SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11368
PARAGON TRADE BRANDS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1554663
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
180 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (678) 969-5000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- ------------------------------
Common Stock, par value $.01 per share N/A
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of February 29, 2000, there were 11,891,000 shares of the Registrant's Common
Stock outstanding, and the aggregate market value of such stock held by
nonaffiliates of the Registrant was $118,891,000 (based on the deemed value of
$10.00 per share of the common stock distributed pursuant to the Company's Plan
of Reorganization as of January 28, 2000).
Exhibit Index on Page 85
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PARAGON TRADE BRANDS, INC.
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PART I
PAGE
<S> <C> <C>
Item 1: BUSINESS 1
Item 2: PROPERTIES 9
Item 3: LEGAL PROCEEDINGS 9
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 13
Item 6: SELECTED FINANCIAL DATA 14
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 16
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 32
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 67
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 67
Item 11: EXECUTIVE COMPENSATION 69
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 78
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 80
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 80
</TABLE>
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PART I
ITEM 1: BUSINESS
GENERAL
Paragon Trade Brands, Inc. (the "Company") is the leading manufacturer of store
brand infant disposable diapers in North America. The Company manufactures a
line of premium and economy diapers, training pants and feminine care and adult
incontinence products which are distributed throughout North America, primarily
through grocery and food stores, mass merchandisers, warehouse clubs, toy stores
and drug stores that market the Company's products under their own store brand
names. The Company has also established international joint ventures in Mexico,
Argentina, Brazil and China for the manufacture and sale of infant disposable
diapers and other absorbent personal care products.
RECENT DEVELOPMENTS
On January 28, 2000, the Company emerged from Chapter 11 protection as
contemplated under its Second Amended Plan of Reorganization (as subsequently
modified through January 13, 2000, the "Plan"). All pre-petition obligations
were discharged. Pursuant to the Plan, Wellspring Capital Management LLC
("Wellspring") and certain of its affiliates purchased an aggregate of
11,516,405 shares, or approximately 97 percent, of the common stock of the
reorganized Company for a cash contribution of $115.2 million. Under the Plan,
general unsecured creditors of the Company are entitled to receive their
pro-rata share of $115.4 million in cash and $146.0 million of 11.25 percent
senior subordinated notes due 2005 (the "New Notes"). A total of 178,365 shares
and 625,821 warrants to purchase additional shares of the Company's new common
stock will be distributed to holders of old common stock under the Plan. Common
stockholders of record as of January 13, 2000 will receive .0149 shares of the
Company's new common stock and .0524 warrants for each share of the Company's
old common stock held on such date and surrendered in accordance with the Plan.
The warrants are transferable, have an exercise price of $18.91 per share and
expire on January 28, 2010. General unsecured creditors and stockholders of
record as of January 13, 2000 are entitled to receive their pro-rata share of
the proceeds, if any, of certain litigation claims that remain with the estate
and which will be prosecuted on their behalf by the litigation claims
representative appointed under the Plan. The Company had filed for Chapter 11
protection on January 6, 1998 after losing a material patent litigation case
described herein. See "REORGANIZATION CASE" and "ITEM 3: LEGAL PROCEEDINGS."
On January 28, 2000, the Company and certain subsidiaries of the Company, as
guarantors, entered into a three-year $95 million financing facility (the
"Credit Facility") with a bank group led by Citicorp USA, Inc. ("Citicorp"). The
maximum borrowing under the Credit Facility may not exceed the lesser of $95
million or an amount determined by a borrowing base formula. The borrowing base
formula is comprised of certain specified percentages of eligible accounts
receivable, eligible inventory, equipment and personal property and real
property of the Company. The Credit Facility has a sub-limit of $15 million for
the issuance of letters of credit. The Credit Facility contains customary
financial covenants. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS: RECENT DEVELOPMENTS."
On January 28, 2000, the Company issued the New Notes as contemplated under the
Plan. The New Notes are guaranteed by certain domestic subsidiaries and are not
callable until February 1, 2003. Interest is payable semi-annually and during
the first two years can be paid in kind if free cash flow, as defined in the
Indenture, falls below projected levels. The New Notes are subordinated in right
of payment to the payment of all senior indebtedness. The New Notes contain
customary restrictive covenants.
The Company will record the reorganization and related transactions using "fresh
start" accounting as required by Statement of Position 90-7 ("SOP 90-7") issued
by the American Institute of Certified Public Accountants. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: RECENT
DEVELOPMENTS."
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REORGANIZATION CASE
The Company has previously disclosed that The Procter & Gamble Company ("P&G")
had filed a lawsuit against it in the United States District Court for the
District of Delaware (the "Delaware District Court") alleging that the Company's
"Ultra" disposable baby diaper products infringed two of P&G's dual cuff diaper
patents. The lawsuit sought injunctive relief, lost profit and royalty damages,
treble damages and attorneys' fees and costs. The Company denied liability under
the patents and counterclaimed for patent infringement and violation of
antitrust laws by P&G. The Company also disclosed that if P&G were to prevail on
its claims, an award of all or a substantial amount of the relief requested by
P&G could have a material adverse effect on the Company's financial condition
and results of operations.
On December 30, 1997, the Delaware District Court issued a Judgment and Opinion
which found that two of P&G's dual cuff diaper patents were valid and infringed
by certain of the Company's disposable diaper products, while also rejecting the
Company's patent infringement claims against P&G. The Delaware District Court
had earlier dismissed the Company's antitrust counterclaim on summary judgment.
The Judgment entitled P&G to damages based on sales of the Company's diapers
containing the "inner-leg gather" feature. While the final damages number of
approximately $178.4 million was not entered by the Delaware District Court
until June 2, 1998, the Company originally estimated the liability and
associated litigation costs to be approximately $200 million. The amount of the
award resulted in violation of certain covenants under the Company's
then-existing bank loan agreements. As a result, the issuance of the Judgment
and the uncertainty it created caused an immediate and critical liquidity issue
for the Company.
On January 6, 1998, the Judgment was entered on the docket in Delaware in such a
manner that P&G would have been able to begin placing liens on the Company's
assets. As a result, the Company filed for relief under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq., in the United States Bankruptcy
Court for the Northern District of Georgia (Case No. 98-60390) on January 6,
1998 (the "Chapter 11 filing"). None of the Company's subsidiaries were included
in the Chapter 11 filing. The Chapter 11 filing was designed to prevent P&G from
placing liens on Company property, permit the Company to appeal the Delaware
District Court's decision on the P&G case in an orderly fashion and give the
Company the opportunity to resolve liquidated and unliquidated claims against
the Company, which arose prior to the Chapter 11 filing.
