -------------- -----------
Income before provision for
income taxes.......... 1,614,032 2,036,338 4,749,969
PROVISION FOR INCOME TAXES........... 144,800 223,200 479,777
----------- -------------- -----------
Net income................. 1,469,232 1,813,138 4,270,192
RETAINED EARNINGS, beginning of
period............................. 4,744,757 6,213,989 8,027,127
----------- -------------- -----------
RETAINED EARNINGS, end of period..... $ 6,213,989 $ 8,027,127 $12,297,319
=========== ============== ===========
The accompanying notes to financial statements are an integral part of these
statements.
F-50
<PAGE>
PLYMOUTH MILLS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995 AND
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH
AUGUST 2, 1996
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED OCTOBER 1, 1995
SEPTEMBER 30, SEPTEMBER 30, THROUGH
1994 1995 AUGUST 2, 1996
-------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 1,469,232 $ 1,813,138 $ 4,270,192
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Provisions for losses on
accounts receivable..... 136,434 164,522 9,212
Depreciation and
amortization............ 197,985 198,073 156,465
Gain on disposal of
equipment............... (6,781) -- (949)
Change in assets and
liabilities:
Accounts receivable... 1,670,481 (944,963) (1,965,485)
Inventories........... 2,108,045 (1,228,490) (1,443,458)
Other assets.......... 113,681 12,783 (43,595)
Other current
assets............. (129,877) (117,202) 146,981
Acceptances payable... -- -- 162,066
Accounts payable...... 348,035 307,252 (1,329,090)
Income taxes
payable............ -- 68,341 261,309
Accrued expenses and
other current
liabilities........ 180,564 31,224 (490,877)
-------------- -------------- ----------------
Net cash
provided by
(used in)
operating
activities.... 6,087,799 304,678 (267,229)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment................. 7,781 -- 19,310
Purchase of property and
equipment..................... (174,308) (95,680) (176,048)
-------------- -------------- ----------------
Net cash used in
investing
activities.... (166,527) (95,680) (156,738)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of stockholders'
loan -- subordinated.......... (35,221) -- (300,000)
Net borrowings under revolving
credit line................... (6,000,000) -- 1,300,000
Net repayment to stockholders... (127,588) (273,088) (499,405)
-------------- -------------- ----------------
Net cash
provided by
(used in)
financing
activities.... (6,162,809) (273,088) 500,595
-------------- -------------- ----------------
NET INCREASE (DECREASE) IN CASH...... (241,537) (64,090) 76,628
CASH, beginning of period............ 339,560 98,023 33,933
-------------- -------------- ----------------
CASH, end of period.................. 98,023 $ 33,933 $ 110,561
============== ============== ================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest........................ $ 328,522 $ 155,582 $ 232,028
Income taxes.................... 188,190 126,219 219,078
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-51
<PAGE>
PLYMOUTH MILLS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY --
Plymouth Mills, Inc. (the "Company"), a New York corporation, is a
manufacturer of women's and children's sportswear and screen printing for
advertising specialty items. The Company sells primarily to department stores
located throughout the United States.
Effective August 2, 1996, the stockholders of the Company consummated an
agreement to sell substantially all of the assets of the Company, net of the
assumption of certain specified liabilities, to Brazos Sportswear, Inc., a
wholly-owned subsidiary of BSI Holdings, Inc.
Accounts receivable are generally due within 60 days. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Credit losses have been within management
expectations.
The Company had the following major customers for the periods shown:
AS OF OR
AS OF OR FOR AS OF OR FOR FOR
THE YEAR THE YEAR THE PERIOD
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, AUGUST 2,
1994 1995 1996
-------------- -------------- ----------
Number of major customers........ 2 2 4
Percentage of outstanding
accounts receivable............ 38% 31% 63%
Percentage of sales.............. 40% 27% 45%
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
(a) INVENTORIES -- Inventories, consisting of raw materials,
work-in-process and finished goods, are stated at the lower of cost (first-in,
first-out) (FIFO) method) or market.
(b) PROPERTY AND EQUIPMENT -- Depreciation of property and equipment is
computed by the straight-line and accelerated methods, over estimated useful
lives ranging from three to ten years. Improvements to leased premises are
amortized over the term of the related lease or the estimated useful life,
whichever is shorter. Additions and betterments are capitalized, and repairs and
maintenance are charged to operations as incurred. When property and equipment
is sold or retired, the cost and related accumulated depreciation or
amortization are removed from the accounts and any gain or loss is recognized
currently.
(c) ADVERTISING COSTS -- Advertising costs relating to selling are charged
to income during the period in which they are incurred. These costs approximated
$61,800 and $16,300 for the years ended September 30, 1994 and 1995,
respectively, and $22,100 for the period ended August 2, 1996.
(d) INCOME TAXES -- The Company, with the consent of its stockholders, has
elected to be taxed under the provisions of Subchapter S of the Internal Revenue
Code and the corresponding provisions of the New York State Franchise Tax law.
Under those provisions, corporate income or loss and any tax credits earned are
included in the stockholders' individual income tax returns. Accordingly, no
provision for federal income tax or credits is reflected in the accompanying
financial statements. The Company is subject to New York State S Corporation and
New York City income taxes.
Undistributed Subchapter S earnings of approximately $11,642,000 are
included in retained earnings as of August 2, 1996, prior to calculating any
gain on the sale of the assets (see Note 1).
(e) MANAGEMENT'S USE OF ESTIMATES -- The preparation of financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
F-52
<PAGE>
PLYMOUTH MILLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES --
Inventories consist of the following:
AS OF AS OF
SEPTEMBER 30, 1995 AUGUST 2, 1996
------------------- ---------------
Supplies............................. $ -- $ 129,689
Raw materials........................ 1,431,462 1,488,993
Work-in-process...................... 2,550,117 3,836,207
Finished goods....................... 973,143 943,291
------------------- ---------------
$ 4,954,722 $ 6,398,180
=================== ===============
(4) NOTE AND ACCEPTANCES PAYABLE -- BANK --
The Company has a line of credit agreement with a commercial bank allowing
the Company to borrow up to $6,000,000, based upon 80% of eligible accounts
receivable. This line consists of a revolving credit line, bankers acceptances
and letters of credit. Interest on this line is payable at either .5% below the
bank's prime rate (7.75% at August 2, 1996) or 2% above the Eurodollar rate
(7.5% at August 2, 1996). Interest on acceptances is discounted in advance at
the bank's market rate plus 1.5%. The Company granted a security interest in its
accounts receivable and on machinery and equipment as collateral for this
revolving credit line. This line of credit was repaid on August 9, 1996.
(5) DUE TO STOCKHOLDERS --
The amounts due to stockholders bear interest at the rate of 8% and 10% per
annum and are payable on demand. Interest expense for the years ended September
30, 1994 and 1995 was $90,000 and $94,000, respectively and for the period ended
August 2, 1996 was $86,050.
(6) SUBORDINATED NOTES PAYABLE --
The subordinated notes payable to stockholders are due on demand with
interest at 1 3/4% above the bank's designated rate (10 1/2% at September 30,
1995). The notes are subordinated to the bank's revolving credit agreement (see
Note 4). Interest expense for the years ended September 30, 1994 and 1995 was
$39,000 and $51,000, respectively.
(7) INCOME TAXES --
The following reconciles the provision for state and local income taxes
that would have resulted from application of the statutory state and local
income tax rate to the Company's actual provision for the periods shown.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, AUGUST 2,
1994 1995 1996
-------------- -------------- ----------
<S> <C> <C> <C>
Statutory state and local income tax
rate at 11.3% for September 30,
1994 and at 10.4% for the period
ended August 2, 1996............... $182,386 $211,779 $ 493,997
Decrease in state income tax due to
exemption, based on allocation of
state income....................... (10,800) (10,198) (21,644)
Decrease in state income tax from
deducting local income tax......... (3,200) (3,014) (6,399)
Other................................ (23,586) 24,633 13,823
-------------- -------------- ----------
$144,800 $223,200 $ 479,777
============== ============== ==========
</TABLE>
The effective state and local tax rate for the years ended September 30,
1994 and 1995 were 9.0% and 11.0%, respectively, and for the period ended August
2, 1996 was 10.1%.
F-53
<PAGE>
PLYMOUTH MILLS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) RELATED PARTY TRANSACTIONS --
The Company's plant facility and general office are net leased from the
stockholders for $120,000 annually through March 31, 2000. The agreement with
the stockholders enables the Company to receive all rental income from the
tenants of the building during the lease term.
As of August 2, 1996, minimum aggregate annual rental obligations,
including the rent due to stockholders, are as follows:
FOR THE YEAR ENDING GROSS ANNUAL SUBLET NET RENTAL
AUGUST 2, RENTAL OBLIGATION INCOME EXPENSE
- --------------------------------- ------------------ ------- ----------
1997........................ $120,000 $31,378 $ 88,622
1998........................ 120,000 28,140 91,860
1999........................ 120,000 4,690 115,310
2000........................ 80,000 -- 80,000
------------------ ------- ----------
$440,000 $64,208 $ 375,792
================== ======= ==========
In addition, the Company rents a showroom office on a month-to-month basis
with an affiliate. The monthly aggregate rent is approximately $4,500.
Rent expense charged to operations on the above leases for the years ended
September 30, 1994 and 1995 amounted to approximately $225,000 and $174,000,
respectively, and for the period ended August 2, 1996 amounted to approximately
$151,000.
(9) COMMITMENTS --
(a) LICENSE AGREEMENTS -- The Company presently has three licensing
agreements with one organization. The agreements provide for royalty payments
based on 5% of net sales of the designated products with certain annual minimum
amounts based on different categories of licensed products. The following are
the minimum royalty amounts payable:
YEAR ENDING
AUGUST 2,
- -------------------------------------
1997............................ $ 388,353
1998............................ 366,667
----------
$ 755,020
==========
One agreement will terminate on June 30, 1997, the other agreements will
terminate on June 30, 1998. All agreements have renewal options.
(b) LEASE -- The Company rents showroom office space under a lease
expiring in April 1999. As of August 2, 1996, minimum annual rental payments
under the operating lease are as follows:
YEAR ENDING
AUGUST 2,
- -------------------------------------
1997............................ $ 161,244
1998............................ 161,244
1999............................ 120,933
----------
$ 443,421
==========
Rent expense charged to operations for the years ended September 30, 1994
and 1995 amounted to approximately $67,000 and $162,000, respectively, and for
the period ended August 2, 1996 amounted to approximately $138,000.
(c) LETTERS OF CREDIT -- At August 2, 1996, the Company had open letters
of credit of approximately $1,190,000 outstanding.
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SolarCo, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of SolarCo,
Inc. and Subsidiary as of December 31, 1995 and December 29, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended January 1, 1995, December 31, 1995 and December 29, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of SolarCo, Inc. and Subsidiary as of December 31, 1995 and
December 29, 1996, and the results of their operations and cash flows for the
years ended January 1, 1995, December 31, 1995 and December 29, 1996, in
conformity with generally accepted accounting principles.
MOSS ADAMS LLP
Seattle, Washington
February 7, 1997
F-55
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash............................... $ 318,000 $ 686,000
Accounts receivable
Trade, net of allowance for
doubtful accounts, returns
and discounts of $1,328,000
and $1,559,000 at 1995 and
1996, respectively......... 8,220,000 8,152,000
Employees and other........... 48,000 73,000
Inventories........................ 4,820,000 5,229,000
Prepaid expenses................... 93,000 136,000
Deferred tax asset................. 180,000 205,000
------------ ------------
Total current assets..... 13,679,000 14,481,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................... 2,635,000 3,178,000
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated
amortization of $58,000 and
$96,000 at 1995 and 1996,
respectively..................... 650,000 762,000
Other.............................. 124,000 63,000
------------ ------------
774,000 825,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable -- line of credit..... $ 4,950,000 $ 4,000,000
Accounts payable -- trade.......... 998,000 3,136,000
Accrued wages and bonuses.......... 1,308,000 2,308,000
Other accrued liabilities.......... 402,000 293,000
Income tax payable................. 674,000 53,000
Current portion of long-term
debt............................. 676,000 831,000
------------ ------------
Total current
liabilities........... 9,008,000 10,621,000
------------ ------------
LONG-TERM DEBT, net of current portion
Notes payable...................... 1,570,000 1,845,000
Notes payable -- related parties... 3,000,000 --
------------ ------------
4,570,000 1,845,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.25 par value,
4,950,000 shares authorized...... 1,073,000 1,073,000
Additional paid-in capital......... 7,000 7,000
Retained earnings.................. 2,430,000 4,938,000
------------ ------------
3,510,000 6,018,000
------------ ------------
$ 17,088,000 $ 18,484,000
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-56
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
SALES, net of returns, allowances and
discounts of $1,873,000, $2,975,000
and $2,920,000 at January 1, 1995,
December 31, 1995 and December 29,
1996, respectively................. $ 32,497,000 $ 46,036,000 $ 54,754,000
COST OF GOODS SOLD................... 23,739,000 34,023,000 39,506,000
------------ ------------ ------------
GROSS PROFIT......................... 8,758,000 12,013,000 15,248,000
------------ ------------ ------------
OPERATING EXPENSES
Retail outlet stores............ 850,000 786,000 654,000
Selling......................... 2,837,000 3,226,000 3,654,000
General and administrative...... 3,550,000 4,891,000 6,353,000
------------ ------------ ------------
7,237,000 8,903,000 10,661,000
------------ ------------ ------------
INCOME FROM OPERATIONS............... 1,521,000 3,110,000 4,587,000
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense................ (493,000) (700,000) (669,000)
Loss on disposal of equipment... 14,000 (78,000) (57,000)
Other........................... 13,000 (6,000) 4,000
------------ ------------ ------------
(466,000) (784,000) (722,000)
------------ ------------ ------------
NET INCOME BEFORE INCOME TAX......... 1,055,000 2,326,000 3,865,000
INCOME TAX EXPENSE................... 240,000 823,000 1,357,000
------------ ------------ ------------
NET INCOME........................... $ 815,000 $ 1,503,000 $ 2,508,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-57
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............. 4,293,000 $ 1,073,000 $ 7,000 $ 927,000 $ 2,007,000
Net income...................... -- -- -- 1,503,000 1,503,000
---------- ------------ ----------- ---------- ------------
BALANCE, December 31, 1995........... 4,293,000 1,073,000 7,000 2,430,000 3,510,000
Net income...................... -- -- -- 2,508,000 2,508,000
---------- ------------ ----------- ---------- ------------
BALANCE, December 29, 1996........... 4,293,000 $ 1,073,000 $ 7,000 $4,938,000 $ 6,018,000
========== ============ =========== ========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-58
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... $ 815,000 $ 1,503,000 $ 2,508,000
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation and
amortization............ 615,000 730,000 987,000
(Gain) Loss on disposal of
equipment............... (14,000) 78,000 57,000
Deferred income tax
benefit................. (7,000) (62,000) (25,000)
Stock bonuses.............. 37,000 -- --
Changes in assets and
liabilities
Accounts receivable,
net................ (2,934,000) (1,127,000) 43,000
Inventories........... (1,803,000) (843,000) (409,000)
Prepaid expenses and
other assets....... 45,000 (2,000) 18,000
Accounts payable...... 448,000 (654,000) 826,000
Other current
liabilities........ (128,000) 377,000 891,000
Income tax payable.... 239,000 435,000 (621,000)
------------ ------------ ------------
(2,687,000) 435,000 4,275,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements........ (795,000) (823,000) (1,574,000)
Proceeds from sale of
equipment..................... 24,000 8,000 25,000
Collections on note
receivable -- officer......... -- 100,000 --
Contingent payment for
acquisition of subsidiary's
stock......................... -- (150,000) (150,000)
------------ ------------ ------------
(771,000) (865,000) (1,699,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note
payable -- line of credit,
net........................... 3,633,000 380,000 362,000
Payments on notes
payable -- related parties.... (125,000) (1,000,000) (3,000,000)
Proceeds from long-term debt.... 598,000 1,608,000 1,100,000
Payments on long-term debt...... (463,000) (465,000) (670,000)
Proceeds from issuance of common
stock......................... 11,000 -- --
------------ ------------ ------------
3,654,000 523,000 (2,208,000)
------------ ------------ ------------
NET INCREASE IN CASH................. 196,000 93,000 368,000
CASH
Beginning of period............. 29,000 225,000 318,000
------------ ------------ ------------
End of period................... $ 225,000 $ 318,000 $ 686,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-59
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995, DECEMBER 31, 1995 AND DECEMBER 29, 1996
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS -- SolarCo, Inc. ("the Company") is a holding company
incorporated in the State of Washington in 1993. Its wholly-owned subsidiary,
Morning Sun, Inc. ("Subsidiary" or "Morning Sun"), designs and embellishes
screen-printed and embroidered sportswear for women. It also operates a retail
factory outlet store, which sells returns, misprints, and other apparel. Net
retail sales totaled $2,979,000, $2,710,000 and $2,563,000 in 1994, 1995, and
1996, respectively.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of SolarCo, Inc. and its wholly-owned subsidiary, Morning
Sun, Inc. All intercompany accounts and transactions have been eliminated in
consolidation.
ANNUAL CLOSING DATE -- The Company operates using a fiscal period of 52 or
53 weeks, ending on the Sunday nearest December 31. The 1994 fiscal period ended
January 1, 1995, the 1995 fiscal period ended December 31, 1995 and the 1996
fiscal period ended December 29, 1996.
USE OF ESTIMATES -- The preparation of the 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.
CASH AND CASH EQUIVALENTS -- For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ADVERTISING -- The Company expenses advertising costs as they are incurred.
Advertising expense was $107,000, $155,000 and $151,000 in 1994, 1995, and 1996,
respectively.
INVENTORIES -- Inventories are stated at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. Work in progress
and finished goods are valued using the full absorption method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Equipment and leasehold
improvements are stated at cost. Depreciation is computed using straight-line
and accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized over the term of the related lease. Depreciation and
amortization expense totaled $587,000, $709,000 and $949,000 in 1994, 1995, and
1996, respectively.
GOODWILL -- Goodwill represents the excess of the cost of the Company's
acquired subsidiary over the fair value of its net assets at the date of
acquisition. The excess cost is being amortized over 20 years using the
straight-line method. Amortization expense totaled $20,000 in 1994 and 1995, and
$38,000 in 1996.
INCOME TAXES -- Income taxes are provided for the tax effect of
transactions reported in the financial statements. The provision consists of
taxes currently due plus deferred taxes related primarily to differences in the
financial statement and tax bases of certain assets and liabilities. Deferred
tax expense or benefit represents the future consequences of those differences.
NOTE 2 -- STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
CASH FLOW INFORMATION -- The Company paid $441,000, $699,000 and $671,000
of interest and $1,000, $450,000 and $2,001,000 of income taxes in 1994, 1995,
and 1996, respectively.
NONCASH TRANSACTION -- During 1995, the Company recognized an additional
$300,000 of contingent consideration for the acquisition of the stock of Morning
Sun, Inc. The additional cost was recorded as goodwill. Of the total, $150,000
was paid in cash and the balance was accrued.
F-60
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVENTORIES
Inventories consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Raw materials........................ $3,158,000 $3,348,000
Work in process...................... 102,000 48,000
Finished goods....................... 1,195,000 1,481,000
Factory outlet store................. 365,000 352,000
------------ ------------
$4,820,000 $5,229,000
============ ============
Periodically the Company discontinues production of certain products.
Accordingly, inventories on hand at year end relating to these products have
been written down to their estimated net realizable value.
NOTE 4 -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Machinery and equipment.............. $2,488,000 $3,286,000
Computer equipment and software...... 966,000 1,548,000
Leasehold improvements............... 1,705,000 1,654,000
Office equipment..................... 117,000 121,000
Automobiles.......................... 41,000 41,000
------------ ------------
5,317,000 6,650,000
Less accumulated depreciation and
amortization....................... 2,682,000 3,472,000
------------ ------------
$2,635,000 $3,178,000
============ ============
NOTE 5 -- NOTE PAYABLE -- LINE OF CREDIT
A line of credit agreement with a bank provides for borrowings up to
$13,000,000, as limited by accounts receivable and inventories. The line bears
interest at prime with an option to borrow specific amounts over pre-determined
periods at fixed rates. The underlying promissory note matures June 1, 1998 and
is cross-collateralized with the Company's long-term debt.
NOTE 6 -- LONG-TERM DEBT
NOTES PAYABLE -- Notes payable consist of the following:
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
Various notes payable to a bank in
total monthly installments of
$76,000 plus interest at rates that
vary with prime, maturing September
1997 through August 2001........... $2,246,000 $2,676,000
Less current portion................. 676,000 831,000
------------ ------------
$1,570,000 $1,845,000
============ ============
F-61
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments on long-term debt for future years are summarized as
follows:
1997................................. $ 831,000
1998................................. 826,000
1999................................. 520,000
2000................................. 349,000
2001 and thereafter.................. 150,000
------------
$ 2,676,000
============
The notes payable and line of credit are subject to a credit agreement with
the bank. Under the terms of the agreement, the Company has granted as
collateral to the bank a security interest in accounts receivable, inventories,
and equipment. The credit agreement contains certain covenants, including
requirements to maintain certain financial ratios and minimum levels of tangible
net worth, and to limit capital expenditures and payment of dividends.
NOTES PAYABLE -- RELATED PARTIES -- At December 31, 1995, the Company had
notes payable to stockholders and an affiliate of certain stockholders. The
notes were repaid in full during 1996.
NOTE 7 -- INCOME TAX
Income tax expense consists of the following:
JANUARY 1, DECEMBER 31, DECEMBER 29,
1995 1995 1996
---------- ------------ ------------
Current expense........... $ 246,500 $ 885,000 $1,382,000
Deferred benefit.......... (6,500) (62,000) (25,000)
---------- ------------ ------------
$ 240,000 $ 823,000 $1,357,000
========== ============ ============
Total income tax expense differs from the amount computed by applying
federal statutory rates to net income before income tax due to differences in
the deductibility of certain expenses, the inclusion of state income tax, and
the application of certain tax credits.
Deferred taxes are computed based on temporary differences between the
financial statement and tax bases of certain assets and liabilities. Differences
relate primarily to allowance for doubtful accounts, accumulated depreciation,
inventories, and accrued vacation, all of which result in deferred tax assets.
NOTE 8 -- COMMITMENTS
At December 31, 1995 the Company has noncancellable operating lease
agreements for its manufacturing and office facility and a showroom. Future
annual obligations under the terms of these lease agreements are as follows:
1997................................. $ 856,000
1998................................. 830,000
------------
Total future minimum payments........ $ 1,686,000
============
Rent expense for the Company's facilities totaled $730,000, $751,000 and
$830,000 in 1994, 1995, and 1996, respectively.
NOTE 9 -- RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE -- OFFICER -- Included in other assets is a $32,000
unsecured promissory note from the President of the Company's Subsidiary. The
note bears interest at 6% and is due in full December 2001 or upon a change in
control of the Company or its subsidiary. A second note from the President was
paid in full during 1995.
F-62
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES PAYABLE -- The Company had short-term and long-term notes payable to
stockholders and an affiliate of certain stockholders. The short-term notes were
paid in full during 1995 and the long-term notes were paid in full during 1996.
Interest paid to these related parties totaled $241,000, $290,000 and $157,000
in 1994, 1995, and 1996, respectively.
NOTE 10 -- RETIREMENT PLANS
The Company has adopted a salary deferral plan ("the Plan") meeting the
requirements of Internal Revenue Code 401(k) for qualified plans. The Plan
covers substantially all employees over the age of 21 with one year of service.
Employees may defer up to 15% of their annual salary, subject to certain
limitations established by the Internal Revenue Service. Company contributions
are discretionary and may not exceed 25% of employees' compensation or $30,000.
No Company contributions were made to the Plan in 1994, 1995 or 1996.
NOTE 11 -- STOCK INCENTIVE PLAN
The Company has adopted a stock incentive plan ("the Plan") covering key
directors, employees, and other individuals. Under the terms of the Plan, the
Board of Directors may award incentive stock options, as defined by the Internal
Revenue Code, non-statutory stock options, stock bonus rights, and stock
bonuses. A total of 878,000 shares have been reserved for issuance under the
terms of the Plan.
During 1994, the Company awarded 78,000 shares of stock bonuses. A total of
$37,000 of compensation expense was recognized for value of shares issued.
During 1995 and 1996, respectively, the Company awarded 15,000 and 80,000
of stock options to employees and directors. Vesting of the options to employees
are contingent on a change in control of the Company or its Subsidiary, and no
compensation cost has been recognized for these options. The Company has
recorded no compensation cost for the remainder of the options, as the amount is
not material.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No.
123). The new standard measures compensation cost using a fair value method,
which computes compensation cost as the difference between the options' fair
value and the option price on the grant date. However, SFAS No. 123 allows
companies to continue to measure compensation cost using the intrinsic value
method, which computes compensation cost as the difference between a company's
stock price and the option price at the grant date. The Company has elected to
continue to use the intrinsic value method.
SFAS No. 123 requires pro forma disclosure of net income as if the fair
value method were used. The effect of applying the fair value method to the
stock options issued in 1996 results in net income that is not materially
different from the amount reported in the financial statements.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risk are cash and accounts receivable. The Company places its temporary cash
investments with major financial institutions. At times, deposits with any one
institution exceed federally insured limits. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral.
Customers are concentrated in the retail department and specialty apparel store
industry and are dispersed geographically throughout the United States and
Canada. The Company has not experienced a history of significant credit-related
losses.
F-63
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 29, MARCH 30,
1996 1997
------------ -----------
ASSETS
CURRENT ASSETS:
Cash............................ $ 686,000 $ 77,000
Accounts receivable, net of
allowance for doubtful
accounts, returns and
discounts of $1,559,000 and
$1,163,000 at December 29,
1996 and March 30, 1997,
respectively.................. 8,225,000 2,740,000
Inventories..................... 5,229,000 6,279,000
Other........................... 341,000 1,680,000
------------ -----------
Total current assets....... 14,481,000 10,776,000
------------ -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
net................................ 3,178,000 3,110,000
------------ -----------
OTHER ASSETS......................... 825,000 781,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable -- line of
credit........................ $ 4,000,000 $ 2,822,000
Current portion of long-term
debt.......................... 831,000 831,000
Accounts payable and accrued
liabilities................... 5,790,000 5,485,000
------------ -----------
10,621,000 9,138,000
------------ -----------
LONG-TERM DEBT, net of current
portion............................ 1,845,000 1,652,000
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $.25 par value,
4,950,000 shares authorized,
4,293,000 shares
outstanding................... 1,073,000 1,073,000
Additional paid-in capital...... 7,000 7,000
Retained earnings............... 4,938,000 2,797,000
------------ -----------
6,018,000 3,877,000
------------ -----------
$ 18,484,000 $14,667,000
============ ===========
The accompanying notes are an integral part of
these consolidated financial statements
F-64
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
---------------------- ----------------------
<S> <C> <C>
NET SALES............................ $5,629,000 $ 6,239,000
COST OF GOODS SOLD................... 4,826,000 5,078,000
---------------------- ----------------------
GROSS PROFIT......................... 803,000 1,161,000
---------------------- ----------------------
OPERATING EXPENSES
Retail outlet stores............ 149,000 177,000
Selling......................... 535,000 578,000
General and administrative...... 1,133,000 3,599,000
---------------------- ----------------------
1,817,000 4,354,000
---------------------- ----------------------
LOSS FROM OPERATIONS................. (1,014,000) (3,193,000)
---------------------- ----------------------
OTHER EXPENSE
Interest........................ (107,000) (94,000)
Other........................... (9,000) (9,000)
---------------------- ----------------------
(116,000) (103,000)
---------------------- ----------------------
NET LOSS BEFORE INCOME TAX CREDIT.... (1,130,000) (3,296,000)
INCOME TAX CREDIT.................... 397,000 1,155,000
---------------------- ----------------------
NET LOSS............................. $ (733,000) $ (2,141,000)
====================== ======================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-65
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
MARCH 31, 1996 MARCH 30, 1997
--------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (733,000) $(2,142,000)
Adjustments to reconcile net
loss to net cash from
operating activities:
Depreciation and
amortization............ 209,000 235,000
Changes in assets and
liabilities:
Accounts receivable,
net................ 5,788,000 5,485,000
Inventories........... (1,262,000) (1,050,000)
Other current
assets............. (112,000) (1,339,000)
Other noncurrent
assets............. 35,000 33,000
Accounts payable and
accrued
liabilities........ (568,000) (305,000)
--------------------- ---------------------
3,357,000 917,000
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and
leasehold improvements, net... (367,000) (155,000)
--------------------- ---------------------
(367,000) (155,000)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/payments on notes
payable, net.................. (3,106,000) (1,178,000)
Payments on long-term debt...... (156,000) (193,000)
--------------------- ---------------------
(3,262,000) (1,371,000)
--------------------- ---------------------
NET DECREASE IN CASH................. (272,000) (609,000)
CASH
Beginning of period............. 318,000 686,000
--------------------- ---------------------
End of period................... $ 46,000 $ 77,000
===================== =====================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest................... $ 110,000 $ 96,000
Income taxes............... $ 651,000 $ 15,000
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-66
<PAGE>
SOLARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUBSEQUENT EVENT
During May 1997, SolarCo, Inc. (SolarCo) agreed to sell all of its
outstanding common stock to Brazos Sportswear, Inc. (Brazos) for approximately
$30 million plus the assumption of indebtedness ($5.3 million at March 30, 1997)
and certain contractual obligations not to exceed $2.5 million. The sale, which
is subject to the satisfactory completion of due diligence and other conditions,
including regulatory approvals and Brazos' ability to obtain financing, is
expected to close during the third quarter of 1997.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) INTERIM FINANCIAL STATEMENTS -- The accompanying consolidated
condensed financial statements of SolarCo are unaudited. These unaudited interim
financial statements and related notes have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. However, in the opinion of
management, the accompanying consolidated condensed financial statements include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results for the interim periods. These consolidated
condensed financial statements and notes thereto should be read in conjunction
with the audited consolidated financial statements and notes thereto of SolarCo
included herein.
(b) NEW ACCOUNTING PRONOUNCEMENT -- During February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE (SFAS No. 128). SFAS No. 128 replaces the current
presentation of primary and fully-diluted earnings per share with a presentation
of basic and diluted earnings per share. Pursuant to the provisions of SFAS No.
128, basic earnings per share excludes any dilution. The current presentation of
primary earnings per share includes the dilutive effect of common stock
equivalents such as options. SolarCo intends to adopt the provisions of SFAS No.
128 during the fourth quarter of 1997.
Assuming profitable results of operations, management expects that the
adoption of the provisions of SFAS No. 128 will have the effect of reporting an
amount of basic earnings per share which is greater than the current
presentation of primary earnings per share because the dilutive effect of common
stock equivalents, such as options, will be excluded from the calculation of
basic earnings per share.
(3) INVENTORIES
Inventories consist of the following:
DECEMBER 29, MARCH 30,
1996 1997
------------- ----------
Raw materials........................ $ 3,348,000 $4,210,000
Work in process...................... 48,000 176,000
Finished goods....................... 1,481,000 1,348,000
Factory outlet store................. 352,000 545,000
------------- ----------
$ 5,229,000 $6,279,000
============= ==========
F-67
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................................................................ 2
Prospectus Summary............................................................................................... 3
Summary Financial Information.................................................................................... 11
Risk Factors..................................................................................................... 12
Disclosure Regarding Forward Looking Statements.................................................................. 16
The Company...................................................................................................... 17
Ratio of Earnings to Fixed Charges............................................................................... 19
Capitalization................................................................................................... 20
Pro Forma Financial Information.................................................................................. 21
Selected Financial Data.......................................................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 33
The Exchange Offer............................................................................................... 56
Certain Federal Income Tax Consequences of the Exchange Offer.................................................... 63
Description of Certain Indebtedness.............................................................................. 63
Description of the Exchange Notes................................................................................ 64
Certain Federal Income Tax Consequences of an Investment in the Exchange Notes................................... 95
Plan of Distribution............................................................................................. 99
Legal Matters.................................................................................................... 100
Experts.......................................................................................................... 100
Financial Statements............................................................................................. F-1
</TABLE>
[LOGO]
BRAZOS SPORTSWEAR, INC.
------------------------
$100,000,000
OFFER TO EXCHANGE
ITS 10 1/2% SENIOR NOTES DUE 2007
FOR 10 1/2% SENIOR NOTES DUE 2007
THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action. In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for expenses, including attorney's fees, actually
and reasonably incurred in connection with the defense or settlement of such
action, and the corporation may not indemnify for amounts paid in satisfaction
of a judgment or in settlement of the claim. In any such action, no
indemnification may be paid in respect of any claim, issue or matter as to which
such person shall have been adjudged liable to the corporation except as
otherwise approved by the Delaware Court of Chancery or the court in which the
claim was brought. In any other type of proceeding, the indemnification may
extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses.
The statute does permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner be reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. The statute contains additional limitations
applicable to criminal actions and to actions brought by or in the name of the
corporation. The determination as to whether a person seeking indemnification
has met the required standard of conduct is to be made (1) by a majority vote of
a quorum of disinterested members of the Board of Directors, (2) by independent
legal counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (3) by the stockholders.
The Company's Certificate of Incorporation and Bylaws require the Company
to indemnify its directors to the fullest extent permitted under Delaware law.
Pursuant to employment agreements entered into by the Company with its executive
officers and certain other key employees, the Company must indemnify such
officers and employees in the same manner and to the same extent that the
Company is required to indemnify its directors under the Company's Bylaws. The
Company's Certificate limits the personal liability of a director to the
corporation or its stockholders to damages for breach of the director's
fiduciary duty.
The Company has purchased insurance on behalf of its directors and
officers, in such amounts as it deems reasonable, against certain liabilities
that may be asserted against, or incurred by, such persons in their capacities
as directors or officers of the registrant, or that may arise out of their
status as directors or officers of the registrant, including liabilities under
the federal and state securities laws.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(A) EXHIBITS
The following is a list of all the exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company. Exhibit 3.1 of the Company's
Registration Statement on Form S-1, No. 33-31688, is incorporated herein by reference.
3.2 -- Bylaws of the Company. Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1991 is incorporated herein by reference
4.1 -- Indenture, dated as of July 2, 1997, by and among the Company, the Subsidiary Guarantors
and Norwest Bank Minnesota, National Association with respect to the Notes and Exchange
Notes.
4.2 -- Form of Exchange Note.*
5.1 -- Opinion of Porter & Hedges, L.L.P., as to the legality of the Exchange Notes.
10.1 -- Registration Rights Agreement, dated as of July 2, 1997, by and among the Company, Dillon,
Read & Co. and SBC Warburg Inc.
11.1 -- Statement re: Computation of Earnings per Share
11.2 -- Statement re: Computation of Pro Forma Earnings per Share
12.1 -- Statement re: Computation of Ratios
23.1 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Moss Adams LLP.
23.4 -- Consent of Price Waterhouse LLP.
23.5 -- Consent of Mahoney Cohen & Company, CPA, PC.
24.1 -- Power of Attorney (included as part of the signature page of this Registration Statement).
25.1 -- Statement of Eligibility and Qualification of Trustee on Form T-1 of Norwest Bank
Minnesota, National Association under the Trust Indenture Act of 1934.*
99.1 -- Letter of Transmittal for the Notes.*
</TABLE>
- ------------
* to be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted since the information required to be submitted has
been included in the Consolidated Financial Statements of Brazos Sportswear,
Inc. or the notes thereto, or the required information is not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS
ON JULY 14, 1997.
BRAZOS SPORTSWEAR, INC.
By: /s/ F. CLAYTON CHAMBERS
F. CLAYTON CHAMBERS
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
SECRETARY AND TREASURER
POWER OF ATTORNEY
Each of the undersigned hereby appoints each of J. Ford Taylor and F.
Clayton Chambers, with full power to act alone, as attorney and agent for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to sign and file with the Commission under the
Securities Act any and all amendments and exhibits to this Registration
Statement and any and all applications, instruments and other documents to be
filed with the Commission pertaining to the registration of the securities
covered hereby, with full power and authority to do and perform any and all acts
and things whatsoever requisite or desirable.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 14, 1997.
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------
/s/RANDALL B. HALE Chairman of the Board of Directors
RANDALL B. HALE
/s/J. FORD TAYLOR Director, President and Chief Executive Officer
J. FORD TAYLOR (Principal Executive Officer)
/s/F. CLAYTON CHAMBERS Director, Vice President, Chief Financial Officer,
F. CLAYTON CHAMBERS Secretary and Treasurer (Principal Financial and
Accounting Officer)
______________________ Director and President of Plymouth Mills Facility
ALAN B. ELENSON
/s/NOLAN LEHMANN Director
NOLAN LEHMANN
_______________________ Director
MICHAEL S. CHADWICK
II-3
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
3.1 -- Restated Certificate of Incorporation of the Company.
Exhibit 3.1 of the Company's
Registration Statement on Form S-1, No. 33-31688, is
incorporated herein by reference.
3.2 -- Bylaws of the Company. Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended December
31, 1991 is incorporated herein by reference
4.1 -- Indenture, dated as of July 2, 1996, by and among the
Company, the Subsidiary Guarantors and Norwest Bank
Minnesota, National Association with respect to the
Notes and Exchange Notes.
4.2 -- Form of Exchange Note.*
5.1 -- Opinion of Porter & Hedges, L.L.P., as to the legality
of the Exchange Notes.
10.1 -- Registration Rights Agreement, dated as of July 2,
1997, by and among the Company, Dillon, Read & Co. and
SBC Warburg Inc.
11.1 -- Statement re: Computation of Earnings per Share
11.2 -- Statement re: Computation of Pro Forma Earnings per
Share
12.1 -- Statement re: Computation of Ratios
23.1 -- Consent of Porter & Hedges, L.L.P. (included in
Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Moss Adams LLP.
23.4 -- Consent of Price Waterhouse LLP.
23.5 -- Consent of Mahoney Cohen & Company, CPA, PC.
24.1 -- Power of Attorney (included as part of the signature
page of this Registration Statement).
25.1 -- Statement of Eligibility and Qualification of Trustee
on Form T-1 of Norwest Bank Minnesota, National
Association under the Trust Indenture Act of 1934.*
99.1 -- Letter of Transmittal for the Notes.*
- ------------
* to be filed by amendment.
EXHIBIT 4.1
- ------------------------------------------------------------------------------
BRAZOS SPORTSWEAR, INC.,
THE SUBSIDIARY GUARANTORS NAMED HEREIN
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
------------------------
INDENTURE
Dated as of July 2, 1997
------------------------
$100,000,000
10 1/2% Senior Notes Due 2007
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS............................................1
SECTION 1.2 OTHER DEFINITIONS.....................................25
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.....26
SECTION 1.4 RULES OF CONSTRUCTION.................................26
ARTICLE II
SECURITY FORMS
SECTION 2.1 FORMS GENERALLY.......................................27
SECTION 2.2 FORM OF SECURITIES....................................27
ARTICLE III
THE SECURITIES
SECTION 3.1 TITLE AND TERMS.......................................28
SECTION 3.2 DENOMINATIONS.........................................28
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING........28
SECTION 3.4 TEMPORARY SECURITIES..................................30
SECTION 3.5 REGISTRATION OF TRANSFER AND EXCHANGE.................30
SECTION 3.6 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES......31
SECTION 3.7 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED........32
SECTION 3.8 PERSONS DEEMED OWNERS.................................33
SECTION 3.9 CANCELLATION..........................................33
SECTION 3.10 COMPUTATION OF INTEREST...............................34
SECTION 3.11 CUSIP NUMBERS.........................................34
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE...............34
SECTION 4.2 APPLICATION OF TRUST MONEY............................35
ARTICLE V
REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.....................................36
SECTION 5.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT....37
i
<PAGE>
SECTION 5.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE............................................39
SECTION 5.4 TRUSTEE MAY FILE PROOF OF CLAIM.......................40
SECTION 5.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES............................................41
SECTION 5.6 APPLICATION OF MONEY COLLECTED........................41
SECTION 5.7 LIMITATIONS ON SUITS..................................41
SECTION 5.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM, LIQUIDATED DAMAGES AND INTEREST.............42
SECTION 5.9 RESTORATION OF RIGHTS AND REMEDIES....................42
SECTION 5.10 RIGHTS AND REMEDIES CUMULATIVE........................43
SECTION 5.11 DELAY OR OMISSION NOT WAIVER..........................43
SECTION 5.12 CONTROL BY HOLDERS....................................43
SECTION 5.13 WAIVER OF PAST DEFAULTS...............................43
SECTION 5.14 WAIVER OF STAY, EXTENSION OR USURY LAWS...............44
SECTION 5.15 UNDERTAKING FOR COSTS.................................44
ARTICLE VI
THE TRUSTEE
SECTION 6.1 DUTIES OF TRUSTEE.....................................44
SECTION 6.2 CERTAIN RIGHTS OF TRUSTEE.............................45
SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES............................................47
SECTION 6.4 MAY HOLD SECURITIES...................................47
SECTION 6.5 MONEY HELD IN TRUST...................................47
SECTION 6.6 COMPENSATION AND REIMBURSEMENT........................47
SECTION 6.7 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY...............48
SECTION 6.8 CONFLICTING INTERESTS.................................48
SECTION 6.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.....48
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR................50
SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS...........................................50
SECTION 6.12 NOTICE OF DEFAULTS....................................51
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1 HOLDERS' LISTS; HOLDER COMMUNICATIONS;
DISCLOSURES RESPECTING HOLDERS........................51
SECTION 7.2 REPORTS BY THE TRUSTEE................................51
SECTION 7.3 REPORTS BY THE COMPANY................................52
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS..53
ii
<PAGE>
SECTION 8.2 SUCCESSOR SUBSTITUTED.................................54
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS....55
SECTION 9.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.......56
SECTION 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES..................57
SECTION 9.4 EFFECT OF SUPPLEMENTAL INDENTURES.....................57
SECTION 9.5 CONFORMITY WITH TRUST INDENTURE ACT...................57
SECTION 9.6 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES....57
SECTION 9.7 NOTICE OF SUPPLEMENTAL INDENTURES AND WAIVERS.........58
ARTICLE X
COVENANTS
SECTION 10.1 PAYMENT OF PRINCIPAL, PREMIUM OR LIQUIDATED DAMAGES,
IF ANY, AND INTEREST..................................58
SECTION 10.2 MAINTENANCE OF OFFICE OR AGENCY.......................58
SECTION 10.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.......59
SECTION 10.4 CORPORATE EXISTENCE...................................60
SECTION 10.5 PAYMENT OF TAXES; MAINTENANCE OF PROPERTIES;
INSURANCE.............................................60
SECTION 10.6 LIMITATION ON SALE/LEASEBACK TRANSACTIONS.............61
SECTION 10.7 LIMITATION ON CONDUCT OF BUSINESS.....................61
SECTION 10.8 STATEMENT BY OFFICERS AS TO DEFAULT...................61
SECTION 10.9 PROVISION OF FINANCIAL INFORMATION....................62
SECTION 10.10 LIMITATION ON RESTRICTED PAYMENTS.....................62
SECTION 10.11 LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK.................................................64
SECTION 10.12 LIMITATION ON ISSUANCES AND SALES OF
CAPITAL STOCK OF RESTRICTED SUBSIDIARIES..............64
SECTION 10.13 LIMITATION ON LIENS...................................65
SECTION 10.14 OFFER TO PURCHASE SECURITIES UPON CHANGE OF CONTROL...65
SECTION 10.15 LIMITATION ON ASSET SALES.............................67
SECTION 10.16 NET PROCEEDS OFFER....................................68
SECTION 10.17 LIMITATION ON TRANSACTIONS WITH AFFILIATES............70
SECTION 10.18 LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES........70
SECTION 10.19 LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES.........71
SECTION 10.20 WAIVER OF CERTAIN COVENANTS...........................71
iii
<PAGE>
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1 RIGHT OF REDEMPTION...................................71
SECTION 11.2 APPLICABILITY OF ARTICLE..............................72
SECTION 11.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.................72
SECTION 11.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.....73
SECTION 11.5 NOTICE OF REDEMPTION..................................73
SECTION 11.6 DEPOSIT OF REDEMPTION PRICE...........................74
SECTION 11.7 SECURITIES PAYABLE ON REDEMPTION DATE.................74
SECTION 11.8 SECURITIES REDEEMED IN PART...........................75
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 12.1 COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE............................................75
SECTION 12.2 DEFEASANCE AND DISCHARGE..............................75
SECTION 12.3 COVENANT DEFEASANCE...................................76
SECTION 12.4 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.......76
SECTION 12.5 DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS
TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS...78
SECTION 12.6 REINSTATEMENT.........................................79
ARTICLE XIII
SUBSIDIARY GUARANTEES
SECTION 13.1 UNCONDITIONAL GUARANTEE...............................79
SECTION 13.2 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.......81
SECTION 13.3 LIMITATION ON MERGER OR CONSOLIDATION.................81
SECTION 13.4 RELEASE OF SUBSIDIARY GUARANTORS......................82
SECTION 13.5 ADDITIONAL SUBSIDIARY GUARANTORS......................83
SECTION 13.6 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY........83
SECTION 13.7 CONTRIBUTION..........................................84
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 COMPLIANCE CERTIFICATES AND OPINIONS..................84
SECTION 14.2 FORM OF DOCUMENTS DELIVERED TO TRUSTEE................85
SECTION 14.3 ACTS OF HOLDERS.......................................85
SECTION 14.4 NOTICES, ETC. TO TRUSTEE AND THE COMPANY..............86
SECTION 14.5 NOTICE TO HOLDERS; WAIVER.............................87
SECTION 14.6 EFFECT OF HEADINGS AND TABLE OF CONTENTS..............87
iv
<PAGE>
SECTION 14.7 SUCCESSORS AND ASSIGNS................................87
SECTION 14.8 SEVERABILITY..........................................87
SECTION 14.9 BENEFITS OF INDENTURE.................................88
SECTION 14.10 GOVERNING LAW; TRUST INDENTURE ACT CONTROLS;
CONSENT TO JURISDICTION AND SERVICE.................88
SECTION 14.11 LEGAL HOLIDAYS........................................88
SECTION 14.12 NO RECOURSE AGAINST OTHERS............................89
SECTION 14.13 DUPLICATE ORIGINALS...................................89
SECTION 14.14 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.........89
Appendix A - Provisions Relating to Initial Securities, Private Exchange
Securities and Exchange Securities
Exhibit 1 to Appendix - Form of Initial Security
Exhibit 2 to Appendix - Form of Exchange/Private Exchange Security
<PAGE>
Reconciliation and Tie between Trust Indenture Act of 1939, as amended,
and Indenture, dated as of July 2, 1997
Trust Indenture Indenture
Act Section Section
ss.310 (a)(1)............................................ 6.7
(a)(2)............................................ 6.7
(b)............................................... 6.7, 6.8, 6.9
ss.311 (a)............................................... 6.12
(b)............................................... 6.12
ss.312 .................................................. 7.1
ss.313 .................................................. 7.2
ss.314 (a)............................................... 7.3
(a)(4)............................................ 10.8(a)
(c)(1)............................................ 14.1
(c)(2)............................................ 14.1
(e)............................................... 14.1
ss.315 (a)............................................... 6.1
(b)............................................... 6.13
(c)............................................... 6.1
(d)............................................... 6.1
ss.316 (a) (last sentence)............................... 1.1 ("Outstanding")
(a)(1)(A)......................................... 5.2, 5.12
(a)(1)(B)......................................... 5.13
(b)............................................... 5.8
ss.317 (a)(1)............................................ 5.3
(a)(2)............................................ 5.4
(b)............................................... 10.3
ss.318 (a)............................................... 14.10(b)
Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE>
THIS INDENTURE, dated as of July 2, 1997, is between BRAZOS SPORTSWEAR,
INC., a Delaware corporation (hereinafter called the "Company"), the Subsidiary
Guarantors parties hereto (the "Subsidiary Guarantors") and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of the Company's 10 1/2% Senior
Notes Due 2007 (the "Initial Securities") and the debt securities, if and when
issued pursuant to a registered exchange for Initial Securities (the "Exchange
Securities"), and the debt securities, if and when issued pursuant to a private
exchange for Initial Securities (the "Private Exchange Securities," and together
with the Exchange Securities and the Initial Securities, the "Securities" and
each individually, a "Security").
All things necessary have been done on the part of the Company and the
Subsidiary Guarantors to make the Securities, when issued and executed by the
Company and the Subsidiary Guarantors and authenticated and delivered by the
Trustee as herein provided, the valid obligations of the Company and the
Subsidiary Guarantors, as the case may be, and to make this Indenture a valid
agreement of the Company and the Subsidiary Guarantors and the Trustee, in
accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS.
"Accounts Receivable" has the meaning specified for the term "accounts" in
Section 9-106 of the UCC.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person (i) existing at the time that other Person
merges or consolidates with the specified Person or becomes a Restricted
Subsidiary of such specified Person, including Indebtedness incurred in
connection with, or in contemplation of, that other Person merging with or into
the specified Person or becoming a Restricted Subsidiary of the specified Person
or (ii) assumed by the specified Person in connection with an acquisition of
Properties from that other Person. A specified Person shall be deemed to incur
Indebtedness constituting its Acquired Indebtedness on the date (i) the
1
<PAGE>
obligor respecting that Indebtedness merges or consolidates with the specified
Person, (ii) the obligor of that Indebtedness becomes a Restricted Subsidiary of
that specified Person or (iii) the specified Person assumes that Indebtedness.
"Act", when used with respect to any Holder, has the meaning specified in
Section 14.3.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the specified Person. For purposes of this definition: (i)
"control," when used with respect to any Person, means the power to direct the
management and policies of that Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing; and
(ii) beneficial ownership at any time of 10% or more of the outstanding voting
common equity of a Person (including voting common equity subject to being
acquired pursuant to the exercise of options, warrants or other rights
exercisable within 60 days of that time) shall be deemed to constitute control
of that Person at that time.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any
Wholly Owned Restricted Subsidiary other than Brazos Sportswear Japan KK
(including, without limitation, by means of a Sale/Leaseback Transaction or a
merger or consolidation) (collectively, for purposes of this definition, a
"transfer"), directly or indirectly, in one transaction or a series of related
transactions, of (i) any Capital Stock, other than Junior Preferred Stock, of
any Restricted Subsidiary held by the Company or any other Restricted
Subsidiary, (ii) any unissued Capital Stock, other than Junior Preferred Stock,
of any Restricted Subsidiary or (iii) any other Properties of the Company or any
Restricted Subsidiary. Notwithstanding the preceding sentence, the following do
not constitute "Asset Sales": (i) transfers of cash, Cash Equivalents, Accounts
Receivable (including the sale of Accounts Receivable without recourse to the
Company or any Restricted Subsidiary pursuant to a bona fide factoring
arrangement with a Person not an Affiliate of the Company), inventories or other
Properties in the ordinary course of business and issuances of Qualified Capital
Stock of the Company; (ii) any transfer of Properties (including Capital Stock)
that is governed by, and made in accordance with, Article VIII; (iii) any
transfer of Properties if permitted under Section 10.10 hereof; (iv) transfers
of damaged, worn-out or obsolete equipment or assets that, in the Company's
reasonable judgment, are either (a) no longer used or (b) no longer useful in
the business of the Company and the Restricted Subsidiaries; and (v) any
transfer that, but for this clause (v), would be an Asset Sale, if after giving
effect to the transfer, the aggregate Fair Market Value of the Properties
subject to that transfer and all related transfers so designated by the Company
does not exceed $500,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of lease payments
required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the
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respective due dates thereof to the date of determination at a rate per annum
equal to the discount rate that would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. As used in the preceding
sentence, the "net amount of lease payments" under any lease for any period
means the sum of lease, rental and other payments required to be paid with
respect to such period by the lessee thereunder, excluding any amounts required
to be paid by the lessee on account of maintenance and repairs, insurance, and
taxes, assessments or similar charges. If a lessee under any lease may terminate
that lease by paying a penalty, the "net amount of lease payments" under that
lease shall include the amount of that penalty, but shall exclude all lease
payments after the first date on which that lease may be so terminated.
"Authorized Newspaper" has the meaning specified in Section 10.3.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of that Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means, with respect to the Company, either the board
of directors of the Company or any duly authorized committee of such board of
directors, and, with respect to any Subsidiary, either the board of directors of
such Subsidiary or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the secretary
or an assistant secretary of the Company to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Subsidiary, a
copy of a resolution certified by the secretary or an assistant secretary of
such Subsidiary to have been duly adopted by its Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, with respect to any Person, any
obligation of that Person to pay lease payments, rent or other amounts under a
lease of (or other similar agreement conveying the right to use) any Property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP and, for purposes of this
Indenture, the amount of that obligation at any date shall be the capitalized
amount thereof at that date, as determined in accordance with GAAP.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights or other equivalents in the equity interests
(however designated) in that Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable or
exchangeable for or convertible into such an equity interest in that Person.
"Cash Equivalents" means (i) marketable obligations with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof, PROVIDED that
the full faith and credit of the United States of America is pledged in support
thereof; (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of (a) Southwest Bank of Texas,
N.A., (b) any financial institution that is a member of the Federal Reserve
System and has combined capital and surplus and undivided profits of not less
than $500 million or any commercial bank that is organized under the laws of any
country that is a member of the Organization for Economic Cooperation and
Development and has total assets in excess of U.S. $500 million or its
equivalent in another currency or (c) any financial institution the deposits
with which are insured by the United States of America or any agency or
instrumentality thereof, PROVIDED that the amount of deposits, certificates of
deposit or acceptances pursuant to this clause (ii)(c) with any one institution
does not exceed the insured amount with that institution; (iii) commercial paper
(a) maturing no more than 180 days from the date of creation thereof issued by a
corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and (b) rated
at least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clause (i) above of this definition entered into with any
commercial bank meeting the specifications of clause (ii) above of this
definition; and (v) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (iv) above of this definition. For purposes of this
definition, the maturity of a security shall be determined when it is acquired
by the Company or a Restricted Subsidiary.
"Change of Control" means the occurrence of any event or series of events
(whether or not otherwise in compliance with the provisions of this Indenture)
by which: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than the Principals) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of a majority of the total voting power of the total Voting Stock of
the Company; (ii) the Company consolidates with or merges into another Person or
any Person consolidates with, or merges into, the Company, pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other Property, other than any such
transaction pursuant to which (a) the outstanding Voting Stock of the Company is
changed into or exchanged for Voting Stock of the surviving or resulting Person
that is Qualified Capital Stock and (b) the beneficial owners (as defined in
Rule 13d-3 under the Exchange Act) of the total voting power of the total Voting
Stock of the Company immediately prior to such transaction beneficially own,
directly or indirectly, not less than a majority of the voting power of the
total Voting Stock of the surviving or resulting Person immediately after such
transaction; (iii) the Company, either individually or in conjunction with one
or more Restricted Subsidiaries, sells, assigns, conveys,
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transfers, leases or otherwise disposes of, or the Restricted Subsidiaries sell,
assign, convey, transfer, lease or otherwise dispose of, the Properties of the
Company and its Restricted Subsidiaries substantially as an entirety (either in
one transaction or a series of related transactions), including Capital Stock of
the Restricted Subsidiaries, to any Person or group of Persons that are
Affiliates of each other (in this clause (iii), the "transferee") (other than
the Company or a Wholly Owned Restricted Subsidiary), other than any such
transaction pursuant to which (a) the Properties of the Company and its
Restricted Subsidiaries substantially as an entirety are exchanged for Voting
Stock of the transferee and (b) the beneficial owners (as defined in Rule 13d-3
under the Exchange Act) of the total voting power of the total Voting Stock of
the Company immediately prior to such transaction beneficially own, directly or
indirectly, not less than a majority of the total voting power of the Voting
Stock of the transferee; (iv) during any consecutive two-year period (which
period need not be calendar years), individuals who at the beginning of that
period constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the stockholders of the Company was approved by a
vote of two-thirds of the directors then still in office who were either
directors at the beginning of that period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) any
plan or proposal for liquidation or dissolution of the Company is approved by
the vote or other consent of the holders of Capital Stock of the Company that is
required by applicable law to effect that plan or proposal.
"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of that Person that does
not rank prior, as to the payment of dividends or the distribution of assets on
any voluntary or involuntary liquidation, dissolution or winding up of that
Person, to shares of Capital Stock of any other class of that Person.
"Company" means Brazos Sportswear, Inc., a Delaware corporation, until a
successor corporation replaces it pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its chairman, its president, or any vice
president, and its treasurer or an assistant treasurer, controller, any
assistant controller, secretary or any assistant secretary, and delivered to the
Trustee.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
period of four consecutive fiscal quarters of the Company (each such period of
four consecutive fiscal quarters, a "computation period"), the ratio of (i) the
sum of Consolidated Net Income, Consolidated Fixed
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Charges, Consolidated Income Tax Expense and Consolidated Non-cash Charges of
the Company and the Restricted Subsidiaries, on a consolidated basis for that
computation period, all determined in accordance with GAAP, to (ii) Consolidated
Fixed Charges for that computation period. For purposes of this computation,
acquisitions or dispositions that have been made by the Company or any
Restricted Subsidiary, including through mergers or consolidations and including
any related financing transactions, during the computation period or subsequent
to the computation period but on or prior to the date of computation shall be
deemed to have occurred on the first day of the computation period and shall
give pro forma effect to such acquisitions or dispositions and any related
financing transactions with appropriate adjustments to the computation of
Consolidated Net Income, Consolidated Fixed Charges, Consolidated Income Tax
Expense and Consolidated Non-cash Charges. In each computation of the
Consolidated Fixed Charge Coverage Ratio, the computation shall be made as of
the date Indebtedness (other than Permitted Indebtedness) is proposed to be
incurred or Disqualified Capital Stock is proposed to be issued (the
"determination date") for the then most recent computation period for which
consolidated financial statements are then available (the "current period") on a
pro forma basis assuming that (i) the Indebtedness to be incurred or the
Disqualified Capital Stock to be issued (and all other Indebtedness incurred or
Disqualified Capital Stock issued after the first day of the current period
through and including the determination date), and (if applicable) the
application of the net proceeds therefrom (and from any other such Indebtedness
or Disqualified Capital Stock), including to refinance other Indebtedness, had
been incurred, issued or applied, as the case may be, on the first day of the
current period and, in the case of Acquired Indebtedness, on the assumption that
the related transaction (whether by means of purchase, merger or otherwise) also
had occurred on the first day of the current period with the appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation and (ii) any acquisition or disposition by the Company or any
Restricted Subsidiary of any Properties outside the ordinary course of business
and any related financing transactions, or any repayment of any principal amount
of any Indebtedness of the Company or any Restricted Subsidiary, in either case
since the first day of the current period through and including the
determination date, had been consummated on the first day of the current period.
The Consolidated Fixed Charges representing interest on Indebtedness outstanding
on any determination date and assumed in accordance with the preceding sentence
to have been outstanding throughout the then current period will be computed as
follows: (i) if that Indebtedness bears interest only at a floating rate, that
floating rate as of the determination date shall be assumed to have been in
effect throughout that current period; (ii) if that Indebtedness bears interest,
at the option of the primary obligor, at either a floating rate or, for one or
more periods of varying durations, fixed rates, either that floating rate or, at
the option of the Company, that fixed rate for the longest period available to
the primary obligor, in each case as of the determination date, shall be assumed
to have been in effect throughout that current period; (iii) if that
Indebtedness is incurred under a revolving credit facility, the principal amount
of that Indebtedness assumed to have been outstanding throughout that current
period shall be the lesser of (a) the average daily outstanding principal
balance of that Indebtedness during that current period or such shorter period
as amounts have been available to be borrowed or reborrowed under that facility
or (b) the total revolving credit commitment under that facility as of the
determination date; and (iv) if (a) that Indebtedness bears interest at a
floating rate, (b) that floating rate is used pursuant to clause (i) or (ii) of
this sentence to determine the Consolidated Fixed Charges
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attributable to that Indebtedness and (c) that interest is covered by agreements
relating to Interest Rate Protection Obligations, that interest, to the extent
so covered, shall be assumed to have accrued at the rate per annum resulting
after giving effect to the operation of those agreements.
"Consolidated Fixed Charges" means, for any period, without duplication,
(i) the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for that period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, any amortization of debt discount, the
net cost under Interest Rate Protection Obligations (including any amortization
of discounts), the interest portion of any deferred payment obligation
constituting Indebtedness, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and all
accrued interest, in each case to the extent attributable to that period, (b) if
any Indebtedness of any Person (other than the Company or a Restricted
Subsidiary) is guaranteed by the Company or any Restricted Subsidiary during
that period, the aggregate amount of interest paid (to the extent not accrued in
a prior period) or accrued by such other Person during that period attributable
to any such Indebtedness, in each case to the extent required by GAAP to be
recognized during that period as an expense of the Company or any Restricted
Subsidiary, (c) the aggregate amount of the interest component of Capitalized
Lease Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during that period, and (d) the aggregate amount of dividends (except dividends
paid or payable in additional shares of Qualified Capital Stock) paid (to the
extent not accrued in a prior period) or accrued on Preferred Stock or
Disqualified Capital Stock of the Company and the Restricted Subsidiaries, to
the extent such Preferred Stock or Disqualified Capital Stock is owned by
Persons other than the Company or any Restricted Subsidiary, less (ii), to the
extent included in clause (i) above of this definition, amortization during that
period of (a) capitalized debt issuance costs of the Company and the Restricted
Subsidiaries and (b) original issue discount on the Premier Convertible Note.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and the
Restricted Subsidiaries for the period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and the Restricted Subsidiaries for such period
as determined in accordance with GAAP, as adjusted by excluding (i) net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto) and after-tax (A) non-recurring pooling-of-interests or acquisition
related costs, income and expenses and (B) non-cash, non-recurring income and
expense, in each case to the extent including in consolidated net income (or
loss) for that period, (ii) net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (iii) net income (or net
loss) of any Person (other than the Company or any Restricted Subsidiary) in
which the Company or any Restricted Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash or Property by such other
Person during that period (regardless of whether such dividends or
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distributions are attributable to net income (or net loss) of such Person during
that period or during any prior period), (iv) net income (or net loss) of any
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination,
and (v) net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary of its net
income is not at the date of determination permitted, directly or indirectly, by
operation of the terms of its charter or any agreement or instrument (other than
the Working Capital Agreement), judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders. For purposes of clause (iii) above of this definition, the amount
of any distribution of Property will be equal to the Fair Market Value of that
Property.
"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less (without duplication) the amount of
that stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of the Company and the Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and the Restricted Subsidiaries that are deducted in computing Consolidated Net
Income for that period, all determined on a consolidated basis in accordance
with GAAP (excluding any such non-cash charge in the ordinary course of business
for which an accrual of or reserve for cash charges for any future period is
required).
"Corporate Trust Office" means the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at Sixth & Marquette, Minneapolis, Minnesota.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of that Person at that time incurred by it in the ordinary course of
its business pursuant to any foreign currency exchange agreement, option or
futures contract or other similar agreement or arrangement designed to protect
against or manage the exposure of that Person or any of its Subsidiaries to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that, after notice or passage
of time or both, would become an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.7 hereof.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
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"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest (other than an interest arising solely from the beneficial
ownership of Capital Stock of the Company) in or with respect to that
transaction or series of transactions.
"Disqualified Capital Stock" of any specified Person means any Capital
Stock of the specified Person that, either by its terms, by the terms of any
security into which it is convertible or for which it is exchangeable or by
contract or otherwise is, or on the happening of an event or passage of time or
both would be, (i) required to be redeemed or repurchased (whether mandatorily
or at the option of the holder thereof), other than a redemption or repurchase
effected solely through the issuance of Qualified Capital Stock of the specified
Person, by the specified Person or any of its Subsidiaries or by the Company or
any Restricted Subsidiary prior to the final Stated Maturity of the Securities
or (ii) convertible into or exchangeable for any Indebtedness of the specified
Person or any of its Subsidiaries or of the Company or any Restricted Subsidiary
that has any Stated Maturity prior to the final Stated Maturity of the
Securities.
"Event of Default" has the meaning specified in Section 5.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor act thereto.
"Exchange Security" or "Exchange Securities" has the meaning specified in
the first recital of this Indenture.
"Existing Preferred Stock" means the Series B-1, Series B-2 and Series B-3
Preferred Stock of the Company issued and outstanding on the Issue Date in an
amount not to exceed the sum of (i) the aggregate liquidation amount of the
Series B-1, Series B-2 and Series B-3 Preferred Stock of the Company outstanding
on the Issue Date and (ii) the aggregate liquidation amount of additional Series
B-1, Series B-2 and Series B-3 Preferred Stock issued in lieu of the payment of
cash dividends thereon, PROVIDED that the rate at which dividends accrue shall
not exceed the rate accruing thereon on the Issue Date.
"Fair Market Value" means, with respect to a Property, the fair market
value of that Property as determined in good faith by the Board of Directors of
the Company and evidenced by a Board Resolution, which determination shall be
conclusive for purposes of this Indenture. Unless otherwise specified herein,
the Board of Directors shall be under no obligation to obtain any valuation or
assessment from any investment banking firm, appraiser or other third party.
"Federal Bankruptcy Code" means Title 11 of the United States Code, as
amended from time to time, and any successor statute thereto.