In connection with the Chapter 11 filing, on January 30, 1998, the Bankruptcy
Court entered a Final Order approving the Credit Agreement (the "DIP Credit
Facility") as provided under the Revolving Credit and Guarantee Agreement dated
as of January 7, 1998, among the Company, as Borrower, certain subsidiaries of
the Company, as guarantors, and a bank group led by The Chase Manhattan Bank
("Chase"). Pursuant to the terms of the DIP Credit Facility, Chase made
available to the Company a revolving credit and letter of credit facility in an
aggregate principal amount of $75 million. The Company's maximum borrowing under
the DIP Credit Facility could not have exceeded the lesser of $75 million or an
available amount as determined by a borrowing base formula. The DIP Credit
Facility had a sublimit of $10 million for the issuance of letters of credit.
The DIP Credit Facility expired on January 28, 2000, the date the Company
consummated its plan of reorganization described below. As part of its exit from
Chapter 11, the Company entered into the Credit Facility, as described below.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to dual cuffs. The lawsuit
sought injunctive relief, royalty damages, treble damages and attorneys' fees
and costs. The Company denied liability under the patents and counterclaimed for
patent infringement and violation of antitrust laws by K-C. In addition, K-C
subsequently sued the Company on another patent issued to K-C which is based
upon a further continuation of one of the K-C dual cuff patents asserted in the
case. That suit was consolidated with the then-pending action.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Settlement Agreement was
approved by the Bankruptcy Court on August 6, 1999 (the "K-C Approval Order").
The Equity Committee appealed the K-C Approval Order. See "ITEM 3: LEGAL
PROCEEDINGS."
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On July 12, 1999, the Bankruptcy Court approved certain bidding procedures, an
expense reimbursement and a termination fee (the "Bidding Procedures Order")
relating to a proposed investment by Wellspring, a private investment company,
to acquire the Company as part of a plan of reorganization (the "Wellspring
Transaction"). The Bidding Procedures Order provided for the consideration of
competing investment proposals from other qualified bidders and for the filing
by the Company of a stand-alone plan of reorganization. The Equity Committee
appealed the Bidding Procedures Order. See "ITEM 3: LEGAL PROCEEDINGS."
On August 25, 1999, with the support of the Official Committee of Unsecured
Creditors (the "Creditors' Committee" and, together with the Equity Committee,
the "Committees"), the Company filed a stand-alone plan of reorganization (the
"Initial Plan") with the Bankruptcy Court. The Initial Plan provided an
alternative to the Wellspring Transaction. In accordance with the Bidding
Procedures Order, an auction commenced on September 21, 1999. The auction
continued thereafter until the Company, after consultation with the Committees,
P&G and K-C, determined to conclude the auction on October 4, 1999. At the
conclusion of the auction, the Company, after consultation with the Committees,
P&G and K-C, determined that Wellspring had submitted the best bid. On October
15, 1999, the Company and the Creditors' Committee, as co-proponents, jointly
filed an amendment to the Plan (the "Amended Plan") which incorporated the
Wellspring Transaction, as modified by the Company after consultation with its
various creditor constituencies. The Amended Plan also provided that, in the
event the Wellspring Transaction was not consummated, the proponents could have
pursued confirmation of a stand-alone plan of reorganization.
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed the Plan and a related Disclosure Statement (as
subsequently modified through November 18, 1999, the "Disclosure Statement")
with the Bankruptcy Court. The Plan incorporated the Wellspring Transaction. By
order dated November 18, 1999, the Bankruptcy Court approved the Disclosure
Statement. At such time, the Bankruptcy Court also approved certain voting
procedures and established January 7, 2000 as the voting deadline for the Plan
and January 13, 2000 as the date for a hearing to consider confirmation of the
Plan. A confirmation hearing was held by the Bankruptcy Court on January 13,
2000. By Order dated January 13, 2000, the Bankruptcy Court confirmed the Plan.
On January 28, 2000, Paragon was reorganized pursuant to the Plan through the
consummation of the Wellspring Transaction. As contemplated under the Plan, the
Equity Committee has withdrawn with prejudice its appeals of the P&G Approval
Order, the K-C Approval Order and the Bidding Procedures Order. See "RECENT
DEVELOPMENTS, "ITEM 3: LEGAL PROCEEDINGS."
As a result of the Chapter 11 filing, the Company has incurred significant costs
for professional fees. The Company was also required to pay certain expenses of
the Committees, including professional fees, to the extent allowed by the
Bankruptcy Court. Pursuant to the Plan, a reserve has been established from
which any remaining professional fees and expenses related to the Chapter 11
reorganization proceeding will be paid. See "ITEM 3: LEGAL PROCEEDINGS."
The Company has previously disclosed that it had been notified by the New York
Stock Exchange ("NYSE") during 1998 that as a result of the $200 million
settlement contingency related to the P&G litigation and the Company's net loss
in 1997, certain minimum listing requirements had not been maintained. Trading
in the common stock of the Company on the NYSE was suspended prior to the
opening of trading on July 8, 1999. As of July 9, 1999, the National Association
of Securities Dealers, Inc. Over-the-Counter Bulletin Board (the "OTCBB") began
publishing quotations of the Company's common stock under the symbol PGNFQ. As a
result of the Plan, on February 2, 2000, the OTCBB ceased quotations of the
Company's common stock. The Company is in the process of attempting to qualify
its new common stock for quotation on the OTCBB but cannot predict whether or
when such quotation will commence.
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PRODUCTS
The Company manufactures several diaper product lines: a premium-quality Ultra
line, an Economy line and a Supreme line. The Company also manufactures a line
of training pants. Ultra diaper sales accounted for approximately 82 percent, 86
percent and 81 percent of the Company's total unit sales in 1999, 1998 and 1997,
respectively. Economy diaper units represented approximately 6 percent, 7
percent and 9 percent of the Company's total unit sales in fiscal years 1999,
1998 and 1997, respectively. The Supreme product represented approximately 5
percent, 4 percent and 5 percent of the Company's total unit sales in fiscal
years 1999, 1998 and 1997, respectively. Training pant units represented
approximately 7 percent of the Company's total unit sales in 1999 and 4 percent
in 1998 and 1997.