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"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) the statements and pronouncements of the Financial Accounting
Standards Board or (iii) such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America.
"Global Security" has the meaning specified in Appendix A.
"Guarantee" or "guarantee" means, as applied to any Indebtedness, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of that Indebtedness and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of that Indebtedness including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit. When used as a verb, "guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all liabilities of that Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of Property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business of that Person) and all liabilities of that Person incurred
in connection with any letters of credit, bankers' acceptances or other similar
credit transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of that Person, or any warrants,
rights or options to acquire that Capital Stock, outstanding on the Issue Date
or thereafter, or any obligations arising out of the sale of Accounts Receivable
of that Person if, and to the extent, any of the foregoing would appear as a
liability on a balance sheet of that Person prepared in accordance with GAAP,
(ii) all obligations of that Person evidenced by bonds, notes, debentures or
other similar instruments, if, and to the extent, any of the foregoing would
appear as a liability on a balance sheet of that Person prepared in accordance
with GAAP, (iii) all obligations of that Person created or arising under any
conditional sale or other title retention agreement with respect to Property
acquired by that Person (even if the rights and remedies of the seller or lender
under such agreement in the event of a default are limited to repossession or
sale of such Property), (iv) the Attributable Indebtedness of any Capitalized
Lease Obligation of that Person, (v) all obligations of the types described in
the preceding clauses of this definition and all dividends, the payment of which
is secured by (or for which the holder of such obligations has an existing
right, contingent or otherwise, to be secured by) any Lien upon Property
(including, without limitation, accounts and contract rights) owned by that
Person, even though that Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such Property or the amount of the obligation so
secured), (vi) all Guarantees by that Person of obligations of the types
referred to in clauses (i) through (v) of this definition, and (vii) the net
amount of obligations of that Person under or in respect of each agreement
evidencing Currency Hedge Obligations and Interest Rate Protection Obligations.
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"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is disinterested
and independent with respect to the Company and its Affiliates and, in the
reasonable judgment of the Board of Directors, is qualified to perform the task
for which it has been engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or similar case or proceeding in connection
therewith, relative to such Person or its creditors, as such, or its assets or
(b) any liquidation, dissolution or other winding-up proceeding of such Person,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy or (c) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of such Person.
"Initial Security" or "Initial Securities" has the meaning specified in
the first recital to this Indenture.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means, with respect to any
specified Person, the obligations of the specified Person pursuant to any
arrangement with any other Person whereby, directly or indirectly, the specified
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by the specified Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and includes, without limitation, interest rate swaps, caps, floors, collars and
other similar agreements or arrangements designed to protect against or manage
the exposure of the specified Person or any of its Subsidiaries to fluctuations
in interest rates.
"Inventory" has the meaning specified in Section 9-109(4) of the UCC.
"Investment" means, with respect to any specified Person, any direct or
indirect advance, loan, guarantee of Indebtedness or other extension of credit
or capital contribution by the specified Person to (by means of any transfer of
cash or other Property to others or any payment for Property or services for the
account or use of others), or any purchase or acquisition by the specified
Person of any Capital Stock, bonds, notes, debentures or other securities
(including derivatives) or evidences of Indebtedness issued by, any other
Person. If the Company designates a Restricted Subsidiary as an Unrestricted
Subsidiary, the Company shall be deemed to make at the effective time of that
designation an "Investment" in that Unrestricted Subsidiary in the amount equal
to the then Fair Market Value of that Unrestricted Subsidiary's net assets. The
following are not "Investments":
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(i) extensions of trade credit or other advances to customers on commercially
reasonable terms in accordance with normal trade practices or otherwise in the
ordinary course of business; (ii) Interest Rate Protection Obligations and
Currency Hedge Obligations, but only to the extent that the same constitute
Permitted Indebtedness; and (iii) endorsements of negotiable instruments and
documents in the ordinary course of business.
"Issue Date" means the date the Initial Securities are initially issued,
or July 2, 1997.
"Junior Preferred Stock" means, with respect to any specified Person,
Preferred Stock of the specified Person (i) that (a) is issued after the Issue
Date as part of the purchase price to acquire assets or Capital Stock of another
Person, (b) is Qualified Capital Stock, (c) is expressly subordinated as to
payment to any Subsidiary Guarantee of the specified Person, (d) has no voting
rights except as otherwise provided by law or generally with respect to any
amendment of the instrument pursuant to which such Preferred Stock was issued
that would adversely alter the powers, preferences and rights associated with
such Preferred Stock and (e) if the Preferred Stock is issued by a Subsidiary of
the Company, the Preferred Stock is exchangeable at the option of the Company
into Qualified Capital Stock of the Company, and (ii) the dividends, if any, on
which are payable solely in kind by the issuance of additional shares of
Preferred Stock meeting the requirements of subclauses (i)(b) through (i)(e) of
this definition.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any Property of any kind. A Person will be deemed to own subject to a
Lien any Property that the Person has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement, capital lease or
other title retention agreement.
"Liquidated Damages" means all liquidated damages due and owing pursuant
to Section 6 of the Registration Rights Agreement.
"Major Transaction" means (i) the sale, transfer, lease or conveyance of
all or substantially all of the Properties of the Company or of the issued and
outstanding voting securities of the Company or (ii) the merger or consolidation
of the Company with or into any other corporation or entity in which the Company
is not the sole surviving corporation, other than a merger or consolidation in
which the holders of shares of Common Stock of the Company immediately preceding
the consolidation or merger receive, directly or indirectly, (a) 50% or more of
the Common Stock of the sole surviving or continuing corporation outstanding
immediately following the consummation of such merger or consolidation and (b)
securities representing 50% or more of the combined voting power of the Voting
Stock of the sole surviving or continuing corporation outstanding immediately
following the consummation of such merger or consolidation.
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"Maturity" means, with respect to any Security, the date on which any
principal of that Security becomes due and payable as therein or in this
Indenture provided, whether at the Stated Maturity with respect to that
principal or on redemption, repurchase pursuant to a Change of Control Offer or
a Net Proceeds Offer, by declaration of acceleration or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds therefrom in the form of cash or Cash Equivalents, including payments
in respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banking firms) related to such
Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale
(after taking into account available tax credits or deductions and any tax
sharing arrangements), (iii) amounts required to be paid to any Person (other
than the Company or any Restricted Subsidiary) (a) owning a beneficial interest
in the Properties subject to the Asset Sale, (b) having a Lien on such
Properties or (c) requiring such payment as a condition to providing any consent
necessary to consummate the Asset Sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve required in accordance with GAAP against any liabilities associated with
that Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after that Asset Sale, including, without limitation, pensions and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
that Asset Sale, all as reflected in an Officers' Certificate; PROVIDED,
HOWEVER, that any amounts remaining after adjustments, revaluations or
liquidations of those reserves shall constitute Net Available Proceeds.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Qualified Capital Stock or other securities, the cash proceeds of that issuance
or sale net of the fees of attorneys and accountants, fees, discounts or
commissions of underwriters and placement agents and brokerage, consultant and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Net Proceeds Offer" has the meaning specified in Section 10.16(a)(i).
"Non-Recourse Purchase Money Indebtedness" means Indebtedness of the
Company or any Restricted Subsidiary that is incurred to finance the purchase of
any assets of the Company or any Restricted Subsidiary within 90 days of such
purchase, as long as (i) the amount of that Indebtedness does not exceed 100% of
the purchase cost of such assets as initially recorded in the "property, plant
and equipment" account on a balance sheet of the Company or that Restricted
Subsidiary, as the case may be, in accordance with GAAP, (ii) that Indebtedness
is non-recourse to the Company or any of its Restricted Subsidiaries and all
their respective assets other than the assets so purchased and (iii) the
purchase of such assets is not part of an acquisition of any Person.
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"Officers" means, with respect to any Person, the chief executive officer,
the president, any vice president, the chief financial officer, the chief
accounting officer and the treasurer of such Person.
"Officers' Certificate" means a certificate signed by two Officers or by
any Officer and an assistant treasurer, controller, assistant controller, the
secretary or an assistant secretary of the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company including an employee of the Company, and who shall be
reasonably acceptable to the Trustee, which opinion may contain customary
qualifications and assumptions.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Securities, PROVIDED
that, if such Securities are to be redeemed, notice of such redemption has
been duly given pursuant to the Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections 12.2 and
12.3 hereof, with respect to which the Company has effected legal
defeasance or covenant defeasance as provided in Article XII hereof; and
(iv) Securities which have been paid pursuant to Section 3.6 hereof
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands the Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, consent, notice or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been
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pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any other obligor
upon the Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of and premium, if any,
interest or Liquidated Damages, if any, on any Securities on behalf of the
Company.
"Payment Restriction" means, with respect to any Restricted Subsidiary,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) that Restricted
Subsidiary to (a) pay dividends or make other distributions on its Capital Stock
or make payments on any obligation, liability or Indebtedness owed to the
Company or any other Restricted Subsidiary, (b) make loans or advances to the
Company or any other Restricted Subsidiary or (c) transfer any of its Properties
to the Company or any other Restricted Subsidiary or (ii) the Company or any
other Restricted Subsidiary to receive or retain any such dividends,
distributions or payments, loans or advances or transfer of Properties.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness under Working Capital Agreements in an aggregate
principal amount at any time outstanding not to exceed the greater of (1)
$50,000,000 or (2) the sum of (A) 85% of the amount of the Accounts
Receivable of the Company and the Restricted Subsidiaries, and (B) 55% of
the amount of the Inventory of the Company and the Restricted Subsidiaries
(except that during the period April 1 through September 30 of each year,
65% of the amount of the Inventory of the Company and the Restricted
Subsidiaries shall be used), in each case as would be shown on a
consolidated balance sheet of the Company and the Restricted Subsidiaries
at that time prepared in accordance with GAAP;
(ii) Indebtedness under the Securities and the Subsidiary
Guarantees;
(iii) Indebtedness outstanding, or to be incurred pursuant to
commitments in effect, on the Issue Date after giving effect to the
issuance and sale of the Initial Securities and the application of the net
proceeds therefrom;
(iv) Indebtedness under Interest Rate Protection Obligations,
PROVIDED that (a) those Interest Rate Protection Obligations are related
to payment obligations on Permitted Indebtedness or Indebtedness otherwise
permitted by Section 10.11(a) and (b) the notional principal amount of
those Interest Rate Protection Obligations does not exceed the principal
amount of the Indebtedness to which those Interest Rate Protection
Obligations relate;
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(v) Indebtedness under Currency Hedge Obligations, PROVIDED that (a)
those Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by Section
10.11(a) or to the foreign currency cash flows reasonably expected to be
generated or required by the Company and the Restricted Subsidiaries, (b)
the notional principal amount of the Currency Hedge Obligations does not
exceed the principal amount of that Indebtedness and the amount of those
foreign currency cash flows to which those Currency Hedge Obligations
relate and (c) those Currency Hedge Obligations are entered into for the
purpose of limiting currency exchange rate risks in connection with
transactions entered into in the ordinary course of business;
(vi) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary to the Company or
to a Wholly Owned Restricted Subsidiary; PROVIDED, HOWEVER, that upon
either (a) the subsequent issuance (other than directors' qualifying
shares), sale, transfer or other disposition of any Capital Stock or any
other event that results in a Wholly Owned Restricted Subsidiary ceasing
to be a Wholly Owned Restricted Subsidiary or (b) the transfer or other
disposition of any such Indebtedness (except to the Company or a Wholly
Owned Restricted Subsidiary), the provisions of this clause (vi) will no
longer apply to such Indebtedness and such Indebtedness shall be deemed,
in each case, to be incurred and shall be treated as an incurrence for
purposes of Section 10.11(a) at the time the transfer or other disposition
occurred;
(vii) Guarantees of Permitted Indebtedness or Indebtedness incurred
in accordance with Section 10.11(a);
(viii)other Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $10 million; and
(ix) any renewals, amendments, extensions, supplements,
modifications, deferrals, substitutions, refinancing or replacements
(each, for purposes of this clause (ix), a "refinancing") by the Company
or a Restricted Subsidiary of any Indebtedness incurred in accordance with
Section 10.11(a) or referred to above in clauses (ii) through (vii) of
this definition or this clause (ix), so long as (a) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if the Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company or such Restricted Subsidiary as necessary to accomplish
such refinancing, plus the amount of expenses of the Company or such
Restricted Subsidiary incurred in connection with such refinancing, (b) in
the case of any refinancing of Indebtedness (including the Securities)
that is PARI PASSU with or subordinated in right of payment to the
Securities, then such new Indebtedness is PARI PASSU with or subordinated
in right of payment to the Securities at least to the same extent as the
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Indebtedness being refinanced and (c) such new Indebtedness has an Average
Life equal to or longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity that is not earlier than the final
Stated Maturity of the Indebtedness being refinanced.
"Permitted Investments" means any of the following:
(i) Investments in Cash Equivalents;
(ii) an Investment or series of related Investments by the Company
or any Restricted Subsidiary in another Person, if as a result of that
Investment or series of related Investments (a) that other Person becomes
a Wholly Owned Restricted Subsidiary or (b) that other Person is merged or
consolidated with or into, or transfers or conveys its Properties
substantially as an entirety to, the Company or a Wholly Owned Restricted
Subsidiary;
(iii) Investments of Net Available Proceeds permitted by Section
10.15;
(iv) Investments consisting of loans and advances to employees,
officers and directors of the Company or any Restricted Subsidiary (a) for
travel, entertainment, relocation or other expenses in the ordinary course
of business or (b) representing the consideration for the issuance to such
employees, officers or directors of Common Stock of the Company;
(v) Investments consisting of loans and advances by the Company or
any Restricted Subsidiary to employees, officers and directors of the
Company or any Restricted Subsidiary in an aggregate principal amount at
any one time outstanding not exceeding $1,000,000 million;
(vi) Investments acquired by the Company or any Restricted
Subsidiary in the ordinary course of business (a) in exchange for any
other Investment or account receivable held by the Company or any
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or the obligor with respect to such account receivable or (b)
as a result of a foreclosure by the Company or any Restricted Subsidiary
with respect to any secured Investment or other transfer of title with
respect to any such secured Investment in default; or
(vii) Investments the payment for which consists exclusively of
Qualified Capital Stock, PROVIDED that any such Investment must be made in
accordance with the other requirements of the Indenture, including (a)
with respect to any Acquired Indebtedness relating to such an Investment,
Section 10.11(a) and (b) with respect to any Lien on properties or assets
acquired in connection with any such Investment, Section 10.13.
"Permitted Liens" means the following types of Liens:
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(i) Liens existing as of the Issue Date;
(ii) Liens securing the Securities or the Subsidiary Guarantees;
(iii) Liens in favor of the Company or, with respect to a Restricted
Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens securing Permitted Indebtedness of the Company and the
Restricted Subsidiaries of the type described in clause (i) of the
definition of Permitted Indebtedness, PROVIDED that (a) no such Lien will
extend to any property other than Accounts Receivable and Inventory and
the proceeds therefrom and (b) the Company or any Restricted Subsidiary
may grant a license to the holders of any such Permitted Indebtedness to
use trademark and other intellectual property owned by the Company or any
Restricted Subsidiary to enable such holder to dispose of Accounts
Receivable and Inventory following foreclosure;
(v) Liens securing Indebtedness that constitutes Permitted
Indebtedness of the type described in clause (ix) of the definition of
"Permitted Indebtedness" incurred as a refinancing of any Indebtedness
secured by Liens described in clause (i), (iv), (xi), (xii) or (xiii) of
this definition; PROVIDED, HOWEVER, that (a) if any Lien securing
Indebtedness being refinanced is subordinated or junior to any Lien
granted for the benefit of the Holders, then the Lien securing the new
Indebtedness shall be subordinated or junior to any Lien granted for the
benefit of the Holders at least to the same extent as the Lien securing
the Indebtedness being refinanced and (b) such Liens do not extend to or
cover any Property of the Company or any of its Restricted Subsidiaries
not securing the Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(vii) Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other similar Liens incurred in the
ordinary course of business for sums not delinquent or being contested in
good faith, and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(viii)Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety and
appeal bonds, bids, government contracts and leases, performance and
return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
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(ix) Liens securing any judgment not giving rise to a Default or
Event of Default and so long as any appropriate legal proceedings that may
have been duly initiated for the review of the judgment has not been
finally terminated or the period within which those proceedings may be
initiated has not expired;
(x) easements, rights-of-way, reservations, zoning and other
restrictions and other similar encumbrances not interfering in any
material respect with the ordinary conduct of business of the Company or
any Restricted Subsidiary;
(xi) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease or of a secured party under a purchase money
security interest; PROVIDED that (a) the Attributable Indebtedness or
Indebtedness related thereto constitutes Indebtedness permitted to be
incurred under the terms of this Indenture and (b) with respect to any
Capitalized Lease Obligation or purchase money security interest, such
Liens do not extend to any Property that is not leased Property subject to
such Capitalized Lease Obligation or Property acquired with the proceeds
of such purchase money Indebtedness, as the case may be;
(xii) Liens securing Non-Recourse Purchase Money Indebtedness;
PROVIDED, HOWEVER, that (a) the Non-Recourse Purchase Money Indebtedness
shall not be secured by any Property of the Company or any Restricted
Subsidiary other than the Property so acquired and any proceeds therefrom
and (b) the Lien securing such Non-Recourse Purchase Money Indebtedness
shall be created within 90 days of such acquisition;
(xiii)Liens securing Acquired Indebtedness incurred in accordance
with Section 10.11(a); PROVIDED that (a) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and (b)
such Liens do not extend to or cover any Property of the Company or of any
Restricted Subsidiary other than the Property that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary and are no more
favorable to the lienholders than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary;
(xiv) leases or subleases granted to others that do not interfere
with the ordinary conduct of business of the Company or any Restricted
Subsidiary;
(xv) rights of a common owner of any interest in Property held by
the Company or any Restricted Subsidiary and that common owner as tenants
in common or through other common ownership; and
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(xvi) Liens or equitable encumbrances deemed to exist by reason of
(a) fraudulent conveyance or transfer laws or (b) negative pledge or other
agreements to refrain from giving Liens.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Security" has the meaning specified in Appendix A.
"Predecessor Security" of any particular Security means every previous
Security, including any Security of a different series, evidencing all or a
portion of the same debt as that evidenced by such particular Security; and, for
the purposes of this definition, any Security authenticated and delivered under
Section 3.6 hereof in exchange for a mutilated security or in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of that
Person's preferred or preference Capital Stock, whether outstanding on or after
the Issue Date, including, without limitation, all classes and series of
preferred or preference Capital Stock of that Person.
"Premier Acquisition" means the acquisition by the Company or any
Restricted Subsidiary of all the assets of Premier Sports Group, Inc., a
Colorado corporation.
"Premier Convertible Note" means the non-interest bearing, convertible
subordinated note in the original principal amount of $1,500,000 that will (i)
be issued in connection with the Premier Acquisition, (ii) have a seven year
term from its date of issuance, (iii) not have or permit any principal payments
or prepayments and (iv) be redeemable and convertible into, as of the Issue
Date, and payable only through the issuance of, 136,364 shares of the Company's
Common Stock.
"Principals" means, collectively, Equus II Incorporated, J. Ford Taylor,
F. Clayton Chambers and Alan B. Elenson.
"Private Exchange Security" or "Private Exchange Securities" has the
meaning specified in the first recital to the Indenture.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or assets, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in any other Person.
"Public Equity Offering" means an offer and sale of Common Stock of the
Company for cash pursuant to a registration statement that has been declared
effective by the SEC pursuant to the
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Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
that Person other than Disqualified Capital Stock of that Person.
"Redemption Date" when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of July 2, 1997, by and among the Company, the Subsidiary Guarantors,
Dillon, Read & Co. Inc. and SBC Warburg, Inc., as such agreement may be amended,
modified or supplemented from time to time.
"Regular Record Date" means, with respect to the interest payable on any
Interest Payment Date, the June 15 or December 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the business of the Company and the Restricted Subsidiaries on
that date.
"Related Business Investment" means any Investment by the Company or any
Restricted Subsidiary in any Related Business.
"Responsible Officer", when used with respect to the Trustee, means any
officer in the Corporate Trust Department of the Trustee, and also means, with
respect to a particular corporate trust matter, any other officer of the Trustee
to whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Investment" means, with respect to any Person, any Investment
by such Person (other than a Permitted Investment) in (i) any Unrestricted
Subsidiary or (ii) any Person that is not a Wholly Owned Restricted Subsidiary
other than by reason of having outstanding Junior Preferred Stock.
"Restricted Payment" means, with respect to any Person:
(i) any declaration or payment of any dividend (other than a
dividend declared or paid by a Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary), or any other distribution, with
respect to any shares of Capital Stock of that Person (other than
dividends or distributions payable solely in shares of Qualified Capital
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Stock of that Person or in options, warrants or other rights to purchase
Qualified Capital Stock of that Person);
(ii) any purchase, redemption, retirement or other acquisition for
value of any Capital Stock of that Person (other than the redemption of
the Company's Series A-1 and Series A-2 Preferred Stock from proceeds of
the offering of the Initial Securities) or any other payment or
distribution made in respect thereof, either directly or indirectly (other
than any payment made solely in Qualified Capital Stock of that Person) by
that Person or any Subsidiary of that Person;
(iii) any principal payment on or repurchase, redemption, defeasance
or other acquisition or retirement for value, prior to any scheduled
principal payment, scheduled sinking fund payment or maturity, of any
subordinated indebtedness (including, with respect to the Company and any
Subsidiary Guarantor, Subordinated Indebtedness) of that Person by that
Person or any Subsidiary of that Person; or
(iv) any Restricted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the Issue Date, unless that Subsidiary is an Unrestricted
Subsidiary or is designated as an Unrestricted Subsidiary in the manner
described below in this Section 1.1 in the definition of "Unrestricted
Subsidiary."
"S&P" means Standard and Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which Properties are sold or transferred by the Company or a
Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or a Restricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor act thereto.
"Security" and "Securities" have the respective meanings specified in the
first recital of this Indenture and more particularly mean any of the Securities
authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.5 hereof.
"Senior Management" means, with respect to the Company, the chairman of
the board of directors, the president, the chief operating officer, the chief
financial officer, the chief accounting officer, the treasurer, the controller
and any vice president of the Company.
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"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7 hereof.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of that
Indebtedness or that installment of interest is due and payable.
"Subject Acquisitions" means, collectively, (i) the acquisition by the
Company or any Restricted Subsidiary of all the outstanding Capital Stock of
SolarCo, Inc., a Washington corporation and the parent of Morning Sun, Inc., a
Washington corporation, and (ii) the Premier Acquisition.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Securities or Subsidiary Guarantees, respectively.
"Subsidiary" means, with respect to any specified Person, (i) a
corporation a majority of the voting power of whose Voting Stock is at the time,
directly or indirectly, owned by the specified Person, by one or more
Subsidiaries of the specified Person or by the specified Person and one or more
Subsidiaries thereof or (ii) any other Person (other than a corporation),
including, without limitation, a joint venture, in which the specified Person,
one or more Subsidiaries thereof or the specified Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has or have at least a majority of the voting power of the Voting Stock
of that Person which is entitled to vote in the election of directors, managers
or trustees thereof (or other Persons performing similar functions).
"Subsidiary Guarantors" mean (i) all Subsidiaries of the Company existing
as of the Issue Date (other than Brazos Sportswear Japan KK and Stadium Apparel,
Inc. (which is in the process of dissolution)), including any Subsidiary
acquired pursuant to the Subject Acquisitions, and (ii) any other Subsidiary of
the Company that executes a Subsidiary Guarantee in accordance with the
provisions of this Indenture, and their respective successors and assigns.
"Subsidiary Guarantee" means the guarantee of the Subsidiary Guarantors as
provided herein.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended and in force at the date as of which this Indenture was executed until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date on which this Indenture is qualified under the TIA, except as
provided in Section 9.5 hereof.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
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"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated as an Unrestricted Subsidiary by
the Board of Directors as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company as an Unrestricted Subsidiary so long as: (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for the payment
of any Indebtedness of that Subsidiary; (ii) no default with respect to any
Indebtedness of that Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on that other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity or require the
Company or any Restricted Subsidiary to repurchase or secure that other
Indebtedness; (iii) such designation as an Unrestricted Subsidiary would be
permitted under Section 10.10; (iv) that designation would not result in the
creation or imposition of any Lien on any of the properties or assets of the
Company or any Restricted Subsidiary (other than any Permitted Lien); and (v)
the Company could incur at least $1.00 of additional Indebtedness not
constituting Permitted Indebtedness in accordance with Section 10.11(a);
PROVIDED, HOWEVER, that with respect to clause (i) of this sentence, the Company
or a Restricted Subsidiary may be liable for the payment of Indebtedness of an
Unrestricted Subsidiary if (x) the liability constituted a Permitted Investment
or a Restricted Payment permitted under Section 10.10, in each case at the time
of incurrence, or (y) the liability would be a Permitted Investment at the time
of designation of that Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors must be evidenced to the Trustee by filing
a Board Resolution with the Trustee giving effect to that designation, together
with an Officers' Certificate stating that such designation complies with the
requirements of this Indenture. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation on a pro forma basis, (i) no Default or Event of
Default has occurred and is continuing, (ii) the Company could incur at least
$1.00 of additional Indebtedness not constituting Permitted Indebtedness in
accordance with Section 10.11(a) and (iii) if any of the Properties of the
Company or any Restricted Subsidiary would on such designation become subject to
any Lien (other than a Permitted Lien), the creation or imposition of that Lien
shall comply with Section 10.13.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" means, with respect to any specified Person, any class or
classes of Capital Stock of the specified Person pursuant to which the holders
thereof have the general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of the
specified Person (irrespective of whether or not, at the time, stock of any
other class or classes have, or might have, voting power by reason of the
happening of any contingency).
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"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary: (i)
all the outstanding shares of Capital Stock or other ownership interests in
which, other than any directors' qualifying shares mandated by applicable law,
are owned directly or indirectly by the Company; and (ii) if that Restricted
Subsidiary is organized in a foreign jurisdiction and is required by the
applicable laws and regulations of that jurisdiction to be partially owned by
the government of that jurisdiction or individual or corporate citizens of that
jurisdiction in order for that Restricted Subsidiary to transact business in
that jurisdiction, the Company, directly or indirectly, owns the remaining
Capital Stock or ownership interest in that Restricted Subsidiary and, by
contract or otherwise, controls the management and business of that Restricted
Subsidiary and derives the economic benefits of ownership of that Restricted
Subsidiary to substantially the same extent as if that Restricted Subsidiary
were a Wholly Owned Subsidiary of the type described in clause (i) of this
sentence.
"Working Capital Agreement" means, with respect to any specified Person,
(i) any agreement providing for the making of loans or advances on a revolving
basis, the issuance of letters of credit and/or the creation of bankers'
acceptances to fund the general working capital and other corporate requirements
of that Person and one or more of its Subsidiaries and (ii) any refinancings,
renewals, replacements, modification and extensions of any of the agreements
described in clause (i) of this sentence. Initially, "Working Capital Agreement"
means that certain Third Amended and Restated Loan and Security Agreement dated
as of July 1, 1997 among Brazos, Inc., a Texas corporation and a Wholly Owned
Restricted Subsidiary, and Morning Sun, Inc., a Washington corporation and,
following consummation of the Subject Acquisitions, a Wholly Owned Restricted
Subsidiary, Fleet Capital Corporation and BankBoston, N.A., formerly known as
The First National Bank of Boston.
SECTION 1.2 OTHER DEFINITIONS.
Defined
TERM IN SECTION
"Affiliate Transaction"............................... 10.17
"Affiliated Group" ................................... 8.1
"Change of Control Notice"............................ 10.14(c)
"Change of Control Offer"............................. 10.14(a)
"Change of Control Purchase Date"..................... 10.14(c)
"Change of Control Purchase Price".................... 10.14(a)
"Excess Proceeds"..................................... 10.15
"Net Proceeds Deficiency"............................. 10.16(a)
"Net Proceeds Payment Date"........................... 10.16(a)
"Offered Price"....................................... 10.16(a)
"Payment Amount"...................................... 10.16(a)
"Purchase Notice"..................................... 10.16(a)
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"Surviving Entity".................................... 8.1
"Trigger Date"........................................ 10.16(a)
"U.S. Government Obligations"......................... 12.4(a)
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities,
"indenture security holder" means a Holder,
"indenture to be qualified" means this Indenture,
"indenture trustee" or "institutional trustee" means the Trustee,
and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.4 RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP and all accounting
calculations will be determined in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(d) the masculine gender includes the feminine and the neuter;
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(e) a "day" means a calendar day; and
(f) references to agreements and other instruments include
subsequent amendments and waivers but only to the extent not prohibited by
this Indenture.
ARTICLE II
SECURITY FORMS
SECTION 2.1 FORMS GENERALLY.
Securities offered and sold in reliance on Rule 144A and to
Institutional Accredited Investors shall be issued initially in the form of one
or more permanent Global Securities in registered form, substantially in the
form set forth in Exhibit 1 to Appendix A (each being herein called a "Global
Security"), deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided, and shall bear the legend set forth in Exhibit 1 to Appendix A.
Subject to the limitation set forth in Section 3.1, the principal amounts of any
Global Securities may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depository, as
hereinafter provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of certificated Securities in
registered form set forth in Exhibit 1 to Appendix A (the "Offshore Physical
Securities"). Securities offered and sold in reliance on any other exemption
from registration under the Securities Act other than as described in the
preceding paragraph shall be issued, and Securities offered and sold in reliance
on Rule 144A may be issued, in the form of certificated Securities in registered
form in substantially the form set forth in Exhibit 1 to Appendix A (the "U.S.
Physical Securities"). The Offshore Physical Securities and the U.S. Physical
Securities are sometimes collectively herein referred to as the "Physical
Securities".
SECTION 2.2 FORM OF SECURITIES.
The Initial Securities, the Subsidiary Guarantees endorsed thereon
and the Trustee's certificate of authentication thereon shall be substantially
in the form of Exhibit 1 to Appendix A, which is hereby incorporated in and
expressly made a part of this Indenture. The Exchange Securities and the Private
Exchange Securities, the Subsidiary Guarantees endorsed thereon and the
Trustee's certificate of authentication thereon shall be substantially in the
form of Exhibit 2 to Appendix A, which is hereby incorporated in and expressly
made a part of this Indenture. The Securities may have notations, legends or
endorsements (including notations relating to the Subsidiary Guarantees)
required by law, stock exchange rule, agreement to which the Company is subject,
if any, or usage (provided that any such notation, legend or endorsement is in a
form acceptable to the Company). Each Security shall be dated the date of its
authentication. The terms of the Securities set forth in Exhibits 1 and 2 of
Appendix A are part of the terms of this Indenture.
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ARTICLE III
THE SECURITIES
SECTION 3.1 TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture for original issue is limited to
$100,000,000. The aggregate principal amount of Securities Outstanding at any
one time may not exceed such amount except as provided in Section 3.6 hereof.
The Initial Securities shall be known and designated as the "10 1/2%
Senior Notes Due 2007" of the Company. Their Stated Maturity shall be July 1,
2007, and they shall bear interest at the rate of 10 1/2% per annum from the
Issue Date, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable semiannually in cash in arrears on
January 1 and July 1 in each year, commencing January 1, 1998, and at said
Stated Maturity, until the principal thereof is paid or duly provided for.
Principal of and premium, if any, interest and Liquidated Damages, if any,
on the Securities shall be payable (i) in same-day funds on or prior to the
payment dates with respect to those amounts in the case of Securities held of
record by the Depository and (ii) at the office of the Trustee in New York, New
York, in the case of Securities held of record by Holders other than the
Depository. The Company may, at its option, pay interest and Liquidated Damages,
if any, on Securities held of record by Holders other than the Depository by
check mailed to the addresses of the Persons entitled thereto as they appear in
the Security Register on the Regular Record Date for that interest.
The Securities shall be redeemable as provided in Article XI hereof.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article XII hereof.
SECTION 3.2 DENOMINATIONS.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its chairman
of the board, its president or a vice president of the Company, under its
corporate seal reproduced thereon and attested by its secretary or an assistant
secretary of the Company. The signature of any of these officers on the
Securities may be manual or facsimile signatures of the present or any future
such authorized officer and may be imprinted or otherwise reproduced on the
Securities.
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Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time after the execution and delivery of this Indenture, the
Company may deliver Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as provided in this
Indenture. Such Company Order shall specify the principal amount of the
Securities to be authenticated, the date on which the original issue of
Securities is to be authenticated, and applicable delivery instructions.
Each Security shall be dated the date of its authentication.
No Security or Subsidiary Guarantee endorsed thereon shall be entitled to
any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on such Security a certificate of authentication
substantially in the form provided for herein duly executed by the Trustee by
manual signature of an authorized signatory, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
and the Subsidiary Guarantees endorsed thereon have been duly authenticated and
delivered hereunder and that such Security is entitled to the benefits of this
Indenture.
In case the Company, pursuant to and in compliance with Article VIII
hereof, shall be consolidated or merged with or into any other Person or shall
sell, assign, convey, transfer, lease or otherwise dispose of its Properties
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company
shall have been merged, or the Person which shall have received a sale,
assignment, conveyance, transfer, lease or other disposition as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article VIII hereof, any of the Securities authenticated or delivered prior to
such sale, assignment, consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor Person
be exchanged for other Securities executed in the name of the successor Person
with such changes in phraseology and form as may be appropriate, but otherwise
in substance of like tenor as the Securities surrendered for such exchange and
of like principal amount; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
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SECTION 3.4 TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as conclusively evidenced by
their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2
hereof, without charge to the Holders. Upon surrender for cancellation of any
one or more temporary Securities, the Company and each Subsidiary Guarantor
shall execute and, upon Company Order, the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations and of like tenor and aggregate principal amount. Until
so exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 3.5 REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept a register (the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of Securities.
The Security Register shall be in written form or any other form capable of
being converted into written form within a reasonable time. At all reasonable
times and during normal business hours, the Security Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the "Security Registrar") for the purpose of registering Securities
and transfers of Securities as herein provided.
Subject to the provisions of this Section and Appendix A, upon surrender
for registration of transfer of any Security at the office or agency of the
Company designated pursuant to Section 10.2 hereof, the Company and each
Subsidiary Guarantor shall execute, and upon Company Order, the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities with the Subsidiary Guarantees endorsed
thereon of like tenor and of any authorized denomination and of a like aggregate
principal amount.
Furthermore, any Holder of a Global Security shall, by acceptance of such
Global Security, be deemed to have agreed that transfers of beneficial interests
in such Global Security may be effected only through a book-entry system
maintained by the Depository (or its agent) and that ownership of a beneficial
interest in a Global Security shall be required to be reflected in a book-entry.
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At the option of any Holder, Securities may be exchanged for other
Securities with the Subsidiary Guarantees endorsed thereon of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at the office or agency of the Company designated
pursuant to Section 10.2 hereof. Whenever any Securities are so surrendered for
exchange, the Company and each Subsidiary Guarantee shall execute and, upon
Company Order, the Trustee shall authenticate and deliver, the Securities with
the Subsidiary Guarantees endorsed thereon which the Holder making the exchange
is entitled to receive.
All Securities with the Subsidiary Guarantees endorsed thereon issued upon
any registration of transfer or exchange of Securities shall be the valid
obligations of the Company and each Subsidiary Guarantor, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer or
exchange, in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer, exchange
or redemption of Securities, but the Company or the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge and any other
expenses, including the fees and expenses of the Trustee, payable in connection
therewith, other than exchanges pursuant to Section 3.4, 9.6 or 11.8 hereof not
involving any transfer.
Neither the Trustee, the Security Registrar nor the Company shall be
required (i) to issue, register the transfer of or exchange any Physical
Security during a period beginning at the opening of business 15 days before the
mailing of a notice of redemption of Securities selected for redemption under
Section 11.4 hereof and ending at the close of business on the day of that
mailing of the relevant notice of redemption or (ii) to register the transfer of
or exchange any Physical Security so selected for redemption in whole or in
part, except the unredeemed portion of any such Security being redeemed in part.
SECTION 3.6 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such Security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company and each Subsidiary Guarantor shall execute and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a new
Security with the Subsidiary Guarantees endorsed thereon of like tenor and of
like principal amount bearing a number not contemporaneously outstanding.
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In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Every new Security issued and authenticated pursuant to this Section in
lieu of any mutilated, destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company and the Subsidiary
Guarantors whether or not the mutilated, destroyed, lost or stolen Security
shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 10.2
hereof.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Securities (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") may be
paid by the Company, at its election in each case, as provided in clause (a) or
(b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Holders in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment at least 60 days
prior to the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, and such money when deposited
shall be held in trust for the benefit of the Holders entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date
of the proposed payment and not less than 10 days after the receipt by the
Trustee
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of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given to the
Holders entitled to such Defaulted Interest in the manner provided for in
Section 14.5 hereof, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so given, such Defaulted Interest
shall be paid to the Holders in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.8 PERSONS DEEMED OWNERS.
The Company, the Security Registrar, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and premium, if any, interest and Liquidated Damages, if any, on
such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and none of the Company, the Subsidiary Guarantors, the
Security Registrar, the Trustee or any agent of the Company or the Trustee shall
be affected by notice to the contrary.
SECTION 3.9 CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and, upon Company Order, shall be promptly canceled
by it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall, upon Company Order, be promptly canceled by the Trustee. No Securities
shall be authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be disposed of as directed by a
Company Order or, if no such Company Order has been provided, in accordance with
the Trustee's
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usual practice; PROVIDED, HOWEVER, that the Trustee shall not be required to
destroy canceled Securities.
SECTION 3.10 COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 3.11 CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of
Securities, as expressly provided for in this Indenture) as to all Outstanding
Securities, and the Trustee, at the expense of the Company, shall, upon payment
of all amounts due the Trustee under Section 6.6 hereof, execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(a) either
(1) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been mutilated, destroyed, lost or stolen
and that have been replaced or paid as provided in Section 3.6 hereof and
(ii) Securities for whose payment money or United States governmental
obligations of the type described in clause (i) of the definition of Cash
Equivalents have been deposited in trust with the Trustee or any Paying
Agent or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust, as provided in Section 10.3
hereof) have been delivered to the Trustee for cancellation, or
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(2) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their final Stated
Maturity within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the serving of notice
of redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii) above,
has irrevocably deposited or caused to be deposited with the Trustee funds
in an amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge the entire
Indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal of and premium, if any, interest and
Liquidated Damages, if any, on such Securities to the date of such deposit
(in the case of Securities that have become due and payable) or to the
final Stated Maturity or Redemption Date, as the case may be, together
with the Company Order irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may
be;
(b) the Company has paid or caused to be paid all other sums then due and
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
stating and an Opinion of Counsel opining, that all conditions precedent herein
relating to the satisfaction and discharge of this Indenture have been complied
with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6 hereof and, if money
shall have been deposited with the Trustee pursuant to this Section, the
obligations of the Trustee under Section 4.2 hereof and the last paragraph of
Section 10.3 hereof and the Trustee's right under Article VI hereof shall
survive.
SECTION 4.2 APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money deposited with the Trustee pursuant to Section 4.1 hereof shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal and
premium, if any, interest and Liquidated Damages, if any, for whose payment such
money has been deposited with the Trustee.
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ARTICLE V
REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.
"Event of Default" wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) any default in the payment of the principal of or premium, if
any, on any of the Securities when the same becomes due and payable,
whether such payment is due at Stated Maturity or on redemption,
repurchase pursuant to a Change of Control Offer or a Net Proceeds Offer,
acceleration or otherwise; or
(b) any default in the payment of any installment of interest or
Liquidated Damages, if any, on any Security, when it becomes due and
payable, and the continuance of that default for a period of 30 days; or
(c) any default in the performance or breach by the Company or any
Restricted Subsidiary of the provisions of Article VIII hereof or any
failure of the Company to make or consummate either a Change of Control
Offer or a Net Proceeds Offer in accordance with the provisions of Section
10.14 and 10.16, respectively; or
(d) any failure of the Company or any Subsidiary Guarantor to
perform or observe any other term, covenant or agreement applicable to it
and contained in the Securities or this Indenture (other than a default
specified in subparagraph (a), (b) or (c) above) or the Subsidiary
Guarantees, as the case may be, for a period of 30 days after written
notice of that failure is given (x) to the Company or the Subsidiary
Guarantor, as the case may be, by the Trustee or (y) to the Company or the
Subsidiary Guarantor, as the case may be, and the Trustee, by the Holders
of at least 25% in aggregate principal amount of the Securities then
Outstanding; or
(e) the occurrence and continuation beyond any applicable grace
period of any default in the payment of the principal of any Indebtedness
of the Company (other than the Securities) or any Restricted Subsidiary
for money borrowed when due at final Stated Maturity, or any other default
resulting in acceleration of any Indebtedness of the Company or any
Restricted Subsidiary for money borrowed, PROVIDED that the aggregate
principal amount of such Indebtedness exceeds $5.0 million; or
(f) one or more final judgments or orders rendered against the
Company or any Restricted Subsidiary that are unsatisfied and require the
payment in money, either
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individually or in an aggregate amount, in excess of $5.0 million are not
paid, discharged or stayed for a period of 60 days; or
(g) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (B) adjudging the
Company or any Restricted Subsidiary bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of
the Company or any Restricted Subsidiary under the Federal Bankruptcy Code
or any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Restricted Subsidiary or of a
substantial part of its consolidated assets, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(h) the commencement by the Company or any Restricted Subsidiary of
a voluntary case or proceeding under the Federal Bankruptcy Code or any
other applicable federal or state bankruptcy, insolvency, reorganization
or other similar law or any other case or proceeding to be adjudicated
bankrupt or insolvent, or the consent by the Company or any Restricted
Subsidiary to the entry of a decree or order for relief in respect thereof
in an involuntary case or proceeding under the Federal Bankruptcy Code or
any other applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any Restricted Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or any Restricted Subsidiary or of any substantial part of
its consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking
of corporate action by the Company or any Restricted Subsidiary in
furtherance of any such action; or
(i) except as permitted hereunder and the Securities, the cessation
of the effectiveness of any Subsidiary Guarantee or the repudiation by any
Subsidiary Guarantor (or by any Person acting on behalf of any Subsidiary
Guarantor) of its obligations under its Subsidiary Guarantee.
SECTION 5.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 5.1(g) or (h) hereof) occurs and is continuing, the Trustee, by written
notice to the Company, or the Holders of
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not less than 25% in aggregate principal amount of the Securities then
Outstanding, by written notice to the Company and to the Trustee, may, and the
Trustee on the request of the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities shall, by a notice in writing to
the Company, declare all unpaid principal of and premium, if any, accrued and
unpaid interest and Liquidated Damages, if any, on all the Securities to be due
and payable immediately, on which declaration all amounts payable in respect of
the Securities shall be immediately due and payable. If an Event of Default of
any type described in Section 5.1(g) or (h) hereof occurs, then the amounts
described above shall become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made, but before
the Trustee obtains a judgment or decree for payment of the money due as
hereinafter in this Article provided, the Holders of a majority in aggregate
principal amount of the Securities Outstanding, by written notice to the Company
and the Trustee, may rescind and annul each such declaration and its
consequences if
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(1) all overdue interest on all Outstanding Securities,
(2) all unpaid principal of and premium, if any, or Liquidated
Damages, if any, on any Outstanding Securities which have become due
otherwise than by such declaration of acceleration, including any
Securities required to have been purchased on a Change of Control
Date or a Net Proceeds Payment Date pursuant to a Change of Control
Offer or a Net Proceeds Offer, as applicable, and interest on such
unpaid principal at the rate borne by the Securities,
(3) to the extent that payment of such interest is lawful,
interest on overdue interest and overdue principal at the rate borne
by the Securities (without duplication of any amount paid or
deposited pursuant to clauses (1) and (2) above), and
(4) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(b) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction as certified to the Trustee by the
Company in an Officer's Certificate and Opinion of Counsel; and
(c) all Events of Default, other than the non-payment of amounts of
principal of and premium, if any, interest or Liquidated Damages, if any,
on the Securities that have
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become due solely because of that declaration, have been cured or waived
as provided in Section 5.13 hereof.
No such rescission shall affect any subsequent default or Event of Default
or impair any right consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in Section
5.1(e) hereof shall have occurred and be continuing, such Event of Default and
any consequential acceleration shall be automatically rescinded if the
Indebtedness that is the subject of such Event of Default has been repaid, or if
the default relating to such Indebtedness is waived or cured and if such
Indebtedness has been accelerated, then the holders thereof have rescinded their
declaration of acceleration in respect of such Indebtedness, and written notice
of such repayment, or cure or waiver and rescission, as the case may be, shall
have been given to the Trustee by the Company and countersigned by the holders
of such Indebtedness or a trustee, fiduciary or agent for such holders, within
30 days after any such acceleration in respect of the Securities, and so long as
such rescission of any such acceleration of the Securities does not conflict
with any judgment or decree as certified to the Trustee by the Company by an
Officers' Certificate and Opinion of Counsel.
SECTION 5.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any installment of interest or
Liquidated Damages, if any, on any Security when such interest or
Liquidated Damages becomes due and payable and such default continues for
a period of 30 days, or
(b) default is made in the payment of the principal of or premium,
if any, on any Security at the Maturity thereof or with respect to any
Security required to have been purchased by the Company on the Change of
Control Purchase Date or the Net Proceeds Payment Date pursuant to a
Change of Control Offer or Net Proceeds Offer, as applicable,
then the Company will, upon the demand of the Trustee, pay to the Trustee for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal and premium, if any, interest or
Liquidated Damages, if any, and interest on any overdue principal, premium, if
any, or Liquidated Damages, if any, and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may
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enforce the same against the Company or any other obligor upon the Securities
and collect the money adjudged or decreed to be payable in the manner provided
by law out of the Property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.4 TRUSTEE MAY FILE PROOF OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company, or any other obligor upon the
Securities, their creditors or the Property of the Company or of such other
obligor, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company or such other obligor for the payment of overdue principal, premium,
if any, Liquidated Damages, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim, to the extent permitted by law, for
the whole amount of principal and premium, if any, and interest or
Liquidated Damages, if any, owing and unpaid in respect of the Securities
and to file such other papers or documents and take any other actions
including participation as a full member of any creditor or other
committee as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceedings, and
(b) to collect and receive any money or other Property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee pursuant to Section 6.6 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
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SECTION 5.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims arising under this Indenture or Securities
or Subsidiary Guarantees endorsed thereon may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name and as trustee of an express
trust, and any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
SECTION 5.6 APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal or
premium, if any, interest or Liquidated Damages, if any, upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee pursuant to
Section 6.6 hereof;
SECOND: to the payment of the amounts then due and unpaid for
principal of and premium, if any, interest and Liquidated Damages, if any,
on the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
principal and premium, if any, interest and Liquidated Damages, if any,
respectively; and
THIRD: the balance, if any, to the Company.
SECTION 5.7 LIMITATIONS ON SUITS.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(a) that Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
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(c) that Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority or more in aggregate principal amount of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders. These
limitations shall not apply, however, to a suit instituted by any Holder to
enforce the payment of the principal of and premium, if any, interest or
Liquidated Damages, if any, on that Holder's Security on or after the respective
due dates expressed in that Security or in the Registration Rights Agreement.
SECTION 5.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM, LIQUIDATED DAMAGES AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article XII hereof) and
in such Security of the principal of and premium, if any, and (subject to
Section 3.7 hereof) interest and Liquidated Damages, if any, on such Security on
the respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 5.9 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the
Holders shall be restored severally and respectively to their former positions
hereunder and thereunder and all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
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SECTION 5.10 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
3.6 hereof, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 5.12 CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, PROVIDED that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining
therein.
SECTION 5.13 WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities may on behalf of the Holders of all the Securities
waive any existing Default or Event of Default hereunder and its consequences,
except a Default or Event of Default
(a) in respect of the payment of the principal of or premium, if
any, interest or Liquidated Damages, if any, on any Security, or
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(b) in respect of a covenant or provision hereof that under Article
IX hereof cannot be modified or amended without the consent of the Holder
of each Outstanding Security affected thereby.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 5.14 WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each of the Company and each Subsidiary Guarantor covenants (to the extent
that each may lawfully do so) that it will not at any time insist upon, plead or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company from paying all
or any portion of the principal of and premium, if any, interest or Liquidated
Damages, if any, on the Securities as contemplated herein, or which may affect
the covenants or the performance of this Indenture; and (to the extent that it
may lawfully do so) each of the Company and each Subsidiary Guarantor hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.15 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorney's fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the Trustee
or to any suit instituted by any Holders of more than 10% in principal amount of
the Outstanding Securities.
ARTICLE VI
THE TRUSTEE
SECTION 6.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
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(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, and shall be fully protected in so relying, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; PROVIDED, HOWEVER, in
the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:
(i) this paragraph shall not limit the effect of Section 6.1(b);
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.12.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.2 CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.1 hereof:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from action upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
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(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may reasonably
see fit;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(h) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it in good faith to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture; and
(i) the Trustee shall not be deemed to have notice or knowledge of
any matter unless a Responsible Officer has actual knowledge thereof or
unless written notice thereof is received by the Trustee at its Corporate
Trust Office and such notice references the Securities generally, the
Company and this Indenture.
The Trustee shall not be required to advance, expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
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SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES.
The recitals contained herein and in the Securities, except for the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or the Securities, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. The Trustee shall not be accountable for
the use or application by the Company of any Securities or the proceeds thereof.
SECTION 6.4 MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311 in the case of the Trustee, may otherwise deal with the Company with the
same rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
SECTION 6.5 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except as otherwise expressly provided in this Indenture or to the
extent required by law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as otherwise agreed with the Company.
SECTION 6.6 COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agent and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's wilful
misconduct, negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without wilful misconduct,
negligence or bad faith on its part, (i) arising out of or in connection
with the acceptance or administration of this trust, including the costs
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and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder or (ii) in connection with enforcing this indemnification
provision.
The obligations of the Company under this Section 6.6 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture or any other termination under any Insolvency or
Liquidation Proceeding. As security for the performance of such obligations of
the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of and premium, if any, interest or
Liquidated Damages, if any, on particular Securities. Such lien shall survive
the satisfaction and discharge of this Indenture or any other termination under
any Insolvency or Liquidation Proceeding.
When the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in paragraph (g) or (h) of Section 5.1 of this
Indenture, such expenses and the compensation for such services are intended to
constitute expenses of administration under any Insolvency or Liquidation
Proceeding.
SECTION 6.7 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 6.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 6.8 CONFLICTING INTERESTS.
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act; PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 6.9 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10 hereof.
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(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 6.10 hereof shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 6.7 hereof
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Security for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within
one year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the Company
or the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee. The
evidence of such successorship may, but need not be, evidenced by a supplemental
indenture.
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(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 14.5 hereof. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 6.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all amounts due it under
Section 6.6 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all money and
other Property held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, PROVIDED such corporation shall be otherwise qualified and
eligible under this Article. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities of like tenor or in this Indenture provided;
PROVIDED, HOWEVER, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
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SECTION 6.12 NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default hereunder, the Trustee
shall transmit in the manner and to the extent provided in TIA Section 313(c),
notice of such Default hereunder, which a Responsible Officer of the Trustee has
actual knowledge of, unless such Default shall have been cured or waived;
PROVIDED, HOWEVER, that, except in the case of a Default in the payment of the
principal of or premium, if any, interest or Liquidated Damages, if any, on any
Security, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders; and
PROVIDED, FURTHER, that in the case of any Default under Section 5.1(b) or
5.1(d) no such notice to Holders shall be given until at least 30 days after the
occurrence thereof.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1 HOLDERS' LISTS; HOLDER COMMUNICATIONS; DISCLOSURES RESPECTING
HOLDERS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list. If the Trustee is not
the Security Registrar, the Company shall furnish to the Trustee semi-annually
before each Regular Record Date, and at such other times as the Trustee may
reasonably request in writing, a list, in such form as the Trustee may
reasonably request, as of such date of the names and addresses of the Holders
then known to the Company. The Company and the Trustee shall also satisfy any
other requirements imposed upon each of them by TIA Section 312(a).
Holders may communicate pursuant to Section 312(b) of the TIA with other
Holders with respect to their rights under this Indenture or the Securities.
Every Holder of Securities, by receiving and holding the same, agrees with the
Company, the Security Registrar and the Trustee that none of the Company, the
Security Registrar or the Trustee, or any agent of any of them, shall be held
accountable by reason of the disclosure of any information as to the names and
addresses of the Holders in accordance with TIA Section 312, regardless of the
source from which such information was derived, that each of such Persons shall
have the protection of TIA Section 312(c) and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).
SECTION 7.2 REPORTS BY THE TRUSTEE.
On or before May 15 of each year commencing with May 15, 1998, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Security Register, a brief report
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in accordance with, and to the extent required under TIA Section 313(a). The
Trustee shall also comply with TIA Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or automatic quotation system.
A copy of each Trustee's report, at the time of its mailing to Holders of
Securities, shall be mailed to the Company and filed with the Commission and
each stock exchange, if any, on which the Securities are listed.
SECTION 7.3 REPORTS BY THE COMPANY.
The Company shall:
(a) file with the Trustee, within 15 days after the date on which
the Company files or is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) which
the Company may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not
required to file information, documents or reports pursuant to either of
said Sections, then the Company shall file with the Trustee such
information, documents or reports as required pursuant to Section 10.9
hereof;
(b) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(c) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), such summaries of any information,
documents and reports (without exhibits except to the extent required by
TIA Section 313(c)) required to be filed by the Company pursuant to
paragraph (a) or (b) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not, in any single transaction or series of related
transactions, consolidate or merge with any other Person, or sell, assign,
convey, transfer, lease or otherwise dispose of the Properties of the Company
and the Restricted Subsidiaries on a consolidated basis substantially as an
entirety to any Person or group of Persons that are Affiliates of each other (an
"Affiliated Group"), and the Company will not permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions, if,
in any event, such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of the Properties of the Company and the Restricted Subsidiaries on
a consolidated basis substantially as an entirety to any other Person or
Affiliated Group, unless:
(i) either (a) if the transaction is a merger, the Company shall be
the surviving Person of that merger, or (b) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged
or the Person or Affiliated Group that acquires the Properties of the
Company and the Restricted Subsidiaries on a consolidated basis
substantially as an entirety (any such surviving Person or acquiring
Person or member of an acquiring Affiliated Group being referred to in
this Article VIII as the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia and expressly assumes by a
supplemental indenture to this Indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company or the Restricted Subsidiary, as the case may be, with respect to
the Securities and this Indenture, including, with respect to each
Restricted Subsidiary that is a Subsidiary Guarantor, the obligations
under the Subsidiary Guarantee of that Restricted Subsidiary, and, in any
case, this Indenture remains in full force and effect;
(ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any Indebtedness not previously an obligation of the Company or any
Restricted Subsidiary that becomes an obligation of the Company or any
Restricted Subsidiary in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default has occurred
and is continuing;
(iii) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving
effect to such transaction or transactions on a pro forma basis, the
Consolidated Net Worth of the Company (or of the Surviving Entity if the
Company is not the continuing obligor under this Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions;
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(iv) except in the case of the consolidation or merger of the
Company with or into a Restricted Subsidiary or any Restricted Subsidiary
with or into the Company or another Restricted Subsidiary, immediately
before and immediately after giving effect to such transaction or series
of transactions on a pro forma basis (assuming that the transaction or
series of transactions occurred on the first day of the most recent period
of four consecutive fiscal quarters of the Company prior to the
consummation of such transaction or series of transactions for which
consolidated financial statements of the Company are available, with the
appropriate adjustments with respect to the transaction or transactions
being included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor under this
Indenture) could incur at least $1.00 of additional Indebtedness not
constituting Permitted Indebtedness in accordance with Section 10.11(a);
(v) if any of the Properties of the Company or any Restricted
Subsidiary would on such transaction or series of transactions become
subject to any Lien (other than a Permitted Lien), the creation and
imposition of that Lien complies with Section 10.13;
(vi) each Subsidiary Guarantor, unless it is the other party to the
transaction or series of transactions, confirms by amendment to its
Subsidiary Guarantee that its guarantee of the Securities will apply to
the obligations of the Company (or the Surviving Entity if the Company is
not the continuing obligor under this Indenture) under the Securities and
this Indenture; and
(vii) the Company (or the Surviving Entity if the Company is not the
continuing obligor under this Indenture) delivers to the Trustee, in form
and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each stating that such transaction
or series of transactions and any supplemental indenture in respect
thereof comply with the requirements of the Indenture and that all
conditions precedent in the Indenture relating to such transaction or
series of transactions have been satisfied.
SECTION 8.2 SUCCESSOR SUBSTITUTED.
When any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of the Properties of the Company and
its Restricted Subsidiaries on a consolidated basis substantially as an entirety
becomes effective in accordance with Section 8.1 in which the Company is not the
Surviving Entity, the Surviving Entity will succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture with
the same effect as if the Surviving Entity had been named as the Company in this
Indenture, and thereafter the Company (which term shall for this purpose mean
the Person named as the "Company" in the first paragraph of this Indenture or
any successor Person which shall theretofore become such in the manner described
in Section 8.1), except in the case of a lease, shall be discharged from all
obligations and covenants under this Indenture and the Securities and may be
liquidated and dissolved.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Company, when authorized by a Board
Resolution, the Subsidiary Guarantors and the Trustee upon Company Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company or
any Subsidiary Guarantor and the assumption by any such successor of the
covenants of the Company or any Subsidiary Guarantor, as the case may be,
contained herein and in the Securities or;
(b) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(c) to comply with any requirement of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(d) to secure the Securities pursuant to Section 10.13 or otherwise;
(e) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(f) to reflect the release of any Subsidiary Guarantor from its
Subsidiary Guarantee pursuant to Section 13.4 or to add as a Subsidiary
Guarantor any Subsidiary of the Company pursuant to Section 13.5 in the
manner provided by this Indenture; or
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Sections
6.9 and 6.10; or
(h) to cure any ambiguity or omission, to correct or supplement any
provision herein or in the Securities that may be defective or
inconsistent with any other provision herein or in the Securities, or to
make any other provisions with respect to matters or questions arising
under this Indenture; PROVIDED, HOWEVER, that no modification or amendment
described in this Clause (h) may adversely affect the interests of the
Holders in any material respect.
After an amendment under this Section becomes effective, the Company shall
mail to Holders of Securities a notice briefly describing such amendment. The
failure to give such notice
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to all Holders of Securities, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
SECTION 9.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, the Subsidiary Guarantors and the Trustee upon Company Request may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; PROVIDED, HOWEVER, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Security or alter the provisions with
respect to redemption of the Securities, or reduce the principal amount
thereof or the rate of interest, any premium, or any Liquidated Damages
thereon, or change the coin or currency in which principal of any Security
or premium, if any, interest or Liquidated Damages, if any, on any
Security is payable, or impair the right to institute suit for the
enforcement of any payment on or with respect to any Security; or
(b) reduce the percentage of aggregate principal amount of any of
the Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder or the consequences of a default
provided for in this Indenture; or
(c) modify any provisions of this Section or Section 5.13 or 10.20
hereof, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected thereby or
the rights of any Holder to receive payments of principal of or premium,
if any, interest or Liquidated Damages, if any, on the Securities; or
(d) change the ranking of the Securities in a manner adverse to the
Holders or expressly subordinate in right of payment the Securities to any
other Indebtedness; or
(e) amend, change or modify the obligation of the Company to make
and consummate a Change of Control Offer if a Change of Control occurs or
to make and consummate a Net Proceeds Offer with respect to any Asset Sale
or modify any of the provisions or definitions in this Indenture insofar
as they relate thereto; or
(f) release any security that may have been granted in respect of
the Securities.
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It shall not be necessary for any Act of the Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
After an amendment under this Section becomes effective, the Company shall
mail to Holders of Securities a notice briefly describing such amendment. The
failure to give such notice to all Holders of Securities, or any defect therein,
shall not impair or affect the validity of an amendment under this Section.
SECTION 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive
(subject to Section 6.1), and shall be fully protected relying upon, an
Officers' Certificate stating and an Opinion of Counsel opining that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.4 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5 CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect, if
this Indenture shall then be qualified under the TIA.
SECTION 9.6 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors of the Company, to any such supplemental indenture may be
prepared and executed by the Company and, upon Company Order, authenticated and
delivered by the Trustee in exchange for Outstanding Securities of like tenor
and in like principal amount.
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SECTION 9.7 NOTICE OF SUPPLEMENTAL INDENTURES AND WAIVERS.
Promptly after (i) the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2 hereof or (ii)
a waiver under Section 5.13 or 10.20 hereof becomes effective, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 14.5, setting forth in general terms the
substance of such supplemental indenture or waiver as the case may be.
ARTICLE X
COVENANTS
SECTION 10.1 PAYMENT OF PRINCIPAL, PREMIUM OR LIQUIDATED DAMAGES, IF ANY,
AND INTEREST.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of and premium, if any, interest or
Liquidated Damages, if any, on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 10.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Corporate Trust Office shall be such office or agency of the Company, unless the
Company shall designate and maintain some other office or agency for one or more
of such purposes. The Company shall give prompt written notice to the Trustee of
any change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the aforementioned office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind any such designation. Further,
if at any time there shall be no such office or agency in The City of New York
where the Securities may be presented or surrendered for payment, the Company
shall forthwith designate and maintain such an office or agency in The City of
New York, in order that the Securities shall at all times be payable in The City
of New York. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
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SECTION 10.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it shall, on
or before 12:00 noon, New York City time, on each due date of the principal of
and premium, if any, interest or Liquidated Damages, if any, on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and premium, if any, interest or
Liquidated Damages, if any, so becoming due until such sum shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will on or before 12:00 noon, New York City time, on each due
date of the principal of and premium, if any, interest or Liquidated Damages, if
any, on any Securities, deposit with a Paying Agent immediately available funds
sufficient to pay the principal and premium, if any, interest or Liquidated
Damages, if any, so becoming due, such funds to be held in trust for the benefit
of the Persons entitled to such principal, premium, Liquidated Damages or
interest, and (unless such Paying Agent is the Trustee) the Company shall
promptly notify the Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of and
premium, if any, interest or Liquidated Damages, if any, on Securities in trust
for the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal and
premium, if any, interest or Liquidated Damages, if any; and
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Subject to applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of and premium, if any, interest or
Liquidated Damages, if any, on any Security and remaining
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unclaimed for two years after such principal and premium, if any, interest or
Liquidated Damages, if any, has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York (an "Authorized Newspaper"), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 10.4 CORPORATE EXISTENCE.
Except as expressly permitted by Article VIII hereof, Section 10.15 hereof
or other provisions of this Indenture, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such existence of its Restricted Subsidiaries, rights or
franchises, if the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Restricted Subsidiaries, taken as a whole, and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 10.5 PAYMENT OF TAXES; MAINTENANCE OF PROPERTIES; INSURANCE.
The Company shall or, as applicable, shall cause its Restricted
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or Property of the Company or any
Restricted Subsidiary and (b) all lawful material claims for labor, materials
and supplies, which, if unpaid, might by law become a Lien upon the Property of
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made in accordance with GAAP.
The Company shall or, as applicable, shall cause its Restricted
Subsidiaries to, cause all material Properties owned by the Company or any
Restricted Subsidiary and used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted), all as in
the judgment of the Company or such Restricted Subsidiary may be necessary so
that its business may
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be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Company or any Restricted Subsidiary
from discontinuing the maintenance of any such Properties if such discontinuance
is, in the judgment of the Company or such Restricted Subsidiary, as the case
may be, desirable in the conduct of the business of the Company or such
Restricted Subsidiary and not disadvantageous in any material respect to the
Holders. Notwithstanding the foregoing, nothing contained in this Section 10.5
shall limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.
The Company shall at all times keep all of its, and cause its Restricted
Subsidiaries to keep their, Properties which are of an insurable nature insured
with insurers, believed by the Company to be responsible, against loss or damage
to the extent that property of similar character and in a similar location is
usually so insured by corporations similarly situated and owning like
Properties.
The Company or any Restricted Subsidiary may adopt such other plan or
method of protection, in lieu of or supplemental to insurance with insurers,
whether by the establishment of an insurance fund or reserve to be held and
applied to make good losses from casualties, or otherwise, conforming to the
systems of self-insurance maintained by similarly situated corporations, as may
be determined by the Board of Directors of the Company or such Restricted
Subsidiary.
SECTION 10.6 LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into, assume, guarantee or otherwise become liable
with respect to any Sale/Leaseback Transaction unless (i) the Company or that
Restricted Subsidiary, as the case may be, would be permitted to incur
Indebtedness not constituting Permitted Indebtedness in accordance with Section
10.11(a) in an amount equal to the Attributable Indebtedness arising from the
Sale/Leaseback Transaction, (ii) the Company or the Restricted Subsidiary
receives proceeds from the Sale/Leaseback Transaction at least equal to the Fair
Market Value of the Property subject thereto, (iii) the Company applies an
amount in cash equal to the Net Available Proceeds of the Sale/Leaseback
Transaction in accordance with the provisions of Section 10.15 hereof as if the
Sale/Leaseback Transaction were an Asset Sale and (iv) the Sale/Leaseback
Transaction would not result in a violation of Section 10.13.
SECTION 10.7 LIMITATION ON CONDUCT OF BUSINESS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
engage in the conduct of any business other than any Related Business.