The Company's Ultra diaper combines fluff pulp with superabsorbent polymer
("SAP") in the absorbent inner core. SAP is significantly more absorbent and
better able to retain liquids than fluff pulp. To enhance performance and
appearance, the Ultra diaper incorporates a number of product features
comparable to those introduced by national branded manufacturers. The Company
now produces its Ultra diaper in six different sizes which are designed to fit
babies better as they grow and develop. In 1998, the Company introduced an
improved Ultra diaper which incorporated stretch tabs and a hook and loop
closure system.
The Economy diaper is designed to satisfy the needs of the more cost-conscious
value segment shopper. Its absorbent pad contains fluff pulp and SAP. Its
features include a "tape landing zone" allowing for easy fitting and
re-adjustment after fastening. The Company produces the Economy diaper in three
unisex sizes.
The Company's Supreme diaper product is similar to its Ultra diaper but contains
a premium absorbent core and parts of the outer cover and closure systems use
premium materials.
The Company's training pant is designed for use by children primarily during
their transition from diapers. The Company's training pant utilizes an absorbent
core of fluff pulp and SAP and a cloth-like nonwoven outer cover. The Company
produces its training pant in two gender-specific sizes and two unisex sizes. In
1999, the Company introduced an enhanced training pant product with improved
performance and aesthetic appeal.
In 1996, the Company began manufacturing a line of feminine care products that
included ultra thin, maxi and super maxi pads, pantiliners, panty shields and
regular and super absorbent tampons. In 1997, the Company began manufacturing a
line of adult incontinence products that includes guards, undergarments and
bladder control pads. In 1998, the Company curtailed its tampon manufacturing
operations, but continues to source tampons through a contract manufacturing
relationship.
PRODUCT DEVELOPMENT
To enhance the Company's objective of providing its trade customers with
premium-quality store brand disposable diapers, training pants and feminine care
and adult incontinence products, the Company devotes significant resources to
market research and product design and development to enable it to improve
product performance and consumer acceptance. The Company believes that it has
the largest product development program of any manufacturer in the U.S.
disposable diaper market, other than the national branded manufacturers. The
Company spent approximately $3.6 million, $4.2 million and $5.1 million on
research and development in fiscal years 1999, 1998 and 1997, respectively.
PATENT RIGHTS
Because of the emphasis on product innovations in the disposable diaper,
feminine care and adult incontinence markets, patents and other intellectual
property rights are an important competitive factor. The national branded
manufacturers have sought to vigorously enforce their patent rights. Patents
held by the national branded manufacturers could severely limit the Company's
ability to keep up with branded product innovations by prohibiting the Company
from introducing products with comparable features. To protect its competitive
position, the Company has created an intellectual property portfolio through
development, acquisition and licensing that includes approximately 300 U.S. and
foreign patents relating to disposable diaper, feminine care and adult
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incontinence product features and manufacturing processes. The Company also
subjects new product innovations to a rigorous patent clearance process which
includes a review by the Company's outside patent counsel. This process is
designed to minimize patent risk related to the Company's products. See "ITEM 3:
LEGAL PROCEEDINGS" and "ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS: RISK AND UNCERTAINTIES."
MAJOR CUSTOMERS
The Company's net sales to its largest trade customer, Wal-Mart Stores, Inc.,
and Sam's Club, a division of Wal-Mart Stores, Inc., represented an aggregate of
approximately 25 percent, 19 percent and 15 percent of total net sales in fiscal
years 1999, 1998 and 1997, respectively. As is customary in the infant
disposable diaper market, the Company in most cases does not have long-term
contracts with its trade customers. The Company estimates that approximately 7
percent of net sales were to trade customers in Canada in fiscal years 1999,
1998 and 1997, respectively.
FOREIGN OPERATIONS
On January 26, 1996, the Company through its wholly owned subsidiary PTB
International, Inc. ("PTBI") completed the purchase of a 15 percent interest in
Grupo P.I. Mabe, S.A. de C.V. ("Mabesa"), the second largest manufacturer of
infant disposable diapers in Mexico, for $15.3 million in cash plus additional
consideration based on Mabesa's future financial results through 2001. The
Company also acquired an option to purchase an additional 34 percent interest in
Mabesa at a contractually determined price. In 1999, 1998 and 1997, based on
Mabesa's prior year's financial results, the Company paid additional
consideration of $.2 million, $2.8 million and $3.4 million, respectively.
In addition, PTBI acquired a 49 percent interest for $1.6 million in cash in
Paragon-Mabesa International ("PMI"), a joint venture that developed a diaper
manufacturing facility in Tijuana, Mexico. An affiliate of Mabesa owns the
remaining 51 percent. The Company sold certain assets to PMI as part of the
development of PMI's manufacturing facility in Tijuana, Mexico. The Company has
assisted in financing the equipment, building construction and start-up of the
Tijuana, Mexico facility which is completely operational. The Company has signed
a Product Supply Agreement with PMI and purchases substantially all of PMI's
production for sale to North American trade customers.
On August 26, 1997, PTBI purchased a 49 percent interest in Stronger Corporation
S.A. ("Stronger"), a financial investment corporation incorporated under
Uruguayan law. An affiliate of Mabesa owns the remaining 51 percent. Stronger
has been used to establish joint ventures in Argentina and Brazil and can be
used to establish additional Latin American joint ventures. In each of 1998 and
1999, PTBI made additional capital contributions of $2.0 million to Stronger.
On August 26, 1997, Stronger acquired 70 percent of Serenity S.A., the third
largest diaper manufacturer in Argentina, for approximately $11.6 million in
cash plus additional consideration based on Serenity's future financial results
through 2000. Stronger also acquired an option to purchase the remaining 30
percent interest in Serenity by 2002 at a contractually determined exercise
price. Serenity manufactures infant disposable diapers, sanitary napkins and
adult incontinence products in two facilities. PTBI advanced $5.7 million to
Stronger, its pro-rata share of the purchase price, and paid additional
consideration of $.6 million in 1998. Stronger paid the 1999 additional
consideration. PTBI has guaranteed Stronger's additional consideration
obligation which is estimated not to exceed an aggregate of $1.2 million in
2000.