SECTION 10.8 STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company and within 45 days of the end of each of
the first, second and third quarters of
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each fiscal year of the Company, a written certificate signed by a principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company and its Restricted
Subsidiaries during the preceding fiscal quarter or fiscal year, as applicable,
has been made under the supervision of the signing Person with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Person
signing such certificate, that to the best of such Person's knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and no Default or Event of Default has occurred and
is continuing (or, if a Default or Event of Default shall have occurred to
either such Person's knowledge, describing all such Defaults or Events of
Default of which such Person may have knowledge and what action the Company is
taking or proposes to take with respect thereto). Such written statement shall
comply with TIA Section 314(a)(4). For purposes of this Section 10.8(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) The Company shall, so long as any Security is Outstanding, deliver to
the Trustee, within 30 days after Senior Management becomes aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company proposes to take with respect thereto.
SECTION 10.9 PROVISION OF FINANCIAL INFORMATION.
The Company shall file on a timely basis with the SEC, to the extent the
SEC accepts such filings and whether or not the Company has a class of
securities registered under the Exchange Act, the annual reports, quarterly
reports and other documents that the Company would be required to file if it
were subject to Section 13 or 15(d) of the Exchange Act. The Company also shall
(i) file with the Trustee (with exhibits), and provide to each Holder (without
exhibits), without cost to that Holder, copies of such reports and documents
within 15 days after the date on which the Company files such reports and
documents with the SEC or the date on which the Company would be required to
file such reports and documents if the Company were subject to Section 13 or
15(d) of the Exchange Act and (ii) if filing such reports and documents with the
SEC is not accepted by the SEC or is prohibited under the Exchange Act, to
supply at its cost copies of such reports and documents (including any exhibits
thereto) to any Holder of Securities promptly on its written request given in
accordance with Section 14.4 hereof. For so long as the Securities remain
outstanding, the Company shall also furnish to the Holders and beneficial
holders of Securities and to prospective purchasers of Securities designated by
the Holders of Transfer Restricted Securities (as defined in the Registration
Rights Agreement) and to broker-dealers, on their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 10.10 LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment unless, at the time of and
after giving effect to the proposed
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Restricted Payment: (i) no Default or Event of Default has occurred and is
continuing; (ii) the Company and its Restricted Subsidiaries would be permitted
to incur at least $1.00 of additional Indebtedness not constituting Permitted
Indebtedness in accordance with Section 10.11(a) hereof; and (iii) the amount of
that Restricted Payment, when added to the aggregate amount of all other
Restricted Payments made after the Issue Date, does not exceed the sum (without
duplication) of the following:
(a) 50% of the Consolidated Net Income (or, if Consolidated Net
Income is a loss, minus 100% of such loss) accrued on a cumulative basis
during the period beginning on July 1, 1997 and ending on the last day of
the Company's last fiscal quarter for which quarterly or annual
consolidated financial statements are available next preceding the date of
payment of the proposed Restricted Payment;
(b) the aggregate Net Cash Proceeds received by the Company after
the Issue Date from the issuance or sale (other than to any Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase shares of Qualified Capital Stock
of the Company; and
(c) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the cash proceeds of that sale, liquidation or repayment received by
the Company or any Restricted Subsidiary net of the fees and expenses
actually incurred in connection with such sale, liquidation or repayment
and net of taxes paid or payable as a result thereof.
The foregoing provisions (ii) and (iii) of this Section 10.10 will not
prohibit: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration the payment would have
complied with the provisions of this Indenture; (ii) the redemption, repurchase,
retirement or other acquisition of any Capital Stock of the Company in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
any Restricted Subsidiary) of Qualified Capital Stock of the Company; (iii) the
defeasance, redemption, repurchase or other retirement of Subordinated
Indebtedness in exchange for, or out of the proceeds of, the substantially
concurrent issue and sale of (a) Subordinated Indebtedness so long as the new
Subordinated Indebtedness has (1) an Average Life equal to or longer than the
Average Life of the Subordinated Indebtedness being defeased, redeemed,
repurchased or otherwise retired and (2) terms of subordination no less
favorable to the Holders of the Securities than those applicable to the
Subordinated Indebtedness being defeased, redeemed, repurchased or otherwise
retired or (b) Qualified Capital Stock of the Company (other than to any
Restricted Subsidiary); (iv) the repurchase, redemption or other acquisition or
retirement for value of any Capital Stock held by any member of the Company's or
any Restricted Subsidiary's management pursuant to any management equity
subscription agreement, employment agreement, stock option agreement or other
compensation agreement in an amount not to exceed in the aggregate $500,000 in
any fiscal year of the Company; (v) the making of one or more Related Business
Investments that are Restricted Investments in an aggregate amount not in excess
of $10,000,000; or (vi) subject to the condition precedent that the Company has
first
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satisfied all its obligations set forth in Section 10.14, the redemption of any
then outstanding shares of Existing Preferred Stock upon the occurrence of a
Major Transaction.
Any Investment made by the Company or any Restricted Subsidiary in a
Restricted Subsidiary that is redesignated from a Restricted Subsidiary to an
Unrestricted Subsidiary shall be subject to this Section 10.10 and shall be
treated as a Restricted Payment (to the extent not previously included as a
Restricted Payment) made on the day of redesignation in an amount equal to the
greater of (i) the Fair Market Value of the Capital Stock of such redesignated
Subsidiary held by the Company and its Restricted Subsidiaries on that date, and
(ii) the amount of the Investments determined in accordance with GAAP made by
the Company and its Restricted Subsidiaries in that redesignated Subsidiary.
The amounts referred to in clauses (i), (ii), (iii), (iv), (v) or (vi) of
the second immediately preceding paragraph and the Investment amount determined
pursuant to the immediately preceding paragraph shall be included as Restricted
Payments in any computation made pursuant to clause (iii) of the third preceding
paragraph.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted by and complies with this Indenture and setting
forth in reasonable detail the basis on which the required calculations were
computed, which calculations will be based upon the Company's latest
consolidated available financial statements.
SECTION 10.11 LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, (a) create, incur, assume, guarantee or in any manner become directly or
indirectly liable for the payment of (collectively, "incur") any Indebtedness
(including any Acquired Indebtedness, but excluding any Permitted Indebtedness),
or (b) issue any Disqualified Capital Stock, unless, on a pro forma basis after
giving effect to that incurrence or issuance and the application of the net
proceeds therefrom, the Company's Consolidated Fixed Charge Coverage Ratio for
the four most recent consecutive fiscal quarters of the Company prior to the
date of the proposed incurrence or issuance for which consolidated financial
statements of the Company and its Restricted Subsidiaries are available would be
at least 2.0 to 1.0.
(b) [Intentionally omitted]
SECTION 10.12 LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted Subsidiary to
(i) issue or sell or otherwise dispose of any Capital Stock of any Restricted
Subsidiary (other than to the Company or a Wholly Owned Restricted Subsidiary)
other than Junior Preferred Stock or (ii) permit any Person
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other than the Company or a Wholly Owned Restricted Subsidiary to own any
Capital Stock of any Restricted Subsidiary other than Junior Preferred Stock,
except, in the case of clause (i) or (ii), to the extent permitted by and in
accordance with the definition of "Wholly Owned Restricted Subsidiary" set forth
in Section 1.1. The sale of all the Capital Stock of any Restricted Subsidiary
is permitted by this Section 10.12 but is subject to the limitations set forth
in Section 10.15.
SECTION 10.13 LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, affirm or suffer to exist or
become effective any Lien of any kind, EXCEPT for Permitted Liens, upon any of
their respective Properties, whether now owned or acquired after the Issue Date,
or upon any income, profits or proceeds therefrom, or assign or otherwise convey
any right to receive income or profits therefrom, unless prior to, or
contemporaneously therewith, the Securities are equally and ratably secured with
(or prior to) the obligation or liability secured by that Lien; PROVIDED,
HOWEVER, that if a Lien is granted to secure Indebtedness and that Indebtedness
is expressly subordinated to the Securities, the Lien securing that Indebtedness
shall be expressly subordinated and junior to the Lien securing the Securities,
with the same relative priority as such Indebtedness has with respect to the
Securities.
SECTION 10.14 OFFER TO PURCHASE SECURITIES UPON CHANGE OF CONTROL.
(a) If a Change of Control occurs, the Company shall make an offer to
purchase (a "Change of Control Offer") all the then Outstanding Securities, in
whole or in part, from the Holders of such Securities in integral multiples of
$1,000, at a purchase price (the "Change of Control Purchase Price") equal to
101% of the principal amount of such Securities, together with accrued and
unpaid interest thereon, if any, and Liquidated Damages, if any, to the Change
of Control Purchase Date (as defined below), in accordance with the procedures
set forth in paragraphs (b), (c) and (d) of this Section. The Company shall,
subject to the provisions described below, purchase all Securities validly
tendered pursuant to the Change of Control Offer and not withdrawn. The Company
will not be required to make a Change of Control Offer following the occurrence
of a Change of Control if another Person (i) makes the Change of Control Offer
(A) at the same purchase price, (B) at the same time and (C) otherwise in
substantial compliance with the requirements applicable to a Change of Control
Offer to be made by the Company and (ii) purchases all Securities validly
tendered and not withdrawn under that Person's Change of Control Offer.
(b) The Company shall keep the Change of Control Offer open for at least
20 Business Days and until the close of business on the fifth Business Day prior
to the Change of Control Purchase Date (as defined below).
(c) Not later than the 30th day after a Change of Control occurs, the
Company shall give to the Trustee in the manner provided in Section 14.4 and
each Holder of the Securities in the manner provided in Section 14.5, a notice
(the "Change of Control Notice") governing the terms of the Change of Control
Offer and stating:
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(1) that a Change in Control has occurred and that such Holder has
the right to require the Company to repurchase such Holder's Securities,
or portion thereof, at the Change of Control Purchase Price;
(2) any information regarding such Change of Control required to be
furnished pursuant to Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder;
(3) a purchase date (the "Change of Control Purchase Date") which
shall be on a Business Day not more than 60 nor less than 30 days
following the date such notice is mailed;
(4) that any Security, or portion thereof, not validly tendered or
accepted for payment will continue to accrue interest;
(5) that unless the Company defaults in depositing money with the
Paying Agent in accordance with the last paragraph of clause (d) of this
Section 10.14, or payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Purchase Date;
and
(6) the instructions a Holder must follow in order to have his
Securities repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Securities purchased must surrender such
Securities to the Paying Agent at the address specified in the Change of Control
Notice at least five Business Days prior to the Change of Control Purchase Date.
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than three Business Days prior to the Change of Control
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the certificate number(s) (in the case of Physical
Securities) and principal amount of the Securities delivered for purchase by the
Holder as to which his election is to be withdrawn and a statement that such
Holder is withdrawing his election to have such Securities purchased. Holders
whose Securities are purchased only in part will be issued new Securities of
like tenor and equal in principal amount to the unpurchased portion for the
Securities surrendered.
On or prior to the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof validly tendered pursuant to
the Change of Control Offer, (ii) irrevocably deposit with the Paying Agent
money sufficient to pay the purchase price of all Securities or portions thereof
so tendered, and (iii) deliver or cause to be delivered to the Trustee the
Securities so accepted. The Paying Agent shall promptly mail or deliver to
Holders of the Securities so tendered payment in an amount equal to the Change
of Control Purchase Price for the Securities, and the Company shall execute and,
upon Company Order, the Trustee shall authenticate and mail or make available
for delivery to such Holders a new Security of like tenor and equal in principal
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amount to any unpurchased portion of the Security which any such Holder did not
surrender for purchase. The Company shall announce the results of a Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date. For purposes of this Section 10.14, the Trustee shall act as the Paying
Agent.
(e) The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, if a Change of Control occurs and the Company is
required to purchase Securities as described in this Section 10.14.
SECTION 10.15 LIMITATION ON ASSET SALES.
The Company shall not, and shall not permit any Restricted Subsidiary to,
consummate any Asset Sale unless (i) the Company or the Restricted Subsidiary,
as the case may be, receives consideration at the time of the Asset Sale at
least equal to the fair market value of the assets and properties sold or
otherwise disposed of pursuant to the Asset Sale (as determined by the Board of
Directors, whose determination in good faith shall be conclusive and evidenced
by a Board Resolution), (ii) at least 75% of the consideration received by the
Company or the Restricted Subsidiary, as the case may be, in respect of the
Asset Sale consists of cash or Cash Equivalents and (iii) the Company delivers
to the Trustee an Officers' Certificate certifying that the Asset Sale complies
with clauses (i) and (ii) of this sentence. The amount (without duplication) of
any Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is expressly assumed by the transferee in an Asset
Sale and with respect to which the Company or the Restricted Subsidiary, as the
case may be, is unconditionally released by the holder of that Indebtedness
shall be deemed (i) to be cash or Cash Equivalents for purposes of clause (ii)
of the preceding sentence and (ii) to constitute a repayment of, and a permanent
reduction in, the amount of that Indebtedness for purposes of the second
following paragraph. If at any time any non-cash consideration received by the
Company or any Restricted Subsidiary, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration) or Cash
Equivalents, then such conversion or disposition shall constitute an Asset Sale
and the Net Available Proceeds therefrom shall be applied in accordance with
this covenant. A transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary will not constitute an Asset Sale, and a transfer of
assets that constitutes a Restricted Investment and that is permitted under
Section 10.10 will not constitute an Asset Sale.
If substantially all (but not all) the property and assets of the Company
and its Restricted Subsidiaries are transferred as an entirety to a Person in a
transaction permitted under Article VIII, the successor corporation shall be
deemed to have sold the properties and assets of the Company and its
Subsidiaries not so transferred for purposes of this Section 10.15 (other than
the provision described in clause (ii) of the first sentence of the immediately
preceding paragraph) and must comply with the provisions of this Section 10.15
with respect to that deemed sale as if it were an
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Asset Sale. In addition, the Fair Market Value of the Properties of the Company
or its Subsidiaries deemed to be sold shall be deemed to be Net Available
Proceeds for purposes of this Section 10.15.
If the Company or any Restricted Subsidiary consummates an Asset Sale, the
Company or any Restricted Subsidiary, as the case may be, may either, no later
than 365 days after that Asset Sale, (i) apply all or any of the Net Available
Proceeds therefrom to repay Indebtedness (other than Subordinated Indebtedness)
of the Company or any Restricted Subsidiary, PROVIDED, in each case, that the
related loan commitment (if any) is thereby permanently reduced by the amount of
the Indebtedness so repaid or (ii) invest all or any part of the Net Available
Proceeds therefrom in Properties that replace the Properties that were the
subject of the Asset Sale or in other Properties that will be used in the
business of the Company and the Restricted Subsidiaries. The amount of the Net
Available Proceeds not applied or invested as provided in this paragraph shall
constitute "Excess Proceeds."
SECTION 10.16 NET PROCEEDS OFFER.
(a) On the date when the aggregate amount of Excess Proceeds from one or
more Asset Sales equals or exceeds $5,000,000 (the "Trigger Date"), the Company
shall make an offer to purchase, from all Holders of the then Outstanding
Securities, an aggregate principal amount of Securities equal to such Excess
Proceeds as follows:
(i) Not later than the 30th date following the Trigger Date, the
Company shall give to the Trustee in the manner provided in Section 14.4
hereof and each Holder of the Securities in the manner provided in Section
14.5 hereof, a notice (a "Purchase Notice") offering to purchase (a "Net
Proceeds Offer") from all Holders of the Securities the maximum aggregate
principal amount (expressed as a multiple of $1,000) of Securities that
may be purchased out of the amount (the "Payment Amount") of such Excess
Proceeds;
(ii) The offer price for the Securities shall be payable in cash in
an amount equal to 100% of the principal amount of the Securities tendered
pursuant to a Net Proceeds Offer, together with accrued and unpaid
interest thereon, if any, and Liquidated Damages, if any, to the date that
Net Proceeds Offer is consummated (the "Offered Price"), in accordance
with the procedures set forth in paragraph (b) of this Section. To the
extent that the aggregate Offered Price of the Securities tendered
pursuant to a Net Proceeds Offer is less than the Payment Amount relating
thereto (such shortfall constituting a "Net Proceeds Deficiency"), subject
to the limitations of Section 10.10 hereof the Company may use any or all
of such Net Proceeds Deficiency for general corporate purposes;
(iii) If the aggregate Offered Price of Securities validly tendered
and not withdrawn by Holders thereof exceeds the Payment Amount, the
Trustee will select the Securities to be purchased on a PRO RATA basis in
accordance with the relative aggregate principal amounts of Securities so
tendered and not withdrawn. When a Net Proceeds Offer is completed, the
amount of Excess Proceeds shall be zero.
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(iv) The Purchase Notice shall set forth a purchase date (the "Net
Proceeds Payment Date"), which shall be on a Business Day no earlier than
30 days nor later than 60 days from the Trigger Date. The Purchase Notice
shall also state (i) that a Trigger Date with respect to one or more Asset
Sales has occurred and that such Holder has the right to require the
Company to repurchase such Holder's Securities at the Offered Price,
subject to the limitations described in the foregoing paragraph (iii),
(ii) any information regarding such Net Proceeds Offer required to be
furnished under the Exchange Act and any other securities laws and
regulations thereunder, (iii) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue interest, (iv)
that, unless the Company defaults in depositing money with the Paying
Agent in accordance with the last paragraph of clause (b) of this Section
10.15, or payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Payment Date, and (v) the
instructions a Holder must follow in order to have his Securities
repurchased in accordance with paragraph (b) of this Section.
(b) Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Purchase Notice at least five Business Days prior to the Net Proceeds Payment
Date. Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than three Business Days prior to the Net Proceeds Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the certificate number(s) (in the case of Physical Securities)
and principal amount of the Securities delivered for purchase by the Holder as
to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Securities purchased. Holders whose
Securities are purchased only in part will be issued new Securities of like
tenor and equal in principal amount to the unpurchased portion of the Securities
surrendered.
On or prior to the Net Proceeds Payment Date, the Company shall (i) accept
for payment Securities or portions thereof validly tendered pursuant to a Net
Proceeds Offer in an aggregate principal amount equal to the Payment Amount or
such lesser amount of Securities as has been tendered, (ii) irrevocably deposit
with the Paying Agent money sufficient to pay the purchase price of all
Securities or portions thereof so tendered in an aggregate principal amount
equal to the Payment Amount or such lesser amount and (iii) deliver or cause to
be delivered to the Trustee the Securities so accepted. The Paying Agent shall
promptly mail or deliver to Holders of the Securities so accepted payment in an
amount equal to the purchase price, and the Company shall execute and the
Trustee shall authenticate and mail or make available for delivery to such
Holders a new Security of like tenor and equal in principal amount to any
unpurchased portion of the Security which any such Holder did not surrender for
purchase. Any Securities not so accepted will be promptly mailed or delivered to
the Holder thereof. The Company shall announce the results of a Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Payment Date. For
purposes of this Section 10.16, the Trustee shall act as the Paying Agent.
(c) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or suffer to exist any agreement that would place any restriction
of any kind (other than pursuant to
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law or regulation) on the ability of the Company to make a Net Proceeds Offer
following any Asset Sale. The Company shall comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, if
applicable, if an Asset Sale occurs and the Company is required to purchase
Securities as described in this Section 10.16.
SECTION 10.17 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any Restricted Subsidiary to,
enter into, renew or extend any contract or agreement relating to the sale,
purchase or lease of assets (other than Capital Stock of the Company), property
or services from or to any Affiliate of the Company (each of the foregoing, an
"Affiliate Transaction") (i) on terms less favorable to the Company or the
Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction with a Person not an Affiliate of the Company or (ii) on
terms that are not fair from a financial point of view to the Company or the
Restricted Subsidiary, as the case may be, in the event no comparable
transaction with a Person not an Affiliate of the Company is available;
PROVIDED, that the Company shall not, and shall not permit any Restricted
Subsidiary to, enter into, renew or extend any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate payments, value,
remuneration or other consideration in excess of $1.0 million after the Issue
Date unless the prior approval thereof by the Board of Directors (including a
majority of the Disinterested Directors) has been obtained and the Company
delivers to the Trustee an Officers' Certificate (i) certifying that the
Affiliate Transaction or series of related Affiliate Transactions complies with
the foregoing restriction and (ii) if the Affiliate Transaction or series of
related Affiliate Transactions involves aggregate payments, value, remuneration
or other consideration in excess of $5.0 million after the Issue Date, to which
is attached a copy of a written opinion of an Independent Financial Advisor
specializing or having a speciality in the type and subject matter of the
transaction or series of related transactions at issue, to the effect that such
transaction or series of related transactions is fair from a financial point of
view to the Company or the Restricted Subsidiary, as the case may be; PROVIDED,
HOWEVER, that the foregoing restriction will not apply to: (i) transactions
between or among (a) the Company and one or more Wholly Owned Restricted
Subsidiaries or (b) Wholly Owned Restricted Subsidiaries; (ii) transactions
between the Company or any Restricted Subsidiary and any qualified employee
stock ownership plan established for the benefit of the Company's employees, or
the establishment or maintenance of any such plan; (iii) reasonable director,
officer and employee compensation and other benefit, and indemnification,
arrangements approved by the Board of Directors; or (iv) transactions permitted
by Section 10.10.
SECTION 10.18 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or allow to become effective any consensual Payment Restriction with
respect to any Restricted Subsidiary, except for any such Payment Restriction
existing under or by reason of (i) applicable law, (ii) customary non-assignment
provisions in leases or other contracts entered into in the ordinary course of
business and consistent
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with past practices, (iii) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions on the property so
acquired, (iv) customary restrictions imposed on the transfer of copyrighted or
patented materials, (v) the entering into of a contract for the sale or other
disposition of assets, directly or indirectly, so long as such restrictions do
not extend to assets that are not subject to such sale or other disposition,
(vi) the terms of any agreement evidencing any Indebtedness of Restricted
Subsidiaries that was permitted by this Indenture to be incurred that only
restrict the transfer of the assets purchased with the proceeds of such
Indebtedness, (vii) the terms of the Working Capital Agreement in effect on the
Issue Date and any similar Payment Restriction under any similar revolving
credit facility or any replacement thereof, PROVIDED that such similar Payment
Restriction is no more restrictive than the Payment Restriction in effect on the
Issue Date and (viii) the terms of any agreement evidencing any Acquired
Indebtedness that was permitted by this Indenture to be incurred, PROVIDED that
such Payment Restriction only applies to assets that were subject to such
restrictions prior to the acquisition of such assets by the Company or any
Restricted Subsidiary.
SECTION 10.19 LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Restricted
Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Subsidiary) to own any Preferred Stock of any Restricted Subsidiary other than
Junior Preferred Stock.
SECTION 10.20 WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 10.5 through 10.13, Section 10.15
and Sections 10.17 through 10.19 hereof if, before or after the time for such
compliance, the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities, by Act of such Holders, waive such compliance in
such instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1 RIGHT OF REDEMPTION.
The Company may, at its option, redeem the Securities in whole or from
time to time in part, on or after July 1, 2002, on not less than 30 nor more
than 60 days' notice to each Holder of Securities to be redeemed, subject to the
conditions and at the redemption prices (expressed as
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percentages of principal amount) set forth below, if redeemed during the
twelve-month period beginning on July 1 of the year indicated below:
Redemption
YEAR PRICE
---- ----------
2002...................................... 105.250%
2003........................................... 103.500%
2004........................................... 101.750%
2005 and thereafter............................ 100.000%
together in the case of any such redemption with accrued and unpaid interest
thereon and Liquidated Damages, if any, to the applicable Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date), all as provided herein.
Notwithstanding the foregoing, at any time on or prior to July 1, 2000,
the Company may redeem up to 35% of the aggregate principal amount of Securities
originally issued on not less than 30 nor more than 60 days' notice to each
Holder of Securities to be redeemed, from the Net Cash Proceeds of a Public
Equity Offering, at a redemption price equal to 110.5% of the principal amount
thereof, together with accrued and unpaid interest thereon and Liquidated
Damages, if any, to the Redemption Date, PROVIDED that (i) at least $65,000,000
aggregate principal amount of Securities originally issued remains Outstanding
immediately after that redemption and (ii) the Company effects that redemption
within 60 days after the Public Equity Offering closes.
SECTION 11.2 APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 11.3 ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to Section
11.1 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 11.4. Any election to redeem
Securities shall be revocable until the Company gives a notice of redemption
pursuant to Section 11.5 to the Holders of Securities to be redeemed.
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SECTION 11.4 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the Trustee shall, not
less than 30 days nor more than 60 days prior to the Redemption Date, select the
particular Securities to be redeemed from the Outstanding Securities not
previously called for redemption, pro rata, by lot or by any other method as the
Trustee shall deem fair and appropriate and which may provide for the selection
for redemption of portions of the principal of Securities; PROVIDED, HOWEVER,
that any such partial redemption shall be in integral multiples of $1,000.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs of this Section 11.4 shall
not apply with respect to any redemption affecting only a Global Security,
whether such Global Security is to be redeemed in whole or in part. In the case
of any such redemption in part, the unredeemed portion of the principal amount
of the Global Security shall be in an authorized denomination.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
SECTION 11.5 NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for in Section
15.5 hereof not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) in the case of a partial redemption of Physical Securities, the
identification of the particular Securities to be redeemed, and, if any
Global Security or Physical Security is to be redeemed in part, the
portion of the principal amount thereof to be redeemed;
(d) that on the Redemption Date the Redemption Price (together with
accrued and unpaid interest and Liquidated Damages, if any, to the
Redemption Date payable as provided in Section 11.7 hereof) will become
due and payable upon each such Security, or the portion thereof, to be
redeemed, and that, unless the Company shall default in the payment of the
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Redemption Price and any applicable accrued and unpaid interest or
Liquidated Damages, if any, interest thereon will cease to accrue on and
after said date; and
(e) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, which shall be the office or agency
of the Company maintained for such purpose pursuant to Section 10.2
hereof.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. Failure to give such
notice by mailing to any Holder of Securities or any defect therein shall not
affect the validity of any proceedings for the redemption of other Securities.
SECTION 11.6 DEPOSIT OF REDEMPTION PRICE.
On or before 12:00 noon, New York City time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3 hereof) immediately available funds in an amount
sufficient to pay the Redemption Price of, and accrued and unpaid interest and
Liquidated Damages, if any, on, all the Securities which are to be redeemed on
such Redemption Date.
SECTION 11.7 SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest
and Liquidated Damages, if any, to the Redemption Date), and from and after such
date (unless the Company shall default in the payment of the Redemption Price
and accrued and unpaid interest and Liquidated Damages, if any) such Securities
shall cease to bear interest. Upon surrender of any such Security for redemption
in accordance with said notice, such Security shall be paid by the Company at
the Redemption Price, together with accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date; PROVIDED, HOWEVER, that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Regular
Record Dates according to their terms and the provisions of Section 3.7 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, and Liquidated
Damages, if any, shall, until paid, bear interest from the Redemption Date at
the rate borne by the Securities.
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SECTION 11.8 SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 10.2 hereof (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute, and, upon
Company Order, the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, of like tenor and in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal amount of the Security so surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 12.1 COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution at any time, with
respect to the Securities, elect to have either Section 12.2 or Section 12.3
hereof be applied to all Outstanding Securities upon compliance with the
conditions set forth below in this Article XII.
SECTION 12.2 DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.2, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their obligations with respect to all
Outstanding Securities on and after the date the conditions set forth in Section
12.4 hereof are satisfied (hereinafter, "legal defeasance"). For this purpose,
such legal defeasance means that the Company shall be deemed (i) to have paid
and discharged its obligations under the Outstanding Securities, PROVIDED,
HOWEVER, that the Securities shall continue to be deemed to be "Outstanding" for
purposes of Section 12.5 hereof and the other Sections of this Indenture
referred to in clauses (A) and (B) below, and (ii) to have satisfied all its
other obligations with respect to such Securities and this Indenture (and the
Trustee, at the expense and direction of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 12.4 hereof and as more fully set forth in such Section,
payments in respect of the principal of and premium, if any, interest and
Liquidated Damages, if any, on their Outstanding Securities when those payments
are due (or at such time as the Securities would be subject to redemption at the
option of the Company in accordance with this Indenture), (B) the Company's
obligations under Section 3.3, 3.4, 3.5, 3.6, 5.8, 6.6, 6.9, 6.10, 10.2 and
10.3, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, and (D) the Company's obligations under this Article XII. Subject to
compliance with
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this Article XII, the Company may exercise its option under this Section 12.2
notwithstanding the prior exercise of its option under Section 12.3 hereof with
respect to the Securities.
SECTION 12.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.3, (i) the Company shall be released from its
obligations under clauses (iii), (iv) and (v) under Section 8.1, any covenant in
Sections 10.5 through 10.19 and any covenant in Article XIII, (ii) the
Subsidiary Guarantors shall be released from the Subsidiary Guarantees and (iii)
the occurrence of any event specified in Sections 5.1(c), 5.1(d) (with respect
to clauses (iii), (iv) and (v) under Section 8.1, Sections 10.5 through 10.19),
5.1(e), 5.1(f), 5.1(g) (with respect to any Restricted Subsidiary) and 5.1(h)
(with respect to any Restricted Subsidiary) shall be deemed not to be or result
in an Event of Default, in each case with respect to the Outstanding Securities
on and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Article or Section (to the extent so specified in the case of Sections
5.1(d), 5.1(g) and 5.1(h) hereof), whether directly or indirectly, by reason of
any reference elsewhere herein to any such Article or Section or by reason of
any reference in any such Article or Section to any other provision herein or in
any other document, but, EXCEPT as specified above, the remainder of this
Indenture and such Securities shall not be affected thereby.
SECTION 12.4 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
12.2 or Section 12.3 hereof to the Outstanding Securities:
(a) The Company shall irrevocably deposit or cause to be deposited
with the Trustee (or another trustee satisfying the requirements of
Section 6.7 hereof who shall agree to comply with the provisions of this
Article XII applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in United States dollars in an amount, or (B) U.S. Government
Obligations which through the scheduled payment of principal and interest
in respect thereof in accordance with their terms will provide, not later
than one day before the due date of any payment, money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of and premium, if any, interest and
Liquidated Damages, if any, on the Outstanding Securities on the Stated
Maturity thereof (or
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Redemption Date, if applicable), PROVIDED that the Trustee shall have been
irrevocably instructed by a Company Order to apply such money or the
proceeds of such U.S. Government Obligations to said payments with respect
to the Securities. Before such a deposit, the Company may give to the
Trustee, in accordance with Section 11.3 hereof, a notice of its election
to redeem all of the Outstanding Securities at a future date in accordance
with Article XI hereof, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying
the foregoing. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of America
for the timely payment of which its full faith and credit is pledged or
(y) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, PROVIDED that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(b) The Company must deliver to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance or covenant
defeasance had not occurred (in the case of legal defeasance, this Opinion
of Counsel must refer to and be based on a published ruling of the
Internal Revenue Service or a change in applicable federal income tax
laws).
(c) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as Sections 5.1(g) and 5.1(h) are concerned, at any time during
the period ending on the 91st day after the date of such deposit.
(d) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company.
(e) Such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, any other
material agreement or instrument to
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which the Company or any Restricted Subsidiary is a party or by which the
Company or any Restricted Subsidiary is bound, as evidenced to the Trustee
in an Officers' Certificate delivered to the Trustee concurrently with
such deposit.
(f) The Company shall have delivered to the Trustee an Opinion of
Counsel experienced in bankruptcy matters to the effect that the use of
the trust funds to pay the principal of and premium, if any, interest and
Liquidated Damages, if any, on the Outstanding Securities would not be
avoidable as a preferential payment under Section 547 of the Federal
Bankruptcy Code (or any similar provision then in force) or recoverable
under Section 550 of the Federal Bankruptcy Code (or any similar provision
then in force) in the event the Company became a debtor in a proceeding
commenced thereunder.
(g) The Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Outstanding Securities over other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others.
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, satisfactory to the Trustee, each
stating that all conditions precedent under this Indenture to either the
legal defeasance under Section 12.2 hereof or the covenant defeasance
under Section 12.3, as the case may be, have been complied with.
SECTION 12.5 DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 10.3 hereof,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee -- collectively for
purposes of this Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent (other
than the Company acting as its own Paying Agent) as the Trustee may determine,
to the Holders of such Securities of all sums due and to become due thereon in
respect of principal and premium, if any, interest and Liquidated Damages, if
any, but such money need not be segregated from other funds EXCEPT to the extent
required by law.
The Company shall pay and indemnify the Trustee against all taxes, fees or
other charges imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 12.4 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Securities.
Anything in this Article XII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 12.4
hereof which, in the opinion of a nationally
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recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in EXCESS of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance, as applicable, in accordance with this
Article.
SECTION 12.6 REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 12.5 hereof by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 12.2 or 12.3 hereof, as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 12.5 hereof; PROVIDED, HOWEVER, that if the Company makes any
payment of principal of or premium, if any, interest or Liquidated Damages, if
any, on any Security following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE XIII
SUBSIDIARY GUARANTEES
SECTION 13.1 UNCONDITIONAL GUARANTEE.
Each Subsidiary Guarantor hereby jointly and severally unconditionally
Guarantees to each Holder of a Security authenticated and delivered by the
Trustee, and to the Trustee on behalf of such Holder, the full and punctual
payment of the principal of and premium, if any, interest and Liquidated
Damages, if any, on such Security when and as the same shall become due and
payable, whether at the Stated Maturity, by acceleration, call for redemption,
purchase or otherwise, in accordance with the terms of such Security and of this
Indenture. In case of the failure of the Company punctually to make any such
payment, each Subsidiary Guarantor hereby jointly and severally agrees to pay or
cause such payment to be made punctually when and as the same shall become due
and payable, whether at the Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, and as if such payment were made by the
Company.
Each Subsidiary Guarantor hereby jointly and severally agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of such Security or this Indenture, the absence of
any action to enforce the same, any exchange, release or non-perfection of any
Lien on any collateral for, or any release or amendment or waiver of any term of
any other Guarantee of all or any of the Securities, or any consent to departure
from any requirement of any other Guarantee of all or any of the Securities, the
election by the Trustee or any of the Holders in any proceeding under Chapter 11
of the Federal Bankruptcy Code, or the application of Section 1111(b)(2) of the
Federal Bankruptcy Code, any borrowing or grant of a security interest by
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the Company, as debtor-in-possession, under Section 364 of the Federal
Bankruptcy Code, the disallowance, under Section 502 of the Federal Bankruptcy
Code, of all or any portion of the claims of the Trustee or any of the Holders
for payment of any of the Securities (including, without limitation, any
interest, Liquidated Damages or premium thereon), any waiver or consent by the
Holder of such Security or by the Trustee with respect to any provisions thereof
or of this Indenture or with respect to the provisions of this Article XIII as
they apply to any other Subsidiary Guarantor, the obtaining of any judgment
against the Company or any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives the benefits of diligence,
presentment, demand of payment, any requirement that the Trustee or any of the
Holders protect, secure, perfect or insure any security interest in or other
Lien on any property subject thereto or exhaust any right or take any action
against the Company or any other Person, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest or notice with respect to such
Security or the Indebtedness evidenced thereby and all demands whatsoever, and
covenants that its Subsidiary Guarantee will not be discharged in respect of
such Security except by complete performance of the obligations contained in
such Security and in such Subsidiary Guarantee. Each Subsidiary Guarantor hereby
agrees that, in the event of a default in payment of principal of or premium, if
any, interest or Liquidated Damages, if any, on such Security, whether at their
Stated Maturity, by acceleration, call for redemption, purchase or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in this
Indenture, directly against all or any of the Subsidiary Guarantors to enforce
their respective Subsidiary Guarantees without first proceeding against the
Company. Each Subsidiary Guarantor agrees that if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any of the Holders
are prevented by applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, such Subsidiary Guarantor agrees to pay to the Trustee for the
account of the Holders, upon demand therefor, the amount that would otherwise
have been due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
Each Subsidiary Guarantor shall be subrogated to all rights of the Holders
of the Securities against the Company in respect of any amounts paid by that
Subsidiary Guarantor on account of such Securities pursuant to the provisions of
its Subsidiary Guarantee of this Indenture; PROVIDED, HOWEVER, that no
Subsidiary Guarantor shall be entitled to enforce or to receive any payments
arising out of, or based upon, such right of subrogation until the principal of
and premium, if any, interest and Liquidated Damages, if any, on all Securities
issued hereunder shall have been paid in full.
Each Subsidiary Guarantee shall remain in full force and effect and
continue to be effective if any petition is filed by or against the Company for
liquidation or reorganization, if the Company becomes insolvent or makes an
assignment for the benefit of creditors or if a receiver or trustee is appointed
for all or any significant part of the Company's assets, and shall, to the
fullest extent permitted by law, continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of the Securities is,
pursuant to applicable law, rescinded or reduced in amount, or
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must otherwise be restored or returned by an obligee on the Securities whether
as a "voidable preference," "fraudulent transfer," or otherwise, all as though
such payment or performance has not been made. If any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Securities shall, to
the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
The Subsidiary Guarantors shall have the right to seek contribution from
any non-paying Subsidiary Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Subsidiary Guarantees or under
this Article XIII in accordance with Section 13.7.
The obligations of each Subsidiary Guarantor to the Holders and to the
Trustee pursuant to its Subsidiary Guarantee and this Indenture constitute
senior unsecured obligations of that Subsidiary Guarantor.
SECTION 13.2 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
The Subsidiary Guarantee to be endorsed on the Securities is set forth in
Appendix A. Each Subsidiary Guarantor hereby agrees to execute its Subsidiary
Guarantee, in a form established pursuant to Appendix A, to be endorsed on each
Security authenticated and delivered by the Trustee.
The Subsidiary Guarantee shall be executed on behalf of each respective
Subsidiary Guarantor by any one of such Subsidiary Guarantor's Officers,
attested by its secretary or assistant secretary. The signature of any or all of
these Officers on the Subsidiary Guarantee may be manual or facsimile.
A Subsidiary Guarantee bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of a Subsidiary Guarantor
shall bind such Subsidiary Guarantor, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of the Security on which such Subsidiary Guarantee is endorsed or did
not hold such offices at the date of such Subsidiary Guarantee.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee
endorsed thereon on behalf of the Subsidiary Guarantors. Each Subsidiary
Guarantor hereby jointly and severally agrees that its Subsidiary Guarantee set
forth in Section 13.1 shall remain in full force and effect notwithstanding any
failure to endorse a Subsidiary Guarantee on any Security.
SECTION 13.3 LIMITATION ON MERGER OR CONSOLIDATION.
No Subsidiary Guarantor (in this Section 13.3, the "Subject Subsidiary
Guarantor") may consolidate with or merge with or into (whether or not the
Subject Subsidiary Guarantor is the surviving Person) another Person (other than
the Company or another Subsidiary Guarantor), whether or not affiliated with the
Subject Subsidiary Guarantor, unless: (i) either (a) the survivor is
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not a Subsidiary Guarantor following that consolidation or merger and the
consolidation or merger satisfies the provisions of Section 10.15 or (b) the
survivor is a Subsidiary Guarantor and the surviving Subsidiary Guarantor could
make the Investment in the Person that consolidated or merged with it in
accordance with Section 10.10; or (ii)(a) the Person formed by or surviving any
such consolidation or merger (if other than the Subject Subsidiary Guarantor)
assumes all the obligations of the Subject Subsidiary Guarantor under the
Securities and the Indenture pursuant to a supplemental indenture, in form and
substance satisfactory to the Trustee; (b) immediately after giving effect to
such transaction, no Default or Event of Default exists; and (c) immediately
after giving effect to such transaction as if the same had occurred at the
beginning of the most recently ended period of four consecutive fiscal quarters
of the Company for which consolidated financial statements of the Company and
its Restricted Subsidiaries are available, the Company and the Restricted
Subsidiaries could incur at least $1.00 of additional Indebtedness not
constituting Permitted Indebtedness in accordance with Section 10.11(a).
Except as set forth in Articles VIII and X hereof, nothing contained in
this Indenture or in any of the Securities shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor or shall prevent any sale or conveyance of the Property of a
Subsidiary Guarantor as an entirety or substantially as an entirety to the
Company or another Subsidiary Guarantor.
SECTION 13.4 RELEASE OF SUBSIDIARY GUARANTORS.
(a) In the event of a sale or other disposition of all the properties and
assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all the Capital Stock of any
Subsidiary Guarantor, in each case subject to and as permitted by the terms of
this Indenture, including, without limitation, Sections 8.1, 10.15 and 13.3, and
upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such consolidation, merger, sale or other
disposition was made in accordance with Section 13.3 hereof, the Trustee shall
execute any documents reasonably required in order to evidence the release of
that Subsidiary Guarantor (in the event of a sale of or other disposition, by
way of such a merger, consolidation or otherwise, of all the Capital Stock of
that Subsidiary Guarantor) or the corporation acquiring the properties and
assets (in the event of a sale or other disposition of the properties and assets
of that Subsidiary Guarantor substantially as an entirety) from its obligations
under its Subsidiary Guarantees endorsed on the Securities and under this
Article XIII PROVIDED that the Net Available Proceeds of such sale or other
disposition are applied in accordance with the provisions of this Indenture
including Sections 10.15 and 10.16. Any Subsidiary Guarantor not released from
its obligations under its Subsidiary Guarantees endorsed on the Securities and
under this Article XIII shall remain liable for the full amount of principal of
and premium, if any, interest and Liquidated Damages, if any, on the Securities
and for the other obligations of a Subsidiary Guarantor under its Subsidiary
Guarantees endorsed on the Securities and under this Article XIII.
(b) Concurrently with the legal defeasance of the Securities under Section
12.2 hereof or the covenant defeasance of the Securities under Section 12.3
hereof, the Subsidiary Guarantors
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shall be released from all of their obligations under their Subsidiary
Guarantees endorsed on the Securities and under this Article XIII.
(c) Upon the redesignation by the Company of a Subsidiary Guarantor from a
Restricted Subsidiary to an Unrestricted Subsidiary in compliance with the
provisions of this Indenture, such Subsidiary may, at its option, cease to be a
Subsidiary Guarantor and shall be released from all of the obligations of a
Subsidiary Guarantor under its Subsidiary Guarantees endorsed on the Securities
and under this Article XIII, which release shall be evidenced by a supplemental
indenture executed by the Company, the Subsidiary Guarantors and the Trustee.
SECTION 13.5 ADDITIONAL SUBSIDIARY GUARANTORS.
The Company or any Restricted Subsidiary may cause any of their respective
Subsidiaries to become a Subsidiary Guarantor with respect to the Securities. If
the Company or any Restricted Subsidiary or any of their respective Subsidiaries
shall, in compliance with the covenants in Article X, after the date of this
Indenture, (i) transfer or cause to be transferred, any Property to any
Subsidiary that is not a Subsidiary Guarantor (other than an Unrestricted
Subsidiary) or (ii) make any Investment in any Subsidiary that is not a
Subsidiary Guarantor (other than an Unrestricted Subsidiary), then the Company
or that Restricted Subsidiary shall cause that Subsidiary to execute a
Subsidiary Guarantee and deliver an Opinion of Counsel, in accordance with the
terms of this Indenture unless the Board of Directors has duly designated that
Subsidiary as an Unrestricted Subsidiary. Any such Subsidiary shall become a
Subsidiary Guarantor by executing and delivering to the Trustee (a) a
supplemental indenture, in form and substance satisfactory to, and executed by,
the Trustee and executed by the Company, which subjects such Subsidiary to the
provisions of this Indenture as a Subsidiary Guarantor and (b) an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized
and executed by such Subsidiary and constitutes the legal, valid, binding and
enforceable obligation of such Subsidiary (subject to such customary exceptions
concerning creditors' rights and equitable principles).
SECTION 13.6 LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the Guarantee
by that Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar Federal or state law. To effectuate the foregoing intention, the
Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount that, after giving effect to all other contingent
and fixed liabilities of such Subsidiary Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to Section 13.7, result in the obligations
of that Subsidiary Guarantor under its Subsidiary Guarantee not constituting
such a fraudulent transfer or conveyance under federal or state law.
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SECTION 13.7 CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Subsidiary Guarantor") under its Subsidiary Guarantee, and so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantees or under this Article XIII, such Funding Subsidiary
Guarantor shall be entitled to a contribution from all other Subsidiary
Guarantors in a PRO RATA amount, based on the net assets of each Subsidiary
Guarantor (including the Funding Subsidiary Guarantor), determined in accordance
with GAAP, subject to Section 13.6, for all payments, damages and expenses
incurred by that Funding Subsidiary Guarantor in discharging the Company's
obligations with respect to the Securities or any other Subsidiary Guarantor's
obligations with respect to its Subsidiary Guarantee.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act or this Indenture. Each such certificate and each such opinion
shall be in the form of an Officers' Certificate or an Opinion of Counsel, as
applicable, and shall comply with the requirements of this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope for the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
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The certificates and opinions provided pursuant to this Section 14.1 and
the statements required by this Section 14.1 shall comply in all respects with
TIA Sections 314(c) and (e).
SECTION 14.2 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer may be based, insofar as it
relates to legal matters, upon an opinion of counsel, UNLESS such Officer knows,
or in the exercise of reasonable care should know, that the opinion with respect
to the matters upon which his certificate or opinion is based is erroneous. Any
such Opinion of Counsel may be based, insofar as it relates to factual matters,
upon an Officers' Certificate, unless such counsel knows that the certificate
with respect to such matters is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 14.3 ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing;
and, EXCEPT as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.1) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. In each
situation in which such execution is by a signer acting in a capacity other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the
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execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership, principal amount and serial numbers of Securities held
by any Person, and the date of holding the same, shall be provided by the
Security Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purpose of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date, PROVIDED that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective UNLESS it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 14.4 NOTICES, ETC. TO TRUSTEE AND THE COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to or filed with,
(1) the Trustee by any Holder or the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing (in
the English language) and delivered in person or mailed by certified or
registered mail (return receipt requested) to the Trustee at its Corporate
Trust Office; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (UNLESS otherwise herein expressly provided)
if in writing (in the English
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language) and delivered in person or mailed by certified or registered
mail (return receipt requested) to the Company, addressed to it at the
Company's offices located at 3860 Virginia Avenue, Cincinnati, Ohio 45227,
Attention: Chief Financial Officer, or at any other address otherwise
furnished in writing to the Trustee by the Company.
SECTION 14.5 NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to Holders by the
Company, the Trustee or any Paying Agent, such notice shall be sufficiently
given (UNLESS otherwise herein expressly provided) if in writing (in the English
language) and mailed, first-class postage prepaid, to each Holder affected by
such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Any notice mailed to a Holder in the manner herein
prescribed shall be conclusively deemed to have been received by such Holder,
whether or not such Holder actually receives such notice. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of publication of any Authorized
Newspaper, or by reason of any other cause, it shall be impossible to make
publication of any notice in an Authorized Newspaper or Authorized Newspapers as
required by this Indenture, then such method of publication or notification as
shall be made with the approval of the Trustee shall constitute a sufficient
publication of such notice.
SECTION 14.6 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 14.7 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 14.8 SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any
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way be affected or impaired thereby, and a Holder shall have no claim therefor
against any party hereto.
SECTION 14.9 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person (other than the parties thereto, any Paying Agent, any
Securities Registrar and their successors hereunder and the Holders) any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 14.10 GOVERNING LAW; TRUST INDENTURE ACT CONTROLS; CONSENT TO
JURISDICTION AND SERVICE.
(a) THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY AND EACH SUBSIDIARY GUARANTOR
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, THE CITY OF
NEW YORK, IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE, OR THE SECURITIES, OR ANY SUBSIDIARY GUARANTEE AND FOR ACTIONS
BROUGHT UNDER FEDERAL OR STATE SECURITIES LAWS WITH RESPECT TO THE SECURITIES,
AND THE COMPANY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED BY ANY SUCH COURT.
(b) This Indenture is subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions. If and to the extent that any
provision of this Indenture limits, qualifies or conflicts with the duties
imposed by operation of Section 318(c) of the Trust Indenture Act, or conflicts
with any provision (an "incorporated provision") required by or deemed to be
included in this Indenture by operation of such Trust Indenture Act section,
such imposed duties or incorporated provisions shall control.
(c) Each of the Company and the Subsidiary Guarantors shall appoint CT
Corporation as their agent upon which process may be served in any action or
proceeding with respect to this Indenture, the Securities or the Subsidiary
Guarantees.
SECTION 14.11 LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal, interest, premium, if any, and Liquidated Damages, if any,
need not be made on such date, but may be made on the next succeeding Business
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Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity or Maturity; PROVIDED, HOWEVER, that
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, Stated Maturity or Maturity, as the case may be.
SECTION 14.12 NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder, incorporator or Affiliate, as
such, past, present or future, of the Company shall not have any personal
liability under the Securities or this Indenture by reason of his or its status
as a director, officer employee, stockholder, incorporator or Affiliate or any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder, by accepting any of the Securities,
waives and releases all such lability to the extent permitted by applicable law.
SECTION 14.13 DUPLICATE ORIGINALS.
The parties may sign any number of copies or counterparts of this
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
SECTION 14.14 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
ISSUER:
BRAZOS SPORTSWEAR, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Vice President
SUBSIDIARY GUARANTORS:
BRAZOS, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Vice President
BRAZOS EMBROIDERY, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Secretary
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MORNING SUN, INC., formerly known as
SolarCo, Inc., successor in interest to
Morning Sun, Inc.
By: /s/ RANDALL B. HALE
Name: Randall B. Hale
Title: Chairman Of The Board
TRUSTEE:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /s/ CURTIS D. SCHWEGMAN
Name: Curtis D. Schwegman
Title:Assistant Vice President
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APPENDIX A
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED
IN RULE 501(a) (1), (2), (3) OR (7)) AND TO CERTAIN PERSONS IN
OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions.
1.1. Definitions.
For the purposes of this APPENDIX A the following terms shall have the
meanings indicated below:
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Exchange Offer" means the offer by the Company, pursuant to the
Registration Rights Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Dillon, Read & Co. Inc. and SBC Warburg, Inc.
"Physical Security" means a certificated Initial Security bearing the
restricted securities legend set forth in Section 2.3(d) of this APPENDIX A.
"Private Exchange" means the offer by the Company, pursuant to the
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
the Initial Purchasers, in exchange for the Initial Securities held by the
Initial Purchasers as part of their initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Purchase Agreement" means the Purchase Agreement dated June 26, 1997,
between the Company, the Subsidiary Guarantors and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
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"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of July 2, 1997, by and among the Company, the Subsidiary Guarantors
and the Initial Purchasers, as such agreement may be amended, modified or
supplemented from time to time.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued by
the Company, in connection with the offer and sale of Initial Securities or
Private Exchange Securities, pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Physical Securities and Global
Securities that bear or are required to bear the legend set forth in Section
2.3(d) of this APPENDIX A.
1.2. Other Definitions.
Defined in
Appendix
TERM A SECTION
"Agent Members".................................. 2.1 (b)
"Global Security"................................ 2.1 (a)
"Regulation S"................................... 2.1 (c)
"Rule 144A"...................................... 2.1 (a)
Terms used herein without definition have the meanings ascribed to them in
the Indenture.
2. The Securities.
2.1. Form and Dating.
The Initial Securities are being offered and sold by the Company pursuant
to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") or to an IAI, in
each case as provided in the Purchase Agreement, shall be issued initially in
the form of one or more permanent global Securities in definitive, fully
registered form without interest coupons with the global securities legend and
restricted securities legend set forth in EXHIBIT 1 hereto (each, a "Global
Security"), which shall be deposited on behalf of the Initial Purchasers with
Norwest Bank Minnesota, National Association, at its New York office, as
custodian for the Depository (or with such other custodian as the Depository may
direct), and registered in the name of the Depository or a nominee of the
Depository, duly executed by the Company and duly endorsed by each Subsidiary
Guarantor and authenticated
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by the Trustee as provided in the Indenture. The aggregate principal amount of
the Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b) and pursuant to a Company Order, authenticate and deliver
initially one or more Global Securities that (a) shall be registered in the name
of the Depository for such Global Security or Global Securities or the nominee
of such Depository and (b) shall be delivered by the Trustee to such Depository
or pursuant to such Depository's instructions or held by Norwest Bank Minnesota,
National Association, as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or the custodian of the Depository or by the
Trustee under such Global Security, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) Physical Securities. Except as provided in this Section 2.1 or Section
2.3 or 2.4 of APPENDIX A, owners of beneficial interests in Global Securities
will not be entitled to receive physical delivery of certificated Securities.
Purchasers of Initial Securities who purchase Initial Securities sold in
reliance on Regulation S under the Securities Act ("Regulation S") will receive
Physical Securities; PROVIDED, HOWEVER, that upon transfer of such Physical
Securities to a QIB or to an IAI, such Physical Securities will, unless the
Global Security has previously been exchanged, be exchanged for an interest in a
Global Security pursuant to the provisions of Section 2.3 of this APPENDIX A.
2.2. Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount of
$100,000,000 and (2) Exchange Securities or Private Exchange Securities for
issue only in an Exchange Offer or a Private Exchange, respectively, pursuant to
the Registration Rights Agreement, for a like principal amount, in each case,
upon a Company Order. Such Company Order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Securities, Exchange Securities or Private Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$100,000,000, except as provided in Section 3.6 of the Indenture.
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2.3. Transfer and Exchange. (a) Transfer and Exchange of Physical
Securities. When Physical Securities are presented to the Security Registrar or
a co-registrar with a request:
(x) to register the transfer of such Physical Securities; or
(y) to exchange such Physical Securities for an equal principal
amount of Physical Securities of other authorized denominations,
the Security Registrar or co-registrar shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; PROVIDED, HOWEVER, that the Physical Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Security
Registrar or co-registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section
2.3(b) of this APPENDIX A or pursuant to clause (A), (B) or (C) below, and
are accompanied by the following additional information and documents, as
applicable:
(A) if such Physical Securities are being delivered to the
Security Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in the form set forth on the reverse of the Security); or
(B) if such Physical Securities are being transferred to the
Company, a certification to that effect; or
(C) if such Physical Securities are being transferred to an
IAI or pursuant to Rule 144, Rule 904 or another available exemption
from registration, (i) a certification to that effect (in the form
set forth on the reverse of the Security) and (ii) if the Company or
Security Registrar so requests, an Opinion of Counsel or other
evidence reasonably satisfactory to them as to the compliance with
the restrictions set forth in the legend set forth in Section
2.3(d)(i) of this APPENDIX A.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Physical Security
duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
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(i) certification, in the form set forth on the reverse of the
Security, that such Physical Security is being transferred (A) to a QIB in
accordance with Rule 144A or (B) to an IAI; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books and
records with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the
Depository account to be credited with such increase,
then the Trustee shall cancel such Physical Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Physical Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Physical Security so canceled. If no Global
Securities are then Outstanding, the Company shall issue and the Trustee shall
authenticate, upon the Company Order, a new Global Security in the appropriate
principal amount.
(c) Transfer and Exchange of Global Securities.
(i) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depository, in accordance
with this Indenture (including applicable restrictions on transfer set
forth herein, if any) and the procedures of the Depository therefor. A
transferor of a beneficial interest in a Global Security shall deliver to
the Security Registrar a written order given in accordance with the
Depository's procedure containing information regarding the participant
account of the Depository to be credited with a beneficial interest in the
Global Security. The Security Registrar shall, in accordance with such
instructions, instruct the Depository to credit to the account of the
Person specified in such instructions a beneficial interest in the Global
Security and to debit the account of the Person making the transfer the
beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this APPENDIX A (other
than the provisions set forth in Section 2.4 of this APPENDIX A), a Global
Security may not be transferred as a whole except by the Depository to a
nominee of the Depository or by a nominee of the Depository to the
Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 of this
APPENDIX A prior to the consummation of an Exchange Offer or the
effectiveness of a Shelf Registration Statement with respect to such
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Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of this
Section 2.3 (including the certification requirements set forth on the
reverse of the Initial Securities intended to ensure that such transfers
comply with the respective exemption from registration afforded under the
Act) and such other procedures as may from time to time be adopted by the
Company.
(d) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities and the
Physical Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the following
form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE
SECURITIES ACT."
"THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), BUT ONLY IN THE CASE OF A TRANSFER THAT IS
EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED
IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR,
AND SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR
AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY
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STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE."
Each Physical Security will also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE SECURITY
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS
SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER
COMPLIES WITH THE FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Physical Security, the Security Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a Physical
Security that does not bear the legend set forth above and rescind
any restriction on the sale or transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Security Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a Physical Security that does not bear the legend set
forth above and rescind any restriction on the sale or transfer of
such Transfer Restricted Security;
in either case, if the Holder certifies in writing to the Security Registrar
that its request for such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of the Initial
Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on
such Initial Securities or such Private Exchange Securities will cease to
apply, the requirements requiring any such Initial Securities or such
Private Exchange Securities issued to certain Holders be issued in global
form will cease to apply, and an Initial Securities or Private Exchange
Securities in certificated or global form without legends will be
available to the transferee of the Holder of such Initial Securities or
Private Exchange Securities upon exchange of such transferring Holder's
certificated Initial Securities or Private Exchange Securities. Upon the
occurrence of any of the circumstances described in
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this paragraph, the Company will deliver a Company Order instructing the
Trustee to issue Securities without legends.
(iv) Upon the consummation of an Exchange Offer with respect to the
Initial Securities pursuant to which certain Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
cease to apply and certificated Initial Securities with the restricted
securities legend set forth in EXHIBIT 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form will be
available to Holders that exchange such Initial Securities in such
Exchange Offer. Upon the occurrence of any of the circumstances described
in this paragraph, the Company will deliver a Company Order instructing
the Trustee to issue Exchange Securities without legends.
(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which certain Holders of such Initial
Securities are offered Private Exchange Securities in exchange for their
Initial Securities, all requirements pertaining to such Initial Securities
that Initial Securities issued to certain Holders be issued in global form
will still apply, and Private Exchange Securities in global form with the
Restricted Securities Legend set forth in EXHIBIT 1 hereto will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(e) Cancellation or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
certificated or Physical Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depository for cancellation or retained
and canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for certificated or
Physical Securities, redeemed, repurchased or canceled, the principal amount of
Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and, upon Company Order, the Trustee shall authenticate
certificated Securities, Physical Securities and Global Securities.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company or the Trustee may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge and any other expenses, including the fees and
expenses of the Trustee, payable in connection therewith (other than any
such
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<PAGE>
transfer taxes, assessments or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.5 and 10.14).
(iii) The Security Registrar or co-registrar shall not be required
to register the transfer or exchange of (a) any Physical Security selected
for redemption in whole or in part pursuant to Article 3 of the Indenture,
except the unredeemed portion of any Physical Security being redeemed in
part, or (b) any Physical Security for a period beginning 15 Business Days
before the mailing of a notice of an offer to repurchase or redeem
Securities.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Security
Registrar or any co-registrar may deem and treat the person in whose name
a Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of and interest, premium, if
any, and Liquidated Damages, if any, on such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and none of
the Company, the Trustee, the Paying Agent, the Security Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, an Agent Member, or a participant
in the Depository or other Person with respect to the accuracy of the
records of the Depository or its nominee or of any participant or an Agent
Member, with respect to any ownership interest in the Securities or with
respect to the delivery to any participant, member, beneficial owner or
other Person (other than the Depository) of any notice (including any
notice of redemption) or the payment of any amount, under or with respect
to such Securities. All notices and communications to be given to the
Holder and all payments to be made to Holders under the Securities shall
be given or made only to or upon the order of the registered Holders
(which shall be the Depository or its nominee in the case of a Global
Security). The rights of beneficial owners in any Global Security shall be
exercised only through the Depository subject to the applicable rules and
procedures of the Depository. The Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository with
respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under the Indenture or under applicable law with respect to any
transfer of any interest in any security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation
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or evidence as are expressly required by, and to do so if and when
expressly required by, the terms of the Indenture, and to examine the same
to determine substantial compliance as to form with the express
requirements hereof.
2.4. Certificated Securities.
(a) A Global Security deposited with the Depository or with the Trustee as
custodian for the Depository pursuant to Section 2.1 of this APPENDIX A shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 of this APPENDIX A and (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for such Global Security or if at any time such Depository ceases to be a
"clearing agency" registered under the Exchange Act and a successor depository
is not appointed by the Company within 90 days of such notice, (ii) an Event of
Default has occurred and is continuing or (iii) the Company, in its sole
discretion, notifies the Trustee in writing that it elects to cause the issuance
of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depository to
the Trustee to be so transferred, in whole or from time to time in part, without
charge, and, upon Company Order, the Trustee shall authenticate and deliver,
upon such transfer of each portion of such Global Security, an equal aggregate
principal amount of certificated Initial Securities of authorized denominations.
Any portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and registered in such cases as the Depository shall
direct. Any certificated Initial Security delivered in exchange for an interest
in the Global Security shall, except as otherwise provided by Section 2.3(d) of
this APPENDIX A, bear the restricted securities legend set forth in EXHIBIT 1
hereto.
(c) Subject to the provisions of Section 2.4(b) of this APPENDIX A, the
registered Holder of a Global Security may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under the
Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a)(i) of this APPENDIX A, (ii) or (iii), the Company will promptly
make available to the Trustee a reasonable supply of certificated Securities in
definitive, fully registered form without interest coupons.
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EXHIBIT 1
to
APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE
SECURITIES ACT."
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (1)(a) TO A PERSON WHO THE SELLER
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REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), BUT ONLY IN THE CASE OF A TRANSFER THAT IS EFFECTED BY THE DELIVERY
TO THE TRANSFEREE OF DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS
NOMINEE'S NAME) IN THE BOOKS MAINTAINED BY THE REGISTRAR, AND SUBJECT TO THE
RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE SECURITY
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.] (1)
- ----------
(1) Include if a Physical Security.
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<PAGE>
GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, INTEREST
AND LIQUIDATED DAMAGES, IF ANY, BY CERTAIN SUBSIDIARIES OF
BRAZOS SPORTSWEAR, INC.
CUSIP No._________________ $____________
No. _______________________
BRAZOS SPORTSWEAR, INC.
10 1/2% Senior Note Due 2007
Brazos Sportswear, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________ or registered assigns the principal sum of _________ Dollars on
July 1, 2007, at the office or agency of the Company referred to below, and to
pay interest thereon, commencing on January 1, 1998 and continuing semiannually
thereafter, on January 1 and July 1 in each year, accruing from July 2, 1997, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, at the rate of 10 1/2% per annum, until the principal hereof
is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Securities from the
date on which such overdue interest becomes payable to the date payment of such
interest has been made or duly provided for. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered on the Security Register
at the close of business on the Regular Record Date for such interest, which
shall be the June 15 or December 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date, and such Defaulted Interest, and (to the
extent lawful) interest on such Defaulted Interest at the rate borne by the
Securities, may be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered on the Security Register at the close
of business on a Special Record Date for the payment of such Defaulted Interest
to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Principal of and premium, if any, interest and Liquidated Damages, if any,
on the Securities shall be payable (i) in same-day funds on or prior to the
payment dates with respect to those amounts in the case of Securities held of
record by the Depository and (ii) at the office of the Trustee in New York, New
York, in the case of Securities held of record by Holders other than the
Depository. The Company may, at its option, pay interest and Liquidated Damages,
if any, on Securities held of
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record by Holders other than the Depository by check mailed to the addresses of
the Persons entitled thereto as they appear in the Security Register on the
Regular Record Date therefor.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
BRAZOS SPORTSWEAR, INC.
By:_____________________________
Name: __________________________
Title: _______________________
Attest:
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Assistant Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:_________________ NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
TRUSTEE
By: _________________________________
Authorized Signatory
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[FORM OF REVERSE SIDE OF INITIAL SECURITY]
This Security is one of a duly authorized issue of securities of the
Company designated as its 10 1/2% Senior Notes Due 2007 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $100,000,000 which may be issued
under an indenture (herein called the "Indenture"; capitalized terms used herein
and not defined herein shall have the respective meanings set forth in the
Indenture) dated as of July 2, 1997 between the Company, the Subsidiary
Guarantors and Norwest Bank Minnesota, National Association (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Company may, at its option, redeem the Securities in whole or from
time to time in part, on or after July 1, 2002, on not less than 30 nor more
than 60 days' notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the
twelve-month period beginning on July 1 of the year indicated below:
Redemption
Year Price
---- ----------
2002........................................... 105.250%
2003........................................... 103.500%
2004........................................... 101.750%
2005 and thereafter............................ 100%
together in the case of any such redemption with accrued and unpaid interest
thereon and Liquidated Damages, if any, to the applicable Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date), all as provided herein.
Notwithstanding the foregoing, at any time on or prior to July 1, 2000,
the Company may redeem up to 35% of the aggregate principal amount of Securities
originally issued on not less than 30 nor more than 60 days' notice to each
Holder of Securities to be redeemed, from the Net Cash Proceeds of a Public
Equity Offering, at a Redemption Price equal to 110.5% of the principal amount
thereof, together with accrued and unpaid interest thereon and Liquidated
Damages, if any, to the Redemption Date, PROVIDED that (i) at least $65,000,000
aggregate principal amount of Securities originally issued remains Outstanding
immediately after that redemption and (ii) the Company effects that redemption
within 60 days after the Public Equity Offering closes.