On November 10, 1997, Stronger acquired 99 percent of the disposable diaper
business of MPC Productos para Higiene Ltda. ("MPC") for approximately $10.5
million in cash from Cremer S.A., a Brazilian textile manufacturer. MPC is
engaged in the manufacture, distribution, and sale of disposable diapers, skin
lotions for children and other personal care products. PTBI advanced $5.1
million to Stronger, its pro-rata share of the purchase price in 1997.
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In 1998, Paragon established Goodbaby Paragon Hygienic Products Co. Ltd.
("Goodbaby"), a manufacturing and marketing joint venture in China with Goodbaby
Group of Kunshan City and First Shanghai Investment of Hong Kong. Paragon
purchased a 40 percent interest in the joint venture with Goodbaby Group and
First Shanghai Investment at 30 percent each. Initial registered capital of the
venture was approved by the Chinese government at $15 million, to be funded over
a two-year period. A joint venture business license was approved by the Chinese
government on December 31, 1997. Groundbreaking for a new factory took place in
February 1998. The joint venture began production and distribution of infant
disposable diapers in October 1998. Paragon made capital contributions to
Goodbaby of $4.0 million in 1998 and $.8 million in 1999.
RAW MATERIALS
The principal raw material components of the Company's products are SAP, fluff
pulp, polyethylene backsheet, polypropylene nonwoven liner, closure systems,
hotmelt adhesive, elastic and tissue.
One of the primary raw materials used in the production of disposable diapers is
SAP. In April 1998, the Company entered into an agreement with Clariant
International Ltd. (subsequently purchased by BASF Corporation) whereby it
agreed, subject to certain limitations, to purchase 100 percent of its
requirements of SAP through December 31, 2001. Fluff pulp, a product made from
wood fibers, is another primary raw material. The Company's agreement with
Weyerhaeuser Company ("Weyerhaeuser") pursuant to which it purchased 100 percent
of its requirements of bleached chemical fluff pulp expired August 31, 1998. The
Company has continued purchasing substantially all of its fluff pulp
requirements from Weyerhaeuser. The Company believes that at least two other
sources of supply exist for fluff pulp.
The Company's gross margins are significantly impacted by raw material prices,
especially the price of fluff pulp which can fluctuate dramatically. The
Company's operating results benefited from relatively favorable fluff pulp
market prices in 1998 and 1999 but may be adversely affected by anticipated
increases in raw material prices, primarily fluff pulp, in 2000. See "ITEM 7:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS: RISKS AND UNCERTAINTIES."
COMPETITION-Disposable Diapers
National Branded Manufacturers
The principal aspects of competition from the national branded manufacturers are
price, product quality, product innovation and customer service. The U.S.
disposable diaper market is led by the national brands manufactured by P&G and
K-C. The Company estimates that, in 1999, the national branded manufacturers
accounted for approximately 74 percent of all U.S. disposable diaper sales. The
market position of these manufacturers, relative to the Company, varies from one
geographic region to another, but due to their substantial financial, technical
and marketing resources, each of these companies has the ability to exert
significant influence on the infant disposable diaper market.
The market for disposable diapers is divided into the premium and value
segments. The premium segment accounts for approximately 60 percent of the unit
volume. Both K-C and P&G dominate the premium segment. The value segment of the
industry, which the Company estimates accounted for approximately 40 percent of
unit volume in 1999, is highly competitive. The Company includes store brands,
control labels, P&G's Luvs(R), Drypers(R), Fitti(R), and all other regional
brands in the value segment.
In total, P&G is the dominant manufacturer in the U.S. diaper market, with
approximately 40 percent market share. P&G manufactures two brands: Pampers(R),
its premium brand with approximately 26 percent market share, and Luvs, its
value brand with 14 percent market share. K-C manufactures the number one diaper
brand, Huggies(R), with approximately 34 percent market share. K-C does not
offer a value brand, but supplies some store brand training pants within the
value segment.
Price has been a significant variable in the competitive strategy of the
national branded companies and the value segment in the past three years. In
recent years, pricing pressure has been most evident in the shift of volume to
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mass merchants who aggressively sell multi-packs. Multi-packs represent a
package configuration that provides the consumer two, three, four or six times
the amount of diapers found in a standard convenience count package. These
multi-packs sell at unit prices 10 to 15 percent below the branded convenience
count package. For most of 1998, pricing pressures and a shift of volume to mass
merchants continued. In October of 1998, the national brands instituted a 5
percent price increase on certain of their product offerings. The Company
implemented a similar price increase on certain of its products in the fourth
quarter of 1998. The Company has realized some of the benefit of the price
increase. Competitive factors have prevented and may continue to prevent the
Company from realizing the full benefit of the price increase. The Company
believes that the national branded manufacturers have lower per unit costs and
higher margins than the Company, principally due to their higher volume and
prices, coupled with fewer variations in product and packaging. In addition, the
national branded manufacturers have access to substantially greater financial
resources than the Company. As a result, the Company believes that the national
branded manufacturers are capable of maintaining or reducing prices, even in an
environment of rising raw material prices.
Product quality and innovation are critical aspects of competition for the
national branded manufacturers. They have substantially larger research and
development budgets than the Company and are able to develop product innovations
more rapidly than the Company and may thereby gain market share at the Company's
expense. The Company estimates that since 1985, the national branded
manufacturers have generally introduced a product innovation approximately every
12 months.
While in recent years the Company has been able to introduce product
enhancements comparable to those introduced by the national branded
manufacturers, there can be no assurance that the Company will be able to
continue to introduce such product innovations at the pace required to remain
competitive with the national branded manufacturers. Producing comparable
products could adversely affect the Company's gross margins. To the extent that
the Company is unable to introduce comparable products due to the patent
landscape, it could experience a decline in net sales and net earnings. See
"ITEM 3: LEGAL PROCEEDINGS" and "ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: RISKS AND UNCERTAINTIES."
Customer service is another area where the national brands are able to compete.