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to Holders
of such Securities, or one or more
-5-
<PAGE>
Predecessor Securities, of record at the close of business on the relevant
Record Date referred to on the face hereof. Securities (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date. In the event of
redemption or purchase of this Security in part only, a new Security or
Securities for the unredeemed or unpurchased portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any mandatory redemption or
sinking fund obligations.
If a Change of Control of the Company occurs, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 60 or
less than 30 days following the occurrence of a Change of Control of the
Company, all the then Outstanding Securities at a purchase price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest
thereon, if any, and Liquidated Damages, if any, to the Change of Control
Purchase Date, all as provided in the Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at a purchase price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest thereon, if
any, and Liquidated Damages, if any, to the Net Proceeds Payment Date, all as
provided in the Indenture.
As set forth in the Indenture, an Event of Default is generally (i) any
default in the payment of principal of or premium, if any, on any of the
Securities, whether at maturity, redemption or otherwise (including pursuant to
a Change of Control Offer or a Net Proceeds Offer); (ii) any default for 30 days
in payment of interest or Liquidated Damages, if any, on any of the Securities;
(iii) any default in the performance or breach of agreements relating to
mergers, consolidations and sales of assets substantially as an entirety or the
failure to make or consummate either a Change of Control Offer or a Net Proceeds
Offer; (iv) any failure of the Company or any Subsidiary Guarantor for 30 days
after written notice to comply with any other covenants in the Indenture or the
Securities or its Subsidiary Guarantee, as the case may be; (v) certain payment
defaults under, and the acceleration prior to the maturity of, certain
Indebtedness of the Company or any Restricted Subsidiary in an aggregate
principal amount in excess of $5,000,000; (vi) certain final judgments or orders
against the Company or any Restricted Subsidiary in an aggregate amount of more
than $5,000,000 not paid, discharged or stayed for a period of 60 days; (vii)
certain events of bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary; and (viii) except as permitted by the Indenture and
hereby, cessation of the effectiveness of any Subsidiary Guarantee or any
repudiation thereof. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, except that (a) in the case of an Event of
Default arising from certain events of bankruptcy, insolvency or reorganization
of the Company or any
-6-
<PAGE>
Restricted Subsidiary, the principal amount of the Securities will become due
and payable immediately without further action or notice, and (b) in the case of
an Event of Default which relates to certain payment defaults or acceleration
with respect to certain Indebtedness, any such Event of Default and any
consequential acceleration of the Securities will be automatically rescinded if
any such Indebtedness is repaid or if the default relating to such Indebtedness
is cured or waived and, if the holders thereof have accelerated such
Indebtedness, then such holders have rescinded their declaration of
acceleration. No Holder may pursue any remedy under the Indenture unless the
Trustee shall have failed to act after notice from such Holder of an Event of
Default and written request by Holders of at least 25% in aggregate principal
amount of the Outstanding Securities, and the offer to the Trustee of indemnity
reasonably satisfactory to it; however, such provision does not affect the right
to sue for enforcement of any overdue payment on a Security by the Holder
thereof. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Outstanding Securities may direct the Trustee in its
exercise of any trust or power under the Indenture. The Trustee may withhold
from Holders notice of any continuing default (except default in payment of
principal, premium, interest or Liquidated Damages) if it determines in good
faith that withholding the notice is in the interest of the Holders. The Company
is required to file annual and quarterly reports with the Trustee as to the
absence or existence of defaults.
The Indenture contains provisions for (i) defeasance at any time of the
entire indebtedness of the Company on this Security and (ii) discharge from
certain covenants and Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by or on behalf of the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security. Without the consent of any Holder, the Company and the Trustee
may amend or supplement the Indenture or the Securities to effect or maintain
the qualification of the Indenture under the Trust Indenture Act to make certain
specified changes, to cure any ambiguity or omission, correct or supplement any
provision that may be defective or inconsistent with any other provision and to
make certain other changes that do not adversely affect the interests of the
Holders in any material respect.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the
-7-
<PAGE>
principal of and premium, if any, interest and Liquidated Damages, if any, on
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company or the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge and any other
expenses, including the fees and expenses of the Trustee, payable in connection
therewith.
A director, officer, employee, incorporator, stockholder or Affiliate of
the Company, as such, past, present or future shall not have any personal
liability under this Security or any other Security or the Indenture by reason
of his or its status as such director, officer, employee, incorporator,
stockholder or Affiliate, or any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each Holder, by accepting
this Security, waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of this Security.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish to
any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company at 3860 Virginia Avenue, Cincinnati, Ohio
45227, Attention: Secretary (or such other address as the Company may have
furnished in writing to the Trustee).
-8-
<PAGE>
Each Holder of a Security, by acceptance hereof, acknowledges and agrees
to the provisions of the Registration Rights Agreement, including without
limitation the obligations of the Holders with respect to a registration and
indemnification of the Company to the extent provided therein.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities, and reliance may be placed only on the other identifying information
printed hereon.
Interest on this Security shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
This Security shall be governed by and construed in accordance with the
laws of the State of New York.
-9-
<PAGE>
[FORM OF NOTATION ON SECURITY
RELATING TO SUBSIDIARY GUARANTEE]
The Subsidiary Guarantors, referred to in this Security upon which this
notation is endorsed and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor person under the Indenture, have
unconditionally guaranteed, jointly and severally, on a senior basis (such
guarantee by each Subsidiary Guarantor being referred to herein as the
"Subsidiary Guarantee") (i) the due and punctual payment of the principal of and
premium, if any, and interest on the Securities, whether at Stated Maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal of and premium, if any, and interest, if any, on the
Securities, the payment of Liquidated Damages on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article XIII of the
Indenture and (ii) in case of any extension of time of payment or renewal of any
Securities or any of such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of Securities
and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly set forth, and are senior obligations of each such Subsidiary
Guarantor to the extent and in the manner provided, in Article XIII of the
Indenture, and may be released or limited under certain circumstances. Reference
is hereby made to such Indenture for the precise terms of the Subsidiary
Guarantee therein made.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication of the Securities upon which this
Subsidiary Guarantee is endorsed shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized signatories.
-10-
<PAGE>
SUBSIDIARY GUARANTORS:
BRAZOS, INC.
By:_________________________________
Name:____________________________
Title:___________________________
BRAZOS EMBROIDERY, INC.
By:_________________________________
Name:____________________________
Title:___________________________
MORNING SUN, INC., formerly known as
SolarCo, Inc., successor in interest
to Morning Sun, Inc.
By:_________________________________
Name:____________________________
Title:___________________________
-11-
<PAGE>
ASSIGNMENT FORM
To assign this Security fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's Soc. Sec. or tax I.D. No.)
and irrevocably appoint ______________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: _____________________ Your Signature: _________________________________
- ------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(3) [ ] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended)
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and in
compliance with Rule 144A under the Securities Act of 1933, as
amended; or
(4) [ ] to an institutional "accredited investor" (within the meanings of
subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act of 1933, as amended);
-12-
<PAGE>
(5) [ ] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance with
Rule 904 under the Securities Act of 1933, as amended;
(6) [ ] pursuant to Rule 144 under the Securities Act of 1933, as amended;
or
(7) [ ] pursuant to another available exemption from registration provided
under the Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5), (6)
or (7) is checked, the Trustee may require, prior to registering any such
transfer of the Securities, such legal opinions, certifications and other
information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended.
------------------------------------
Signature
Signature Guarantee:
- --------------------------------- ------------------------------------
(Signature must be guaranteed) Signature
- ------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF BOX (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned for ongoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:_____________________ _____________________________________________
NOTE: To be executed by an executive officer
-13-
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Exchange Principal Amount of this Principal Amount of this Global Security following officer of Trustee or
Global Security Global Security such decrease or increase Securities Custodian
</TABLE>
-14-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 10.14 or 10.16 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 10.14 or 10.16 of the Indenture, state the amount in
principal amount: $_____________.
Date:_______________ Your
Signature:__________________________
(Sign exactly as your name appears
on the other side of this Security.)
Signature Guarantee:____________________________________________________________
(Signature must be guaranteed)
-15-
<PAGE>
EXHIBIT 2
to
Appendix A
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE
EXCHANGE SECURITY]
GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, INTEREST
AND LIQUIDATED DAMAGES, IF ANY, BY CERTAIN SUBSIDIARIES
OF BRAZOS SPORTSWEAR, INC.
[*]
[**]
CUSIP No. _______________
No. _____________________ $______________
BRAZOS SPORTSWEAR, INC.
10 1/2% Senior Note Due 2007
Brazos Sportswear, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
___________________ or registered assigns the principal sum of ________________
Dollars on July 1, 2007, at the office or agency of the Company referred to
below, and to pay interest thereon, commencing on January 1, 1998 and continuing
semiannually thereafter, on January 1 and July 1 in each year, accruing from
July 2, 1997, or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, at the rate of 10 1/2% per annum, until the
principal hereof is paid or duly provided for, and (to the extent lawful) to pay
on demand interest on any overdue interest at the rate borne by the Securities
from the date on which
- --------
* If the Security is to be issued in global form, add the Global
Securities Legend from EXHIBIT 1 to APPENDIX A and the attachment from such
EXHIBIT 1 captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES
OR DECREASES IN GLOBAL SECURITY".
** If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its initial
allotment, add the Restricted Securities Legend from EXHIBIT 1 to APPENDIX A and
replace the Assignment Form included in this EXHIBIT 2 with the Assignment Form
included in such EXHIBIT 1.
-1-
<PAGE>
such overdue interest becomes payable to the date payment of such interest has
been made or duly provided for. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered on the Security Register at the close of
business on the Regular Record Date for such interest, which shall be the June
15 or December 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date, and such Defaulted Interest, and (to the extent lawful)
interest on such Defaulted Interest at the rate borne by the Securities, may be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered on the Security Register at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Principal of and premium, if any, interest and Liquidated Damages, if any,
on the Securities shall be payable (i) in same-day funds on or prior to the
payment dates with respect to those amounts in the case of Securities held of
record by the Depository and (ii) at the office of the Trustee in New York, New
York, in the case of Securities held of record by Holders other than the
Depository. The Company may, at its option, pay interest and Liquidated Damages,
if any, on Securities held of record by Holders other than the Depository by
check mailed to the addresses of the Persons entitled thereto as they appear in
the Security Register on the Regular Record Date for that interest.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
BRAZOS SPORTSWEAR, INC.
By:__________________________________
Name:__________________________
Title:_________________________
Attest:
- ----------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:___________________ NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
TRUSTEE
By:_________________________________
Authorized Signatory
-3-
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE
OR PRIVATE EXCHANGE SECURITY]
This Security is one of a duly authorized issue of securities of the
Company designated as its 10 1/2% Senior Notes Due 2007 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $100,000,000 which may be issued
under an indenture (herein called the "Indenture"; capitalized terms used herein
and not defined herein shall have the respective meanings set forth in the
Indenture) dated as of July 2, 1997 between the Company, the Subsidiary
Guarantors and Norwest Bank Minnesota, National Association (herein called the
"Trustee," which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Company may, at its option, redeem the Securities in whole or from
time to time in part, on or after July 1, 2002, on not less than 30 nor more
than 60 days' notice at the following Redemption Prices (expressed as
percentages of principal amount) set forth below, if redeemed during the
twelve-month period beginning on July 1 of the year indicated below:
Redemption
Year Price
---- ----------
2002...................................... 105.250%
2003........................................... 103.500%
2004........................................... 101.750%
2005 and thereafter............................ 100%
together in the case of any such redemption with accrued and unpaid interest
thereon and Liquidated Damages, if any, to the applicable Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date), all as provided herein.
Notwithstanding the foregoing, at any time on or prior to July 1, 2000,
the Company may redeem up to 35% of the aggregate principal amount of Securities
originally issued on not less than 30 nor more than 60 days' notice to each
Holder of Securities to be redeemed, from the Net Cash Proceeds of a Public
Equity Offering, at a Redemption Price equal to 110.5% of the principal amount
thereof, together with accrued and unpaid interest thereon and Liquidated
Damages, if any, to the Redemption Date, PROVIDED that (i) at least $65,000,000
aggregate principal amount of Securities originally issued remains Outstanding
immediately after that redemption and (ii) the Company effects that redemption
within 60 days after the Public Equity Offering closes.
-4-
<PAGE>
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Date referred to on the face hereof.
Securities (or portions thereof) for whose redemption and payment provision is
made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date. In the event of redemption or purchase of this
Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
The Securities do not have the benefit of any mandatory redemption or
sinking fund obligations.
If a Change of Control of the Company occurs, and subject to certain
conditions and limitations provided in the Indenture, the Company will be
obligated to make an offer to purchase, on a Business Day not more than 60 or
less than 30 days following the occurrence of a Change of Control of the
Company, all the then Outstanding Securities at a purchase price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the Change of Control Purchase Date, all as provided in the Indenture.
In the event of Asset Sales, under certain circumstances, the Company will
be obligated to make a Net Proceeds Offer to purchase all or a specified portion
of each Holder's Securities at a purchase price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest, if any, to
the Net Proceeds Payment Date.
As set forth in the Indenture, an Event of Default is generally (i) any
default in the payment of principal of or premium, if any, on any of the
Securities, whether at maturity, redemption or otherwise (including pursuant to
a Change of Control Offer or a Net Proceeds Offer); (ii) any default for 30 days
in payment of interest or Liquidated Damages, if any, on any of the Securities;
(iii) any default in the performance or breach of agreements relating to
mergers, consolidations and sales of assets substantially as an entirety or the
failure to make or consummate either a Change of Control Offer or a Net Proceeds
Offer; (iv) any failure of the Company or any Subsidiary Guarantor for 30 days
after written notice to comply with any other covenants in the Indenture or the
Securities or its Subsidiary Guarantee, as the case may be; (v) certain payment
defaults under, and the acceleration prior to the maturity of, certain
Indebtedness of the Company or any Restricted Subsidiary in an aggregate
principal amount in excess of $5,000,000; (vi) certain final judgments or orders
against the Company or any Subsidiary in an aggregate amount of more than
$5,000,000 not paid, discharged or stayed for a period of 60 days; (vii) certain
events of bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary; and (viii) except as permitted by the Indenture and
hereby, cessation of the effectiveness of any Subsidiary Guarantee or any
repudiation thereof. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, except that (a) in the case of an Event of
Default arising from certain events of bankruptcy, insolvency or reorganization
of the Company or any
-5-
<PAGE>
Restricted Subsidiary, the principal amount of the Securities will become due
and payable immediately without further action or notice, and (b) in the case of
an Event of Default which relates to certain payment defaults or acceleration
with respect to certain Indebtedness, any such Event of Default and any
consequential acceleration of the Securities will be automatically rescinded if
any such Indebtedness is repaid or if the default relating to such Indebtedness
is cured or waived and, if the holders thereof have accelerated such
Indebtedness, then such holders have rescinded their declaration of
acceleration. No Holder may pursue any remedy under the Indenture unless the
Trustee shall have failed to act after notice from such Holder of an Event of
Default and written request by Holders of at least 25% in aggregate principal
amount of the Outstanding Securities, and the offer to the Trustee of indemnity
reasonably satisfactory to it; however, such provision does not affect the right
to sue for enforcement of any overdue payment on a Security by the Holder
thereof. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Outstanding Securities may direct the Trustee in its
exercise of any trust or power under the Indenture. The Trustee may withhold
from Holders notice of any continuing default (except default in payment of
principal, premium, interest or Liquidated Damages) if it determines in good
faith that withholding the notice is in the interest of the Holders. The Company
is required to file annual and quarterly reports with the Trustee as to the
absence or existence of defaults.
The Indenture contains provisions for (i) defeasance at any time of the
entire indebtedness of the Company on this Security and (ii) discharge from
certain covenants and Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by or on behalf of the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security. Without the consent of any Holder, the Company and the Trustee
may amend or supplement the Indenture or the Securities to effect or maintain
the qualification of the Indenture under the Trust Indenture Act to make certain
specified changes, to cure any ambiguity or omission, correct or supplement any
provision that may be defective or inconsistent with any other provision and to
make certain other changes that do not adversely affect the interests of the
Holders in any material respect.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the
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<PAGE>
principal of and premium, if any, interest and Liquidated Damages, if any, on
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company or the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge and any other
expenses, including the fees and expenses of the Trustee, payable in connection
therewith.
A director, officer, employee, incorporator, stockholder or Affiliate of
the Company, as such, past, present or future shall not have any personal
liability under this Security or any other Security or the Indenture by reason
of his or its status as such director, officer, employee, incorporator,
stockholder or Affiliate, or any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each Holder, by accepting
this Security, waives and releases all such liability. Such waiver and release
are part of the consideration for the issuance of this Security.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture. The Company will furnish to
any Holder upon written request and without charge a copy of the Indenture.
Requests may be made to the Company at 3860 Virginia Avenue, Cincinnati, Ohio
45227, Attention: Secretary (or such other address as the Company may have
furnished in writing to the Trustee).
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<PAGE>
Each Holder of a Security, by acceptance hereof, acknowledges and agrees
to the provisions of the Registration Rights Agreement, including without
limitation the obligations of the Holders with respect to a registration and
indemnification of the Company to the extent provided therein.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders thereof. No
representation is made as to the accuracy of such numbers as printed on the
Securities, and reliance may be placed only on the other identifying information
printed hereon.
Interest on this Security shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
This Security shall be governed by and construed in accordance with the
laws of the State of New York.
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<PAGE>
[FORM OF NOTATION ON SECURITY
RELATING TO SUBSIDIARY GUARANTEE]
The Subsidiary Guarantors, referred to in this Security upon which this
notation is endorsed and each hereinafter referred to as a "Subsidiary
Guarantor," which term includes any successor person under the Indenture, have
unconditionally guaranteed, jointly and severally, on a senior basis (such
guarantee by each Subsidiary Guarantor being referred to herein as the
"Subsidiary Guarantee") (i) the due and punctual payment of the principal of and
premium, if any, and interest on the Securities, whether at Stated Maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal of and premium, if any, and interest, if any, on the
Securities, the payment of Liquidated Damages on the Securities, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article XIII of the
Indenture and (ii) in case of any extension of time of payment or renewal of any
Securities or any of such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of Securities
and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly set forth, and are senior obligations of each such Subsidiary
Guarantor to the extent and in the manner provided, in Article XIII of the
Indenture, and may be released or limited under certain circumstances. Reference
is hereby made to such Indenture for the precise terms of the Subsidiary
Guarantee therein made.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication of the Security upon which this
Subsidiary Guarantee is endorsed shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized signatories.
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<PAGE>
SUBSIDIARY GUARANTORS:
BRAZOS, INC.
By: ______________________________________
Name:_______________________________
Title:________________________________
BRAZOS EMBROIDERY, INC.
By: ______________________________________
Name:_______________________________
Title:______________________________
MORNING SUN, INC., formerly known as
SolarCo, Inc., successor in interest to
Morning Sun, Inc.
By: ______________________________________
Name:_______________________________
Title:______________________________
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's Soc. Sec. or tax I.D. No.)
and irrevocably appoint _________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- ------------------------------------------------------------------------------
Date:__________________ Your Signature:__________________________________
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 10.14 or 10.16 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 10.14 or 10.16 of the Indenture, state the amount:
$_____________________________
Date:_____________________ Your Signature:__________________________________
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:___________________________________________________________
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EXHIBIT 5.1
PORTER & HEDGES, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Telecopier (713)228-1331
Telephone (713)226-0600
July 11, 1997
Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479
Ladies and Gentlemen:
We have acted as counsel to Brazos Sportswear, Inc., a Deleware corporation
(the "Company") in connection with the registration under the Securities Act of
1933, as amended of the issuance by the Company of $100 million aggregate
principle amount of 10 1/2% Senior Notes due 2007 (the "Notes") pursuant to the
Indenture dated July 2, 1997 (the "Indenture"), between the Company and you, in
your capacity as trustee under the Indenture (the "Trustee").
In connection with the opinions expressed below, we have examined (i) the
certificates of incorporation, bylaws and corporate proceedings of the Company
and (ii) the Indenture.
Based upon such examinations, we are of the opinion that the Notes, when
issued, will be: (i) legally issued, fully paid and nonassesable; and (ii)
binding obligations of the Company, respectively, except as may be limited by
bankruptcy, insolvency and other law relating to the rights of creditors and law
relating to specific performance and other forms of equitable relief that are
subject to equitable defenses and judicial authority.
We consent to the use of this opinion as an exhibit to the Registration
Statement on Form S-4 and to the reference to our firm under the captioned
"Legal Matters" in the prospectus included therein.
Very truly yours,
/s/ PORTER & HEDGES, L.L.P.
PORTER & HEDGES, L.L.P.
EXHIBIT 10.1
BRAZOS SPORTSWEAR, INC.
$100,000,000
10 1/2% SENIOR NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
July 2, 1997
Dillon, Read & Co. Inc.
SBC Warburg Inc.
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, NY 10022
Ladies and Gentlemen:
Brazos Sportswear, Inc., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to Dillon, Read & Co. Inc. and SBC Warburg Inc. (collectively,
the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement (the
"PURCHASE AGREEMENT"), $100,000,000 aggregate principal amount of its 10 1/2%
Senior Notes Due 2007 (the "SENIOR NOTES") to be unconditionally guaranteed on a
senior unsecured basis by each of its subsidiaries, consisting on the date
hereof of (i) Brazos, Inc., a Texas corporation ("BRAZOS"), (ii) Brazos
Embroidery, Inc., a Pennsylvania corporation ("EMBROIDERY") and (iii) Morning
Sun, Inc., a Washington corporation, formerly known as SolarCo, Inc., a
Washington corporation ("MORNING SUN" and, together with Brazos and Embroidery,
the "SUBSIDIARY GUARANTORS"). The Senior Notes will be issued pursuant to an
Indenture, to be dated as of the Closing Date (as defined in the Purchase
Agreement) (the "INDENTURE"), among the Company, the Subsidiary Guarantors and
Norwest Bank of Minnesota, National Association, as trustee (the "TRUSTEE"). As
an inducement to the Initial Purchasers, the Company and the Subsidiary
Guarantors agree with the Initial Purchasers, for the benefit of the holders of
the Senior Notes (including, without limitation, the Initial Purchasers), the
Exchange Notes (as defined below) and the Private Exchange Notes (as defined
below) (collectively, the "HOLDERS"), as follows:
1. EXCHANGE OFFER. The Company shall, at its cost, prepare and, not later
than 60 days after (or if such 60th day is not a business day, the first
business day thereafter) the original date of issue of the Senior Notes (the
"ISSUE DATE"), file with the Securities and Exchange Commission
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<PAGE>
(the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION
STATEMENT") on an appropriate form under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), with respect to a proposed offer (the "EXCHANGE OFFER")
to the Holders of Transfer Restricted Notes (as defined in Section 6 hereof),
who are not prohibited by any law or policy of the Commission from participating
in the Exchange Offer, to issue and deliver to such Holders, in exchange for the
Senior Notes, a like aggregate principal amount of debt securities (the
"EXCHANGE NOTES") of the Company issued under the Indenture and identical in all
material respects to the Senior Notes (except for the transfer restrictions
relating to the Senior Notes) that would be registered under the Securities Act.
The Company shall use its best efforts to cause such Exchange Offer Registration
Statement to become effective under the Securities Act within 120 days (or if
such 120th day is not a business day, the first business day thereafter) after
the Issue Date of the Senior Notes and shall keep the Exchange Offer
Registration Statement effective for not fewer than 20 business days (or longer,
if required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER
REGISTRATION PERIOD").
If the Company effects the Exchange Offer, the Company will be entitled to
close the Exchange Offer 20 business days after the commencement thereof,
PROVIDED that the Company has accepted all the Senior Notes theretofore validly
tendered in accordance with the terms of the Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer to enable each Holder of Transfer
Restricted Notes (as defined in Section 6 hereof) electing to exchange the
Senior Notes for Exchange Notes (assuming that such Holder is not an affiliate
of the Company within the meaning of the Securities Act, acquires the Exchange
Notes in the ordinary course of such Holder's business and does not intend and
has no arrangements or understandings with any person to participate in the
distribution of the Exchange Notes and is not prohibited by any law or policy of
the Commission from participating in the Exchange Offer) to trade such Exchange
Notes from and after their receipt without any limitations or restrictions under
the Securities Act and without material restrictions under the securities laws
of the several states of the United States. In connection with such Exchange
Offer, the Company shall take such further action, including, without
limitation, appropriate filings under state securities laws, as may be necessary
to realize the foregoing objective subject to the proviso of Section 3(h).
The Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder that is a broker-dealer electing
to exchange Senior Notes, acquired for its own account as a result of market
making activities or other trading activities, for Exchange Notes (an
"EXCHANGING DEALER"), is required to deliver a prospectus containing the
information set forth in Annex A hereto on the cover, in Annex B hereto in the
"Exchange Offer Procedures" section and the "Purpose of the Exchange Offer"
section, and in Annex C hereto in the "Plan of Distribution" section of such
prospectus in connection with a sale of any such Exchange Notes received by such
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<PAGE>
Exchanging Dealer pursuant to the Exchange Offer and (ii) any Initial Purchaser,
if it elects to sell Exchange Notes acquired in exchange for Senior Notes
constituting any portion of an unsold allotment, is required to deliver a
prospectus containing the information required by Item 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Company shall use its reasonable efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes; PROVIDED, HOWEVER, that (i) in the case
where such prospectus and any amendment or supplement thereto must be delivered
by an Exchanging Dealer or the Initial Purchasers, such period shall be the
lesser of 180 days and the date on which all Exchanging Dealers and the Initial
Purchasers have sold all Exchange Notes held by them (unless such period is
extended pursuant to Section 3(j) below) and (ii) the Company shall make such
prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Notes for a
period not less than 90 days after the consummation of the Exchange Offer.
If, upon consummation of the Exchange Offer, the Initial Purchasers hold
Senior Notes acquired as part of the initial distribution thereof, the Company,
simultaneously with the delivery of the Exchange Notes pursuant to the Exchange
Offer, shall issue and deliver to the Initial Purchasers upon the written
request of the Initial Purchasers in exchange (the "PRIVATE EXCHANGE") for the
Senior Notes held by the Initial Purchasers, a like principal amount of debt
securities of the Company issued under the Indenture and identical in all
material respects (including the existence of restrictions on transfer under the
Securities Act and the securities laws of the several states of the United
States) to the Senior Notes (the "PRIVATE EXCHANGE NOTES"). The Senior Notes,
the Exchange Notes and the Private Exchange Notes are herein collectively called
the "SECURITIES".
In connection with the Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Exchange Offer open for not less than 20 business days
(or longer, if required by applicable law) after the date notice thereof
is mailed to the Holders;
(c) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York, which may be
the Trustee or an affiliate of the Trustee;
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<PAGE>
(d) permit Holders to withdraw tendered Senior Notes at any time
prior to the close of business, New York time, on the last business day on
which the Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable
laws.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all the Senior Notes validly tendered and
not withdrawn pursuant to the Exchange Offer and the Private Exchange;
(ii) deliver to the Trustee for cancellation all the Senior Notes so
accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of the Senior Notes, Exchange Notes or Private Exchange Notes, as
the case may be, equal in principal amount to the Senior Notes of such
Holder so accepted for exchange.
Each Holder participating in the Exchange Offer shall be required to
represent to the Company that at the time of the consummation of the Exchange
Offer (i) any Exchange Notes received by that Holder will be acquired in the
ordinary course of business, (ii) that Holder will have no arrangements or
understandings with any person to participate in the distribution of the Senior
Notes or the Exchange Notes within the meaning of the Securities Act, (iii) that
Holder is not an "affiliate", as defined in Rule 405 of the Securities Act, of
the Company or any Subsidiary Guarantor or if it is an affiliate, that Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if that Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes and (v) if that Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Senior
Notes that were acquired as a result of market-making activities or other
trading activities and that it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies as to form
in all material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not, as of its date, include an untrue statement of a
material fact or omit to state a material fact required
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<PAGE>
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
2. SHELF REGISTRATION. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect an Exchange Offer as contemplated by Section 1
hereof, (ii) the Exchange Offer is not consummated within 165 days after the
Issue Date (or, if such 165th day is not a business day, the first business day
thereafter), (iii) the Initial Purchasers so request within six month after
consummation of the Exchange Offer with respect to the Senior Notes (or any
Private Exchange Notes) not eligible to be exchanged for Exchange Notes in the
Exchange Offer and held by them following consummation of the Exchange Offer or
(iv) any Holder (other than an Exchanging Dealer) is not eligible to participate
in the Exchange Offer or, in the case of any Holder (other than an Exchanging
Dealer) that participates in the Exchange Offer, such Holder does not receive
freely tradeable Exchange Notes on the date of the exchange and such Holder
notifies the Company within six months of such date, the Company shall take the
following actions:
(a) The Company shall, at its own cost, as promptly as practicable
(but in no event more than 30 days after so required or requested pursuant
to this Section 2) file with the Commission and thereafter shall use its
best efforts to cause to be declared effective a registration statement
(the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Notes (as defined below) by the Holders thereof from time to
time in accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (hereinafter,
the "SHELF REGISTRATION"); PROVIDED, HOWEVER, that no Holder (other than
an Initial Purchaser) shall be entitled to have the Securities held by it
covered by such Shelf Registration Statement unless such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to
such Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, until the earlier of (i) the time when the Securities
covered by the Shelf Registration Statement can be sold pursuant to Rule
144(k) thereof, and (ii) the date on which all of the Securities covered
by the Shelf Registration Statement have been sold pursuant thereto.
Subject to Section 6(b), the Company shall be deemed not to have used its
best efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
Holders of Securities covered thereby not being able to offer and sell
such Securities during that period, unless such action is required by
applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration
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<PAGE>
Statement, amendment or supplement, (i) to comply as to form in all
material respects with the applicable requirements of the Securities Act
and the rules and regulations of the Commission and (ii) not to contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Exchange
Offer contemplated by Section 1 hereof, the following provisions shall apply:
(a) The Company shall (i) furnish to the Initial Purchasers, prior
to the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and, in the event that the Initial Purchasers
(with respect to any portion of an unsold allotment from the original
offering) are participating in the Exchange Offer or the Shelf
Registration Statement, shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchasers reasonably may propose; (ii) include the information set forth
in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in
Annex C hereto in the "Plan of Distribution" section of the prospectus
forming a part of the Exchange Offer Registration Statement and include
the information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Exchange Offer; (iii) if requested by the
Initial Purchasers, include the information required by Item 507 or 508 of
Regulation S-K under the Securities Act, as applicable, in the prospectus
forming a part of the Exchange Offer Registration Statement; (iv) include
within the prospectus contained in the Exchange Offer Registration
Statement a section entitled "Plan of Distribution", reasonably acceptable
to the Initial Purchasers, which shall contain a summary statement of the
positions taken or policies made by the staff of the Commission with
respect to the potential "underwriter" status of any broker-dealer that is
the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Notes
received by such broker-dealer in the Exchange Offer (a "PARTICIPATING
BROKER-DEALER"), whether such positions or policies have been publicly
disseminated by the staff of the Commission or such positions or policies,
in the reasonable judgment of the Initial Purchasers based upon advice of
counsel (which may be in-house counsel), represent the prevailing views of
the staff of the Commission; and (v) in the case of a Shelf Registration
Statement, include the names of the Holders who propose to sell Securities
pursuant to the Shelf Registration Statement, as selling security holders.
(b) The Company shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer from
whom the Company has received prior written notice that it will be a
Participating Broker-Dealer in the Exchange Offer (which notice pursuant
to clauses (ii) through (v) hereof shall be accompanied by an
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<PAGE>
instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information (provided that with respect to
any requests prior to the effectiveness of the Registration
Statement, the Company shall be required to give written notice only
to the Initial Purchasers and their counsel, Baker & Botts, L.L.P.);
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in
order that the Registration Statement or the prospectus do not
contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Company shall use its best efforts to obtain the withdrawal
at the earliest possible time, of any order suspending the effectiveness
of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities included
in the Shelf Registration, without charge, at least one copy of the Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Company shall deliver to each Exchanging Dealer and the
Initial Purchasers, and to any other Holder who so requests, without
charge, at least one copy of the Exchange Offer Registration Statement and
any post-effective amendment thereto, including financial statements and
schedules, and, if the Initial Purchasers or any such Holder requests in
writing, all exhibits thereto (including those incorporated by reference).
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<PAGE>
(f) The Company shall deliver to each Holder of Securities included
within the coverage of the Shelf Registration Statement, without charge,
as many copies of the prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such person may reasonably request. The Company
consents, subject to the provisions of this Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling
Holders of the Securities in connection with the offering and sale of the
Securities covered by the prospectus, or any amendment or supplement
thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to the Initial Purchasers, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Exchange Offer, without
charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement and any amendment or supplement thereto as
such persons may reasonably request. The Company consents, subject to the
provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto by the Initial Purchasers, if necessary,
any Participating Broker-Dealer and such other persons required to deliver
a prospectus following the Exchange Offer in connection with the offering
and sale of the Exchange Notes covered by the prospectus, or any amendment
or supplement thereto, included in such Exchange Offer Registration
Statement.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Company shall register or qualify or cooperate
with the Holders of the Securities included therein and their respective
counsel in connection with the registration or qualification of the
Securities for offer and sale under the securities or "blue sky" laws of
such states of the United States as any Holder of the Securities
reasonably requests in writing and do such other acts or things reasonably
necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities covered by such Registration Statement; PROVIDED,
HOWEVER, that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction in which it is not then so qualified or
(ii) take any action which would subject it to general service of process
or to taxation in any jurisdiction in which it is not then so subject.
(i) The Company shall cooperate with the Holders of the Securities
to facilitate the timely preparation and delivery of certificates
representing the Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as the Holders may request a reasonable period of
time prior to sales of the Securities pursuant to such Registration
Statement.
(j) Upon the occurrence of any event contemplated by paragraph (ii)
or (v) of Section 3(b) above during the period for which the Company is
required to maintain an effective Registration Statement, the Company
shall promptly prepare and file a post-
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effective amendment to the Registration Statement or a supplement to the
related prospectus and any other required document so that, as thereafter
delivered to Holders of the Senior Notes or purchasers of Securities, the
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. If the Company notifies the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer in accordance with paragraphs (ii) through (v) of Section
3(b) above to suspend the use of the prospectus until the requisite
changes to the prospectus have been made or any stop order has been
lifted, as the case may be, then the Initial Purchasers, the Holders of
the Securities and any such Participating Broker-Dealers shall suspend use
of such prospectus, and the period of effectiveness of the Shelf
Registration Statement provided for in Section 2(b) above and the Exchange
Offer Registration Statement provided for in Section 1 above shall each be
extended (i) by the number of days from and including the date of the
giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating
Broker-Dealer shall have received such amended or supplemented prospectus
pursuant to this Section 3(j) or (ii) if earlier, until the date when none
of the Securities represent Transfer Restricted Notes.
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Senior Notes,
the Exchange Notes or the Private Exchange Notes, as the case may be, and
provide the applicable trustee with printed certificates for the Senior
Notes, the Exchange Notes or the Private Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Exchange Offer or the Shelf Registration and will make generally available
to its security holders (or otherwise provide in accordance with Section
11(a) of the Securities Act) an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act, no later than 45 days
after the end of a 12-month period (or 90 days, if such period is a fiscal
year) beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement, which
statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), in a
timely manner and containing such changes, if any, as shall be necessary
for such qualification. In the event that such qualification would require
the appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
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<PAGE>
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of the
Securities as the Company may from time to time reasonably require for
inclusion in the Shelf Registration Statement, and the Company may exclude
from such registration the Securities of any Holder that fails to furnish
such information within a reasonable time after receiving such request.
(o) The Company shall enter into such customary agreements
(including, if requested, an underwriting agreement in customary form) and
take all such other action, if any, as any Holder of the Securities shall
reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall (i)
make available for inspection by the Holders of the Securities, any
underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney or accountant retained by the
Holders of the Securities or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Company and (ii) cause the Company's officers, directors and employees,
and use its best efforts to cause the Company's accountants and auditors,
to supply all relevant information reasonably requested by the Holders of
the Securities or any such underwriter, attorney or accountant in
connection with the Shelf Registration Statement, in each case, as shall
be necessary, in the judgment of the Holder or any such underwriter,
attorney or accountant referred to in this paragraph, to conduct an
investigation within the meaning of Section 11 of the Securities Act;
PROVIDED, HOWEVER, that the foregoing inspection and information gathering
shall be coordinated on behalf of yourself by you and on behalf of the
other parties, by one counsel designated by and on behalf of such other
parties as described in Section 4 hereof.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall cause (i) its counsel
to deliver an opinion and updates thereof relating to the Securities in
customary form (with customary carve-outs and qualifications) addressed to
such Holders and the managing underwriters, if any, thereof and dated, in
the case of the initial opinion, the effective date of such Shelf
Registration Statement (it being agreed that the matters to be covered by
such opinion shall include, without limitation, the due incorporation and
good standing of the Company and its subsidiaries; the due authorization,
execution and delivery of the relevant agreement of the type referred to
in Section 3(o) hereof; the due authorization, execution, authentication
and issuance, and the validity and enforceability, of the applicable
Securities; the absence of material legal or governmental proceedings
involving the Company; the absence of governmental approvals required to
be obtained in connection with the Shelf Registration Statement, the
offering and sale of the applicable Securities, or any agreement of the
type referred to in Section 3(o) hereof; the compliance as to form of such
Shelf Registration Statement and any documents incorporated by reference
therein and of the Indenture with the requirements of the Securities Act
and the Trust Indenture Act, respectively; and such
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<PAGE>
opinion shall include a statement of such counsel's belief that, as of the
date of the opinion and as of the effective date of the Shelf Registration
Statement or most recent post-effective amendment thereto, as the case may
be, such Shelf Registration Statement and the prospectus included therein,
as then amended or supplemented, including any documents incorporated by
reference therein, did not and does not contain an untrue statement of a
material fact and did not and does not omit to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading (in the case of any such incorporated
documents, in the light of the circumstances existing at the time that
such documents were filed with the Commission under the Exchange Act);
(ii) its officers to execute and deliver all customary documents and
certificates and updates thereof requested by any underwriters of the
applicable Securities; and (iii) its independent public accountants to
provide to the selling Holders of the applicable Securities and any
underwriter therefor a comfort letter in customary form and covering
matters of the type customarily covered in comfort letters in connection
with primary underwritten offerings, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of
Auditing Standards No. 72.
(r) In the case of the Exchange Offer, if requested by the Initial
Purchasers or any known Participating Broker-Dealer, the Company shall
cause (i) its counsel to deliver to the Initial Purchasers or such
Participating Broker-Dealer signed opinions in the form set forth in
Section 8(f) of the Purchase Agreement with such changes as are customary
in connection with the preparation of a Registration Statement and (ii)
its independent public accountants to deliver to the Initial Purchasers or
such Participating Broker-Dealer a comfort letter, in customary form,
meeting the requirements as to the substance thereof as set forth in
Section 8(i) of the Purchase Agreement, with appropriate date changes, and
only if permitted by Statement of Auditing Standards No. 72.
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Senior Notes by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or caused to be marked, on the Senior Notes so exchanged that such
Senior Notes are being canceled in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be; in no event shall the Senior
Notes be marked as paid or otherwise satisfied.
(t) The Company will use its best efforts to confirm that the
initial ratings assigned to the Senior Notes by Standard and Poor's Rating
Service and Moody's Investors Service, Inc., will apply to the Securities
covered by a Registration Statement.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of
an underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of the
National Association of Securities Dealers, Inc.
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<PAGE>
("NASD")) thereof, whether as a Holder of such Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall cooperate with and assist such
broker-dealer in complying with the requirements of such Rules and
By-Laws.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a
Registration Statement contemplated hereby.
4. REGISTRATION EXPENSES. (a) All fees and expenses incident to the
Company's performance of or compliance with this Agreement will be borne by the
Company regardless of whether a Registration Statement becomes effective,
including, without limitation: (i) all registration and filing fees and expenses
(including filings made with the NASD (and, if applicable, the reasonable fees
and expenses of any "qualified independent underwriter" and its counsel that may
be required by the rules and regulations of the NASD)); (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Exchange Notes to be issued in the Exchange Offer and printing of prospectuses);
(iv) all fees and disbursements of counsel for the Company, the Subsidiary
Guarantors and, subject to Section 4(b) below, the Holders of Transfer
Restricted Notes; (v) all application and filing fees in connection with listing
the Notes on a national securities exchange or automated quotation system
pursuant to the requirements of this Agreement; and (vi) all fees and
disbursements of independent accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audits and
the fees and expenses of any Person, including special experts, retained by it.
Notwithstanding the foregoing or anything in this Agreement to the
contrary, each Holder shall pay all underwriting discounts and commissions of
any underwriters with respect to any Securities sold by or on behalf of it.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Securities being tendered in the Exchange
Offer and/or resold pursuant to the Shelf Registration Statement, as applicable,
for the reasonable fees and disbursements of not more than one counsel.
5. INDEMNIFICATION. (a) The Company and each Subsidiary Guarantor agrees
to indemnify and hold harmless (i) each Initial Purchaser, each Holder of the
Securities and any Participating Broker-Dealer, and (ii) each person, if any,
who controls such Initial Purchaser, such Holder or such Participating
Broker-Dealer within the meaning of Section 15 of the Securities Act
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<PAGE>
or Section 20 of the Exchange Act (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "CONTROLLING PERSON") and (iii) the
agents, employees, officers and directors of any Person referred to in clause
(i) or (ii) who, collectively with the Persons referred to in clauses (i) and
(ii) are referred to collectively as the "INDEMNIFIED PARTIES", from and against
any and all losses, liabilities, claims, damages or expenses whatsoever
(including but not limited to, attorneys' fees and any and all expenses incurred
in investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which any
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, liabilities, claims, damages, expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in a Registration
Statement or prospectus included therein or in any amendment thereof or
supplement thereto, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
the Company and the Subsidiary Guarantors shall not be liable in any such case
to the extent, but only to the extent, that such loss, liability, claim, damage,
or expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in a Registration Statement or
prospectus included therein or in any amendment thereof or supplement thereto or
in any preliminary prospectus relating to a Shelf Registration in reliance upon
and in conformity with written information pertaining to such Indemnified Party
and furnished to the Company or a Subsidiary Guarantor by or on behalf of such
Indemnified Party expressly for use therein; PROVIDED, FURTHER, that neither the
Company nor any Subsidiary Guarantor shall be liable pursuant to this subsection
(a) with respect to any preliminary prospectus to the extent that any loss,
expense, liability or claim arises solely from the fact that the Indemnified
Party or related Holder fails to send or deliver, on or prior to the written
confirmation of the sale by such Indemnified Party or related Holder a final
prospectus; PROVIDED that the Company shall have previously furnished copies
thereof to the Indemnified Party or such related Holder and such final
prospectus would have corrected any such untrue statement or omission; PROVIDED
FURTHER, that this indemnity agreement will be in addition to any liability
which the Company or any Subsidiary Guarantor may otherwise have to such
Indemnified Party. The Company shall also indemnify underwriters participating
in the distribution (as described in the Registration Statement), their officers
and directors and each person who controls such persons within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as provided above with respect to the indemnification of the Holders of
the Securities if requested by such Holders.
(b) In connection with any Registration Statement pursuant to which a
Holder offers or sells Securities, such Holder agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Subsidiary
Guarantors, their respective directors and officers and any person controlling
the Company or a Subsidiary Guarantor within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity
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from the Company and the Subsidiary Guarantors to each Indemnified Person but
only with respect to information relating to such Holder furnished in writing by
or on behalf of such Holder expressly for use in such Registration Statement or
prospectus included therein or in any amendment thereof or supplement thereto.
In any such case in which any action shall be brought against the Company or a
Subsidiary Guarantor, any director or officer of the Company or a Subsidiary
Guarantor or any person controlling the Company or a Subsidiary Guarantor based
on such Registration Statement and in respect of which indemnity may be sought
against a Holder, such Holder shall have the rights and duties given to the
Company and the Subsidiary Guarantors (except that if the Company or a
Subsidiary Guarantor shall have assumed the defense thereof, such Holder shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Holder), and the Company and the Subsidiary
Guarantors, their respective directors and officers and any person controlling
the Company or a Subsidiary Guarantor shall have the rights and duties given to
the Indemnified Parties by Section 5(a) hereof. This indemnity agreement will be
in addition to any liability which such Holder may otherwise have to the Company
or any of its controlling persons.
(c) Promptly after receipt by an Indemnified Party under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation) (collectively, an "Action"), such Indemnified Party shall, if a
claim in respect thereof is to be made against the Indemnifying Party under this
Section 5, promptly notify each party against whom indemnification is to be
sought in writing of the commencement of such Action (but the failure so to
notify the Indemnifying Party shall not, in any event, relieve the Indemnifying
Party of liability that it may have under this Section 5, except to the extent
that it has been prejudiced in any material respect by such failure, or from any
liability which it may otherwise have). In case any such Action is brought
against any Indemnified Party, and it notifies the Indemnifying Party of the
commencement thereof, the Indemnifying Party will be entitled to participate in
such Action and, to the extent that it may elect by written notice delivered to
the Indemnified Party promptly after receiving the aforesaid notice from such
Indemnified Party, to assume the defense of such Action, with counsel reasonably
satisfactory to such Indemnified Party (which counsel shall not, except with the
consent of the Indemnified Party (which consent shall not be unreasonably
withheld), be counsel to the Indemnifying Party). Notwithstanding the foregoing,
the Indemnified Party or parties shall have the right to employ its or their own
counsel in any such Action, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party or Parties unless (i) the employment of
such counsel shall have been authorized in writing by the Indemnifying Parties
in connection with the defense of such Action, (ii) the Indemnifying Parties
shall not have employed counsel to take charge of the defense of such Action
within a reasonable time after notice of commencement of the Action, or (iii)
such Indemnified Party or Parties shall have reasonably concluded that there may
be defenses available to it or them that are different from or additional to
those available to one or all of the Indemnifying Parties (in which case the
Indemnifying Parties shall not have the right to direct the defense of such
Action on behalf of the Indemnified Party or Parties), in any of which events
such fees and expenses of counsel shall be borne by the Indemnifying Parties. In
no event shall the Indemnifying Party be liable for the fees and expenses
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of more than one counsel (together with appropriate local counsel) at any time
for all Indemnified Parties in connection with any one Action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. Anything in this subsection to
the contrary notwithstanding, an Indemnifying Party shall not be liable for any
settlement of any claim or Action effected without its written consent;
PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which the
indemnification provided for in paragraphs (a) and (b) of this Section 5 is
applicable for any reason held to be unavailable from the indemnifying party, or
is insufficient to hold harmless a party indemnified under this Section 5, the
Company, the Subsidiary Guarantors and the Indemnified Parties shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any Action or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the indemnifying party, any contribution received by the
indemnifying party, from persons other than the Indemnified Party who may also
be liable for contribution, including persons who control the Indemnified Party
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company, the Subsidiary Guarantors and the Indemnified Parties
may be subject, in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Subsidiary Guarantors, on the one hand,
and the Indemnified Parties, on the other hand, from the offering of the Senior
Notes or, if such allocation is not permitted by applicable law or
indemnification is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in paragraph (c) of this Section 5, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Subsidiary Guarantors, on the one
hand, and the Indemnified Parties, on the other hand, in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Subsidiary Guarantors
shall be deemed to be in the same proportion as the total proceeds from the
offering of Senior Notes (net of discounts but before deducting expenses)
received by the Company as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Subsidiary Guarantors, on
the one hand, and the Indemnified Parties, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Subsidiary
Guarantors or the Indemnified Parties and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The agreements contained in this Section 5 shall survive the sale of
the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
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<PAGE>
6. LIQUIDATED DAMAGES UNDER CERTAIN CIRCUMSTANCES. (a) Liquidated damages
("LIQUIDATED DAMAGES") with respect to the Securities shall be assessed as
follows if any of the following events occur (each such event in clauses (i)
through (iii) below a "REGISTRATION DEFAULT"):
(i) If by the 60th day (or if such 60th day is not a business day,
the first business day thereafter) after the Issue Date, neither the
Exchange Offer Registration Statement nor a Shelf Registration Statement
has been filed with the Commission;
(ii) If by the 120th day (or if such 120th day is not a business
day, the first business day thereafter) after the Issue Date, neither the
Exchange Offer Registration Statement nor, if required in lieu thereof,
the Shelf Registration Statement is declared effective by the Commission;
(iii) If by the 165th day (or if such 165th day is not a business
day, the first business day thereafter) after the Issue Date, the Exchange
Offer has not been consummated; or
(iv) If after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, (A) such
Registration Statement thereafter ceases to be effective prior to
completion of the Exchange Offer or the sale of all of the Transfer
Restricted Notes registered pursuant to the Shelf Registration Statement,
as the case may be; or (B) such Registration Statement or the related
prospectus ceases to be usable (except as permitted in paragraph (b) of
this Section 6) in connection with resales of Transfer Restricted Notes
during the periods specified herein because either (1) any event occurs as
a result of which the related prospectus forming part of such Registration
Statement would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
(2) it shall be necessary to amend such Registration Statement or
supplement the related prospectus, to comply with the Securities Act or
the Exchange Act or the respective rules thereunder.
The Company will pay Liquidated Damages to each Holder of Transfer Restricted
Notes, during the first 90-day period immediately following the occurrence of a
Registration Default in amount equal to $.05 per week per $1,000 principal
amount of Senior Notes constituting Transfer Restricted Notes held by such
Holder. The amount of Liquidated Damages will increase an additional $.05 per
week per $1,000 principal amount of Senior Notes constituting Transfer
Restricted Notes for each subsequent 90-day period until the applicable
Registration Default has been cured, up to a maximum amount of Liquidated
Damages of $.30 per week per $1,000 principal amount of Senior Notes
constituting Transfer Restricted Notes. All accrued Liquidated Damages will be
paid by the Company on the regular interest payment dates with respect to the
Senior Notes to the Global Note Holders by wire transfer of immediately
available funds or by federal funds check to the Holders of certified securities
by mailing a check to such Holders'
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registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages shall cease.
(b) A Registration Default referred to in Section 6(a)(iv)(B) shall be
deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited or,
if required by the rules and regulations under the Securities Act, quarterly
unaudited, financial information with respect to the Company where such
post-effective amendment is not yet effective and needs to be declared effective
to permit Holders to use the related prospectus or (y) other material events or
developments with respect to the Company that would need to be described in such
Shelf Registration Statement or the related prospectus and (ii) in the case of
clause (y), the Company is proceeding promptly and in good faith to amend or
supplement such Shelf Registration Statement and related prospectus to describe
such events or, in the case of material developments that the Company determines
in good faith must remain confidential for business reasons, the Company is
proceeding promptly and in good faith to take such steps as are necessary so
that such developments need no longer remain confidential.
(c) "TRANSFER RESTRICTED NOTES" means each Security until (i) the date on
which such Security has been exchanged by a person other than a broker-dealer
for a freely transferrable Exchange Note in the Exchange Offer, (ii) following
the exchange by a broker-dealer in the Exchange Offer of a Security for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Security has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Security is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
7. RULES 144 AND 144A. The Company shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Transfer Restricted Notes,
make publicly available other information so long as necessary to permit sales
of their securities pursuant to Rules 144 and 144A. The Company covenants that
it will take such further action as any Holder of Transfer Restricted Notes may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Notes without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Company will provide a
copy of this Agreement to prospective purchasers of Senior Notes identified to
the Company by the Initial Purchasers upon request. Upon the request of any
Holder of Transfer Restricted Notes, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this
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Section 7 shall be deemed to require the Company to register any of its
securities pursuant to the Exchange Act.
8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
administer the offering ("Managing Underwriters") will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Notes to be included in such offering (subject to the approval (which approval
shall not be unreasonably withheld) of the Company), PROVIDED that the Company
shall not be obligated to arrange for more than one underwritten offering during
the period that such Shelf Registration is required to be effective pursuant to
this Agreement.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(i) if to a Holder of the Securities, at the most current address
given by such Holder to the Company in accordance with the provisions of
this Section 9(b), which address initially is, with respect to each
Holder, the address of such Holder to which
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confirmation of the sale of the Senior Notes to such Holder was first sent
by the Initial Purchasers, with a copy in like manner to you as follows:
Dillon, Read & Co. Inc.
SBC Warburg Inc.
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
Fax No.: (212) 759-2580
Attention: Corporate Finance Department
with a copy to:
Baker & Botts, L.L.P.
910 Louisiana
Houston, Texas 77002
Fax No.: (713) 229-1522
Attention: Joe S. Poff
(ii) if to the Initial Purchasers, at the addresses specified in
Section 9(b)(i);
(iii) if to the Company, at its address as follows:
Brazos Sportswear, Inc.
3860 Virginia Avenue
Cincinnati, Ohio 45227
Fax No: (513) 272-2812
Attention: Chief Financial Officer
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana
35th Floor
Houston, Texas 77002
Fax No: (713) 228-1331
Attention: Samuel N. Allen
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by the recipient's facsimile machine operator, if sent by
facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
-19-
<PAGE>
(c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
(h) SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
(j) REMEDIES. Each Holder, in addition to being entitled to exercise all
rights provided in this Agreement, in the Indenture, the Purchase Agreement or
granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
and the Subsidiary Guarantors agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agree to waive the defense in any Action for
specific performance that a remedy at law would be adequate.
(k) ADJUSTMENTS AFFECTING THE NOTES. Without the written consent of the
Holders of a majority in aggregate principal amount of outstanding Senior Notes,
the Company and the Subsidiary Guarantors will not take any action, or permit
any change to occur, with respect to the
-20-
<PAGE>
Senior Notes that would materially and adversely affect the ability of the
Holders to consummate any Exchange Offer.
-21-
<PAGE>
If the foregoing Registration Rights Agreement is in accordance with your
understanding of our agreement, please sign and return to the Company a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement among the Initial Purchasers, the Company and the
Subsidiary Guarantors in accordance with its terms.
BRAZOS SPORTSWEAR, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Vice President
BRAZOS, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Vice President
BRAZOS EMBROIDERY, INC.
By: /S/ F. CLAYTON CHAMBERS
Name: F. Clayton Chambers
Title: Secretary
[Signature page continued on next page]
S-1
<PAGE>
MORNING SUN, INC., formerly known as
SolarCo, Inc., successor in interest to
Morning Sun, Inc.
By: /s/ RANDALL B. HALE
Name: Randall B. Hale
Title: Chairman Of The Board
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first above written.
DILLON, READ & CO. INC.
SBC WARBURG INC.
By: DILLON, READ & CO. INC.
By: /s/VINCENT LU
Name:Vincent Lu
Title:Vice President
S-2
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Senior Notes where such
Senior Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date (as defined herein), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as it may be amended or supplemented from time to time, available to
any broker-dealer for use in connection with any such resale. In addition, until
_____________, 199_, all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.*
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Senior Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities including liabilities under the
Securities Act.
- --------
* In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________________________
Address: ____________________________________________________________
____________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Senior Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
EXHIBIT 11.1
BRAZOS SPORTSWEAR, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
YEARS ENDED DECEMBER 31, 1992, DECEMBER 31, 1993, DECEMBER 31, 1994,
DECEMBER 30, 1995, DECEMBER 28, 1996, AND THIRTEEN WEEKS ENDED
MARCH 30, 1996 AND MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Year Year Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 30,
1992 1993 1994 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY -
EARNINGS
Income (loss) available to common equity before
extraordinary Item ......................... $ (41) $ 429 $ (75) $ (4,440)
Extraordinary Item .............................. -- -- -- 500
----------- ---------- ----------- -----------
Income (loss) available to common equity ........ $ (41) $ 429 $ (75) $ (3,940)
=========== ========== =========== ===========
SHARES
Weighted average common shares outstanding ...... 1,783,704 1,987,466 2,015,719 2,015,719
Cheap stock warrants ............................ 1,014,084 1,014,084 1,014,084 1,014,084
Other options and warrants ...................... -- 31,106 -- --
----------- ---------- ----------- -----------
Weighted average common and common
equivalent shares outstanding .............. 2,797,788 3,032,656 3,029,803 3,029,803
=========== ========== =========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity before
extraordinary item ......................... $ (0.01) $ 0.14 $ (0.02) $ (1.47)
Extraordinary Item .............................. -- -- -- 0.17
----------- ---------- ----------- -----------
Income (loss) available to common equity ........ $ (0.01) $ 0.14 $ (0.02) $ (1.30)
=========== ========== =========== ===========
FULLY DILUTED -
EARNINGS
Income (loss) available to common equity before
extraordinary item ......................... $ (41) $ 429 $ (75) $ (3,940)
Add: dividends and accretion on
preferred stock ............................ -- -- -- --
----------- ---------- ----------- -----------
Adjusted income (loss) available to common equity $ (41) $ 429 $ (75) $ (3,940)
=========== ========== =========== ===========
SHARES
Weighted average common shares outstanding ...... 1,783,704 1,987,466 2,015,719 2,015,719
Cheap stock warrants ............................ 1,014,084 1,014,084 1,014,084 1,014,084
Other options and warrants ...................... -- 31,106 -- --
Shares applicable to convertible preferred stock -- -- -- --
----------- ---------- ----------- -----------
Weighted average common and uncommon
equivalent shares outstanding .............. 2,797,788 3,032,656 3,029,803 3,029,803
=========== ========== =========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity ........ $(0.01) $0.14 $(0.02) $(1.30)
=========== ========== =========== ===========
<CAPTION>
Year 13 Weeks 13 Weeks
Ended Ended Ended
Dec. 28, Mar. 30, Mar. 29,
1996 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
PRIMARY -
EARNINGS
Income (loss) available to common equity before
extraordinary Item ......................... $ 3,787 $ 452 $ (1,041)
Extraordinary Item .............................. -- -- --
---------- ---------- -----------
Income (loss) available to common equity ........ $ 3,787 $ 452 $ (1,041)
========== ========== ===========
SHARES
Weighted average common shares outstanding ...... 2,466,028 2,015,719 3,780,206
Cheap stock warrants ............................ 921,503 1,014,084 109,332
Other options and warrants ...................... 811,376 1,083,777 --
---------- ---------- -----------
Weighted average common and common
equivalent shares outstanding .............. 4,198,907 4,113,580 3,889,538
========== ========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity before
extraordinary item ......................... $ 0.90 $ 0.11 $ (0.27)
Extraordinary Item .............................. -- -- --
---------- ---------- -----------
Income (loss) available to common equity ........ $ 0.90 $ 0.11 $ (0.27)
========== ========== ===========
FULLY DILUTED -
EARNINGS
Income (loss) available to common equity before
extraordinary item ......................... $ 3,787 $ 452 $ (1,041)
Add: dividends and accretion on preferred stock.. 245 -- 165
---------- ---------- -----------
Adjusted income (loss) available to common equity $ 4,032 $ 452 $ (876)
========== ========== ===========
SHARES
Weighted average common shares outstanding ...... 2,466,028 2,015,719 3,780,206
Cheap stock warrants ............................ 921,503 1,014,084 109,332
Other options and warrants ...................... 811,376 1,083,777 --
Shares applicable to convertible preferred stock 260,901 -- 692,519
---------- ---------- -----------
Weighted average common and uncommon
equivalent shares outstanding .............. 4,459,808 4,113,580 4,582,057
========== ========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity ........ Note 4 $0.11 Note 4
========== ========== ===========
</TABLE>
Note 1: Cheap stock warrants have been subjected to the provisions of
Securities and Exchange Commission Staff Accounting Bulletin No. 83.
Note 2: The gross amount of cheap stock warrants outstanding during fiscal
years 1992-1996 and the first quarter of fiscal 1997 were 1,014,206
and 272,968 respectively.
Note 3: Due to net losses for the years ended December 31, 1992, December 31,
1994, and December 30, 1995, and the thirteen weeks ended March 29,
1997, common stock equivalents, except for cheap stock warrants, are
not included as they would be anti-dilutive.
Note 4: Fully-diluted earnings (loss) per share is not presented as it would
be anti-dilutive.
EXHIBIT 11.2
BRAZOS SPORTSWEAR, INC.
COMPUTATION OF PRO FORMA COMBINED EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE
YEAR ENDED DECEMBER 28, 1996 AND THIRTEEN WEEKS ENDED MARCH 29, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year 13 Weeks
Ended Ended
Dec. 28, Mar. 29,
1996 1997
----------- -----------
PRIMARY -
EARNINGS
Income (loss) available to common equity ........... $ 4,073 $ (3,170)
=========== ===========
SHARES
Weighted average common shares outstanding ......... 3,263,490 4,344,393
Cheap stock warrants ............................... 1,030,841 109,332
Other options and warrants ......................... 808,725 --
----------- -----------
Weighted average common and common
equivalent shares outstanding ................. 5,103,056 4,453,725
=========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity ........... $ 0.80 $ (0.71)
=========== ===========
FULLY DILUTED -
EARNINGS
Income (loss) available to common equity ........... $ 4,073 $ (3,170)
Add: dividends and accretion on preferred stock .... 931 246
----------- -----------
Adjusted Income (loss) available to common equity .. $ 5,004 $ (2,924)
=========== ===========
SHARES
Weighted average common shares outstanding ......... 3,263,490 4,344,393
Cheap stock warrants ............................... 1,030,841 109,332
Other options and warrants ......................... 808,725 --
Shares applicable to convertible preferred stock ... 855,741 898,951
----------- -----------
Weighted average common and common
equivalent shares outstanding ................. 5,958,797 5,352,676
=========== ===========
EARNINGS PER SHARE
Income (loss) available to common equity ........... Note 4 Note 4
=========== ===========
Note 1: Cheap stock warrants have been subjected to the provisions of
Securities and Exchange Commission Staff Accounting Bulletin No. 83.
Note 2: The gross amount of cheap stock warrants outstanding during fiscal
1996 and the first quarter of fiscal 1997 were 1,287,174 and 272,968
respectively.
Note 3: Due to net losses for the thirteen weeks ended March 29, 1997, common
stock equivalents, except for cheap stock warrants, are not included
as they would be anti-dilutive.
Note 4: Fully-diluted earnings (loss) per share is not presented as it would
be anti-dilutive.
EXHIBIT 12.1
BRAZOS SPORTSWEAR, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN
----------------------------------------------------------------- WEEKS ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MAR. 29,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
(Thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE
Net income (loss) .......................... $ (41) $ 429 $ (75) $ (3,940) $ 4,032 $ (876)
Add:
Income tax provision (credit) ......... 87 254 99 (338) 789 (609)
Interest charges ...................... 1,056 1,153 1,663 3,695 4,491 1,145
Amortization of deferred financing cost -- -- 68 102 257 97
Rents (a) ............................. 198 213 264 571 644 167
Deduct:
Extraordinary gain .................... -- -- -- (500) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total earnings available ................ $ 1,300 $ 2,049 $ 2,019 $ (410) $ 10,213 $ (76)
========== ========== ========== ========== ========== ==========
FIXED CHARGES
Interest charges ........................... $ 1,056 $ 1,153 $ 1,663 $ 3,695 $ 4,491 $ 1,145
Amortization of deferred financing costs ... -- -- 68 102 257 97
Rents (a) .................................. 198 213 264 571 644 167
---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges ..................... $ 1,254 $ 1,366 $ 1,995 $ 4,368 $ 5,392 $ 1,409
========== ========== ========== ========== ========== ==========
RATIO OF EARNINGS TO
FIXED CHARGES .............................. 1.04 1.50 1.01 (b) 1.89(c) (b)(c)
========== ========== ========== ========== ========== ==========
</TABLE>
(a) The interest component of rents is estimated to equal one-third of total
rental expense for the period as Management believes this estimate to be
a reasonable approximation of the interest factor.
(b) For the year ended December 30, 1995 and the thirteen weeks ended March
29, 1997, earnings, as defined, were inadequate to cover fixed charges.
The deficiencies were $4.8 million and $1.5 million for the year ended
December 30, 1995 and the thirteen weeks ended March 29, 1997,
respectively.
(c) On a proforma basis after giving effect to the Exchange Notes, the
Acquisitions, the merger with Sun Sportswear, Inc., and the acquisition
of Plymouth Mills, Inc., the ratio of earnings to fixed charges for the
year ended December 28, 1996 would be 1.47 and the deficiency for the
thirteen weeks ended March 29, 1997 would be approximately $4.9 million.
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio
July 11, 1997
EXHIBIT 23.3
MOSS-ADAMS LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated February 7, 1997 relating to
the consolidated financial statements of SolarCo, Inc. and Subsidiary for the
years ended January 1, 1995, December 31, 1995, and December 29, 1996 which is
included in Form S-4 of Brazos Sportswear, Inc dated July 11, 1997. We also
consent to the reference to our Firm as experts in the same registration
statement.
/s/ MOSS ADAMS LLP
MOSS ADAMS LLP
Seattle, Washington
July 11, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Brazos Sportswear, Inc. of our report
dated February 23, 1996 relating to the financial statements of Brazos
Sportswear, Inc.(formerly Sun Sportswear, Inc.), which appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Seattle, Washington
July 11, 1997
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
our report dated February 5, 1997, on our audit of the financial statements of
Plymouth Mills, Inc., as of September 30, 1995 and August 2, 1996, and for the
years ended September 30, 1994 and 1995 and for the period from October 1, 1995
to August 2, 1996. We also consent to the reference to us under the heading
"Experts."
MAHONEY COHEN & COMPANY, CPA, PC
New York, New York
July 14, 1997