The Company believes that each of the national branded manufacturers has an
order-delivery cycle that is significantly shorter than the Company's
order-delivery cycle. In addition, the national branded manufacturers devote
substantially greater financial resources than the Company to providing trade
customers with category expertise, customized promotional campaigns and market
support. The national branded manufacturers have sophisticated electronic data
interchange systems that interface directly with their customers' product
information systems. In 1998, the Company successfully implemented a process
improvement and information technology upgrading project to further enhance its
customer service capabilities. See "ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Value Segment
The Company competes in the value segment of the market with national value
brands and store brand products. As with the national branded competition, price
has been a significant variable in the competitive strategy of the value segment
in the past three years. The value segment is also characterized by excess
capacity. The Company's largest competitor in the value segment is P&G with its
Luvs brand. The next largest competitor is Drypers Corp. K-C also produces store
brand training pants.
The Company seeks to compete against other value segment manufacturers by
emphasizing research and development and by striving to maintain a leading
position among value segment competitors in product quality. Smaller competitors
of the Company are sometimes able to introduce new product features more quickly
than the Company, in part as a result of having fewer diaper machines to convert
to new production processes.
Page 7
<PAGE>
COMPETITION-Feminine Care & Adult Incontinence
The principal bases of competition in the feminine care and adult incontinence
market are price, product quality, product innovation and customer service. The
U.S. feminine care and adult incontinence retail market is led by national
branded manufacturers including K-C, P&G, Johnson and Johnson, Inc., and Playtex
Products, Inc. The Company estimates that in 1999, the national branded
manufacturers accounted for approximately 92 percent of all U.S. feminine care
and approximately 76 percent of all U.S. adult incontinence sales. The market
position of these manufacturers, relative to the Company, varies from one
geographic region to another, but due to their substantial financial, technical
and marketing resources, each of these companies has the ability to exert
significant influence on the feminine care market and adult incontinence market.
Another manufacturer is the dominant supplier of store brand feminine care
products. The Company experienced greater than anticipated operating losses in
its feminine care and adult incontinence businesses in 1999, 1998 and 1997 and
expects these losses to continue near-term. The Company has developed a business
plan that supports the realization of its investment in its feminine care and
adult incontinence business. Accordingly, the Company has not recorded any
adjustments in its financial statements relating to the recoverability of the
operating assets of the feminine care and adult incontinence business. The
Company's ability to recover its investment is dependent upon the successful
execution of the Company's feminine care and adult incontinence business plan
now that the Company has emerged from Chapter 11. The Company believes that with
the distractions and uncertainties related to Chapter 11 behind it, the feminine
care and adult incontinence business will see an increase in sales and improved
results. There can be no assurances, however, that such improved results will be
realized. See "ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS: RISKS AND UNCERTAINTIES."
EMPLOYEES
At December 26, 1999, the Company had approximately 1,150 full-time employees,
including approximately 930 employees located at its four manufacturing
facilities.
ENVIRONMENT
The Company is subject to federal, state, local and foreign laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills and disposals or other releases of hazardous substances (together,
"Environmental Laws").
The Company uses certain substances and generates certain wastes that are
regulated by or may be deemed hazardous under applicable Environmental Laws. The
Company believes that it currently conducts its operations, and in the past has
conducted its operations, in substantial compliance with applicable
Environmental Laws. From time to time, however, the Company's operations have
resulted or may result in certain noncompliance with applicable requirements.
The Company believes, however, that it will not incur compliance or cleanup
costs pursuant to applicable Environmental Laws that would have a material
adverse effect on the Company's results of operations or financial condition.
The Company monitors Environmental Laws and regulations, as well as pending
legislation, in each of the markets in which its products are sold. A number of
states have passed or are considering legislation intended to discourage the use
of disposable products, including disposable diapers, or to encourage the use of
nondisposable or recyclable products. The Company does not believe that any such
laws currently in effect will have a material adverse effect on its results of
operations or financial condition.
See "ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: FORWARD-LOOKING STATEMENTS."
Page 8
<PAGE>
ITEM 2: PROPERTIES
As of December 26, 1999, the Company operated four manufacturing facilities,
with plants located in the United States at Macon, Georgia; Harmony,
Pennsylvania; Gaffney, South Carolina; and Waco, Texas. The Company owned a
plant in Canada at Brampton, Ontario.
The following table summarizes the physical properties that were held by the
Company at December 26, 1999:
<TABLE>
<CAPTION>
APPROXIMATE
SIZE
LOCATION USE (SQ. FEET) OWNED/LEASED
- --------------------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C>
INFANT CARE:
Brampton, Ontario Held for Sale 76,000 Owned
Harmony, Pennsylvania Manufacturing 173,000 Owned
Macon, Georgia Manufacturing 308,000 Owned
Waco, Texas Manufacturing 151,000 Owned
FEMININE CARE AND ADULT INCONTINENCE:
Gaffney, South Carolina Manufacturing 213,000 Leased
CORPORATE AND OTHER:
Norcross, Georgia Headquarters 69,000 Owned
</TABLE>
The facility in Brampton, Ontario was sold in February 2000.
ITEM 3: LEGAL PROCEEDINGS
THE PROCTER & GAMBLE COMPANY V. PARAGON TRADE BRANDS, INC. - P&G filed a lawsuit
in January 1994 in the Delaware District Court alleging that the Company's
"Ultra" infant disposable diaper products infringed two of P&G's dual cuff
diaper patents. The lawsuit sought injunctive relief, lost profit and royalty
damages, treble damages and attorneys' fees and costs. The Company denied
liability under the patents and counterclaimed for patent infringement and
violation of antitrust laws by P&G. In March 1996, the Delaware District Court
granted P&G's motion for summary judgment to dismiss the Company's antitrust
counterclaim. The trial was completed in February 1997, the parties submitted
post-trial briefs and closing arguments were conducted on October 22, 1997.
Legal fees and costs for this litigation were significant.
On December 30, 1997, the Delaware District Court issued a Judgment and Opinion
finding that P&G's dual cuff patents were valid and infringed, while at the same
time finding the Company's patent to be invalid, unenforceable and not infringed
by P&G's products. Judgment was entered on January 6, 1998. Damages of
approximately $178.4 million were entered against Paragon by the Delaware
District Court on June 2, 1998. At the same time, the Delaware District Court
entered injunctive relief agreed upon by P&G and the Company. On August 4, 1998,
the Company filed with the Federal Circuit Court of Appeals its amended notice
of appeal. The appeal was fully briefed, and oral argument was scheduled for
February 5, 1999.
The Judgment had a material adverse effect on the Company's financial position
and its results of operations. As a result of the District Court's Judgment, the
Company filed for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
Section 101 et seq., in the United States Bankruptcy Court for the Northern
District of Georgia (Case No. 98-60390) on January 6, 1998. See "--IN RE PARAGON
TRADE BRANDS, INC.," below.
P&G filed alleged claims in the Company's Chapter 11 reorganization proceeding
ranging from approximately $2.3 billion (without trebling) to $6.5 billion (with
trebling), which included a claim of $178.4 million for the Delaware Judgment.
See "--IN RE PARAGON TRADE BRANDS, INC.," below.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to
Page 9
<PAGE>
find the Company in contempt of the Delaware Judgment and P&G's proof of claim
filed in the Company's Chapter 11 reorganization proceeding. The P&G Approval
Order was issued on August 6, 1999. As a part of the P&G settlement, Paragon
granted P&G an allowed unsecured prepetition claim of $158.5 million and an
allowed administrative claim of $5 million. As a part of the settlement, the
Company entered into License Agreements for the U.S. and Canada, which are
exhibits to the Settlement Agreement, with respect to certain of the patents
asserted by P&G in its proof of claim, including those asserted in the Delaware
action. The U.S. and Canadian patent rights licensed by the Company permitted
the Company to convert to a dual cuff baby diaper design. The product conversion
is complete. In exchange for these rights, the Company pays P&G running
royalties on net sales of the licensed products equal to 2 percent through
October 2005, .75 percent thereafter through October 2006 and .375 percent
thereafter through March 2007 in the U.S.; and 2 percent through October 2008
and 1.25 percent thereafter through December 2009 in Canada. The Settlement
Agreement also provides, among other things, that P&G will grant the Company
and/or its affiliates "most favored licensee" status with respect to patents
owned by P&G on the date of the Settlement Agreement or for which an application
was pending on that date. In addition, the Company has agreed with P&G that
prior to litigating any future patent dispute, the parties will engage in good
faith negotiations and will consider arbitrating the dispute before resorting to
litigation. The Equity Committee appealed the P&G Approval Order.
While the Company believes that the royalty rates being charged by P&G are the
same royalties that will be paid by the Company's major store brand competitors
for similar patent rights, these royalties, together with royalties to be paid
to K-C described herein, have had, and will continue to have, a material adverse
impact on the Company's future financial condition and results of operations.
While these royalty costs have been partially offset by projected raw material
cost savings related to the conversion to a dual cuff design, the Company's
overall raw material costs have increased. These royalty costs have been
partially offset by price increases announced by the Company in the fourth
quarter of 1998 and will continue to be offset to the extent such price
increases are maintained.
Under the terms of the P&G Settlement Agreement, the Company has withdrawn with
prejudice its appeal of the Delaware Judgment to the Federal Circuit, and P&G
has withdrawn with prejudice its motion in Delaware District Court to find the
Company in contempt of the Delaware Judgment. In addition, pursuant to the terms
of the Plan, the Equity Committee has withdrawn with prejudice its appeal of the
P&G Approval Order. See "--IN RE PARAGON TRADE BRANDS, INC." below.
KIMBERLY-CLARK CORPORATION V. PARAGON TRADE BRANDS, INC. - On October 26, 1995,
K-C filed a lawsuit against the Company in the U.S. District Court in Dallas,
Texas, alleging infringement by the Company's products of two K-C patents
relating to dual cuffs. The lawsuit sought injunctive relief, royalty damages,
treble damages and attorneys' fees and costs. The Company denied liability under
the patents and counterclaimed for patent infringement and violation of
antitrust laws by K-C. Several pre-trial motions were filed by each party,
including a motion for summary judgment filed by K-C with respect to the
Company's antitrust counterclaim and a motion for summary judgment filed by the
Company on one of the patents asserted by K-C. In addition, K-C subsequently
sued the Company on another patent issued to K-C which is based upon a further
continuation of one of the K-C dual cuff patents asserted in the case. That
action was consolidated with the then-pending action. Legal fees and costs in
connection with this litigation were significant.
As a result of the Company's Chapter 11 filing, the proceedings in the K-C
litigation were stayed. The Bankruptcy Court issued an order on April 10, 1998
permitting, among other things, a partial lifting of the stay to allow the
issuance of the special master's report on the items under his consideration.
K-C filed with the Bankruptcy Court a motion for reconsideration of the
Bankruptcy Court's April 10, 1998 order, which was denied on June 15, 1998. K-C
has appealed this denial of reconsideration to the District Court for the
Northern District of Georgia. The Company objected to K-C's appeal and sought to
have it dismissed. K-C also filed a motion with the District Court in Atlanta to
withdraw the reference (the "Withdrawal Motion") with respect to all matters
pertaining to its proof of claim from the jurisdiction of the Bankruptcy Court.
By order executed February 18, 1999, the appeal, the Withdrawal Motion and the
Company's motion to dismiss the appeal were dismissed by the District Court
without prejudice to the right of either party within sixty days to re-open the
actions if a settlement was not consummated. See "--IN RE PARAGON TRADE BRANDS,
INC." below.
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<PAGE>
The Company has previously disclosed that had K-C prevailed on its claims, an
award of all or a substantial portion of the relief requested by K-C could have
had a material adverse effect on the Company's financial condition and its
results of operations.
K-C filed alleged claims in the Company's Chapter 11 reorganization proceeding
ranging from approximately $893 million (without trebling) to $2.3 billion (with
trebling). See "--IN RE PARAGON TRADE BRANDS, INC.," below.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Approval Order was
issued by the Bankruptcy Court on August 6, 1999. Under the terms of the K-C
Settlement Agreement, the Company granted K-C an allowed unsecured prepetition
claim of $110 million and an allowed administrative claim of $5 million. As a
part of the settlement, the Company entered into License Agreements for the U.S.
and Canada, which are exhibits to the Settlement Agreement, with respect to the
patents asserted by K-C in the Texas action. The patent rights licensed by the
Company from K-C permitted the Company to convert to a dual cuff diaper design.
The product conversion is complete. In exchange for these patent rights, the
Company pays K-C annual running royalties on net sales of the licensed products
in the U.S. and Canada equal to: 2.5 percent of the first $200 million of net
sales of the covered diaper products and 1.5 percent of such net sales in excess
of $200 million in each calendar year commencing January 1999 through November
2004. The Company has agreed to pay a minimum annual royalty for diaper sales of
$5 million, but amounts due on the running royalties will be offset against this
minimum. The Company also pays K-C running royalties of 5 percent of net sales
of covered training pant products for the same period, but there is no minimum
royalty for training pants. As part of the settlement, the Company has granted a
royalty-free license to K-C for three patents which the Company in the Texas
action claimed K-C infringed. The Equity Committee appealed the K-C Approval
Order.
The Company believes that the overall effective royalty rate that the Company
will pay to K-C, together with royalties to be paid to P&G described above, has
had, and will continue to have, a material adverse impact on the Company's
future financial condition and results of operations. While these royalty costs
have been partially offset by projected raw material cost savings related to the
conversion to a dual cuff design, the Company's overall raw material costs have
increased. These royalty costs have been partially offset by price increases
announced by the Company in the fourth quarter of 1998 and will continue to be
offset to the extent such price increases are maintained.
As a part of the K-C License Agreement, K-C has agreed not to sue the Company on
two of K-C's patents related to the use of SAP in diapers and training pants, so
long as the Company uses SAP which exhibits certain performance characteristics
(the "SAP Safe Harbor"). The Company experienced certain product performance
issues the Company believes may have been related to the SAP the Company
initially converted to in December of 1998. In February 1999, the Company
converted to a new SAP. The Company is encountering increased product costs due
to the increased price and usage of the new SAP. While the Company is working
diligently with its SAP suppliers to develop a more cost-effective alternative
which is still within the SAP Safe Harbor, the Company cannot predict at this
time whether or when the added costs will be fully offset. The Company expects
that these increased product costs will have a material adverse impact on its
financial condition and results of operations for at least 2000 and potentially
beyond.
On October 29, 1999, in accordance with the terms of the K-C Settlement
Agreement, K-C dismissed with prejudice its complaint in the Texas action and
the Company dismissed with prejudice its counterclaims in the Texas action. On
November 4, 1999, K-C filed a stipulation dismissing with prejudice its related
filings in the Georgia District Court. On November 2, 1999, the parties
exchanged mutual releases pursuant to the Settlement Agreement. In addition, in
accordance with the terms of the Plan, the Equity Committee has withdrawn with
prejudice its appeal of the K-C Approval Order. See "--IN RE PARAGON TRADE
BRANDS, INC." below.
IN RE PARAGON TRADE BRANDS, INC. - As described above, on December 30, 1997, the
Delaware District Court issued a Judgment and Opinion in the Company's lawsuit
with P&G finding that two of P&G's diaper patents were valid and infringed by
the Company's "Ultra" disposable baby diapers, while also rejecting the
Company's patent infringement claim against P&G. Judgment was entered on January
6, 1998. While a final damages number was
Page 11
<PAGE>
not entered by the Delaware District Court until June 2, 1998, the Company
originally estimated the liability and associated litigation costs to be
approximately $200 million. The amount of the award resulted in violation of
certain covenants under the Company's bank loan agreements. As a result, the
issuance of the Judgment and the uncertainty it created caused an immediate and
critical liquidity issue for the Company which necessitated the Chapter 11
filing.
Subsequently, damages of approximately $178.4 million were entered against
Paragon by the Delaware District Court on June 2, 1998. At the same time, the
Delaware District Court entered injunctive relief agreed upon by P&G and the
Company. See "--THE PROCTER & GAMBLE COMPANY V. PARAGON TRADE BRANDS, INC.,"
above.
The Chapter 11 filing prevented P&G from placing liens on the Company's assets,
permitted the Company to appeal the Delaware District Court's decision in an
orderly fashion and afforded the Company the opportunity to resolve liquidated
and unliquidated claims against the Company which arose prior to the Chapter 11
filing.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to find the Company
in contempt of the Delaware Judgment and P&G's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. See "--THE PROCTER & GAMBLE
COMPANY V. PARAGON TRADE BRANDS, INC.," above.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settles all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. See "--KIMBERLY-CLARK
CORPORATION V. PARAGON TRADE BRANDS, INC.," above.
On July 12, 1999, the Bankruptcy Court approved the Bidding Procedures Order
relating to the Wellspring Transaction. The Bidding Procedures Order provided
for the consideration of competing investment proposals from other qualified
bidders and for the filing by the Company of a stand-alone plan of
reorganization. The Equity Committee filed a motion for amended findings with
respect to the Bankruptcy Court's July 12, 1999 order. The Bankruptcy Court
denied the Equity Committee's motion. The Equity Committee appealed the Bidding
Procedures Order.
On August 25, 1999, with the support of the Creditors' Committee, the Company
filed the Initial Plan with the Bankruptcy Court. The Initial Plan provided an
alternative to the Wellspring Transaction. In accordance with the Bidding
Procedures Order, an auction was commenced on September 21, 1999. The auction
continued thereafter until the Company, after consultation with the Creditors'
Committee, the Equity Committee, P&G and K-C, determined to conclude the auction
on October 4, 1999. At the conclusion of the auction, the Company, after
consultation with the Creditors' Committee, the Equity Committee, P&G and K-C,
determined that Wellspring had submitted the best bid. On October 15, 1999, the
Company and the Creditors' Committee, as co-proponents, jointly filed the
Amended Plan which incorporated the Wellspring Transaction, as modified by the
Company after consultation with its various creditor constituencies. The Amended
Plan also provided that, in the event the Wellspring Transaction was not
consummated, the proponents could have pursued confirmation of a stand-alone
plan of reorganization.
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed the Plan and Disclosure Statement with the Bankruptcy
Court. The Plan incorporated the Wellspring Transaction. By order dated November
18, 1999, the Bankruptcy Court approved the Disclosure Statement. At such time,
the Bankruptcy Court also approved certain voting procedures and established
January 7, 2000 as the voting deadline for the Plan and January 13, 2000 as the
date for a hearing to consider confirmation of the Plan. A confirmation hearing
was held by the Bankruptcy Court on January 13, 2000. By Order dated January 13,
2000, the Bankruptcy Court confirmed the Plan.
Page 12
<PAGE>
On January 28, 2000, Paragon was reorganized pursuant to the Plan through the
consummation of the Wellspring Transaction. As contemplated under the Plan, the
Equity Committee has withdrawn with prejudice its appeals of the P&G Approval
Order, the K-C Approval Order and the Bidding Procedures Order. See Note 15 of
Notes to Consolidated Financial Statements.
On January 28, 2000, the Company entered into the Credit Facility with a bank
group led by Citicorp. This facility is designed to supplement the Company's
cash on hand and operating cash flow. As of March 7, 2000, there were $12
million in direct borrowings outstanding under this facility and an aggregate of
$2 million in letters of credit issued thereunder. The Credit Facility contains
customary financial covenants.
Legal fees and costs in connection with the Chapter 11 reorganization proceeding
were significant.
TRACY PATENT - The Company previously received notice from a Ms. Rhonda Tracy
that Ms. Tracy believed the Company's diapers infringe a patent issued in August
1998 to Ms. Tracy (U.S. Patent No. 5,797,824). The Company responded, based upon
advice of its independent patent counsel, that it believes its products do not
infringe any valid claim of Ms. Tracy's patent. On April 29, 1999, the Company
received notice that Ms. Tracy had filed suit in the United States District
Court for the Northern District of Illinois against K-C, Tyco International,
Ltd., Drypers Corporation and a number of the Company's customers, alleging
infringement of her patent. The Company was not named as a defendant in this
suit. Rather, Ms. Tracy indicated in her April 29, 1999 letter that the Company
would be sued upon completion of the current suit.
The Company and Ms. Tracy entered into a Settlement Agreement, which was
approved by the Bankruptcy Court on December 8, 1999, pursuant to which the
Company paid Ms. Tracy $500,000 in exchange for a release from liability from
any claims under Ms. Tracy's patent for the Company, its Affiliates, as defined
therein, and retailers who sell products manufactured by the Company and its
Affiliates. Under the terms of the Settlement Agreement, Ms. Tracy also granted
a nonexclusive, fully paid-up, irrevocable, worldwide license to permit the
Company and its Affiliates to make, have made, lease, use, import, offer to
sell, and sell disposable absorbent products under the terms of Ms. Tracy's
patent. This license also extends to retailers to the extent they are selling
products manufactured by the Company and its Affiliates.
KIMBERLY-CLARK WORLDWIDE, INC. V. PARAGON TRADE BRANDS, INC. - On March 20,
2000, Kimberly-Clark Worldwide, Inc. ("K-C") filed suit in the U.S. District
Court in Delaware against the Company for allegedly infringing a certain K-C
patent related to a method and apparatus for attaching a graphic patch to a
disposable absorbent garment. The suit seeks injunctive relief, unspecified
treble damages, interest and attorneys' fees and expenses. The Company is
currently evaluating the suit.
OTHER - The Company is also a party to other legal activities generally
incidental to its activities. Although the final outcome of any legal proceeding
or dispute is subject to a great many variables and cannot be predicted with any
degree of certainty, the Company presently believes that any ultimate liability
resulting from any or all legal proceedings or disputes to which it is a party
will not have a material adverse effect on its financial condition or results of
operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed the Plan and Disclosure Statement with the Bankruptcy
Court. By order dated November 18, 1999, the Bankruptcy Court approved the
Disclosure Statement. At such time, the Bankruptcy Court also approved certain
voting procedures and established Friday, January 7, 2000 as the voting deadline
for the Plan and Thursday, January 13, 2000 as the date for a hearing to
consider confirmation of the Plan.
In accordance with the Bankruptcy Court's November 18, 1999 order, the
Disclosure Statement was mailed by Bankruptcy Services, LLC ("BSI"), Paragon's
Balloting Agent, to all record holders of the Company's common stock as of
November 1, 1999, along with solicitation materials seeking their vote in favor
of the Plan. After the Bankruptcy Court-approved voting deadline of January 7,
2000, BSI tabulated the votes received in favor of the
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<PAGE>
Plan. The following table sets forth the number of stockholders who voted for,
against and abstained from voting for the Plan.
Votes For: 3,638,026
Votes Against: 156,625
Abstentions: 2,400
Broker Nonvotes: 8,061,961
Under the Bankruptcy Code, abstentions and broker nonvotes are not counted for
purposes of plan approval.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of February 29, 2000, there were 262 holders of record of the Company's
common stock. The Company has not paid dividends on its common stock. The
Company's Credit Facility prohibits the Company from paying cash dividends. Upon
termination of the Credit Facility or any other agreement with similar
restrictions on dividends, the Board of Directors will determine future dividend
policy based upon the Company's results of operations, financial condition,
capital requirements and other circumstances. The Company is in the process of
attempting to qualify its new common stock for quotation on the OTCBB. See "ITEM
7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS: RISKS AND UNCERTAINTIES." See "Note 21 of Notes to Consolidated
Financial Statements" regarding the quarterly high and low price range of the
Company's old common stock then outstanding. The Company did not sell any
securities of the Company that were not registered under the Securities Act of
1933, as amended, during the fiscal year ended December 26, 1999.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company on a historical basis as described below. The selected consolidated
financial data as of December 26, 1999 and December 27, 1998, have been derived
from the audited consolidated financial statements of the Company which are
included in Item 8 of this annual report on Form 10-K. The selected consolidated
financial data as of December 28, 1997, December 29, 1996 and December 31, 1995,
and for the years then ended have been derived from the audited consolidated
financial statements of the Company. The Company uses a 52/53-week year for
financial reporting purposes. The fiscal year ended December 31, 1995 reflects
53 weeks of operations.
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(Dollar amounts in millions, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------- ------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA(1)
Net Sales $ 498.7 $ 535.2 $ 562.0 $ 581.9 $ 518.8
EBITDA(2) $ 13.3 $ 58.4 $ 62.5 $ 91.5 $ 46.2
Operating profit (loss) $ (25.5)(3) $ (58.0)(4) $ (183.8)(5) $ 35.7(6) $ (3.6)(7)
Net earnings (loss) $ (28.4)(3) $ (65.4)(4)(8) $ (212.7)(5)(9) $ 21.1(6) $ (3.4)(7)
PER SHARE DATA(1)
Basic earnings (loss) per share $ (2.37)(3) $ (5.48)(4)(8) $ (17.86)(5)(9) $ 1.76(6) $ (.29)(7)
BALANCE SHEET DATA(1)
Total assets $ 400.5 $ 429.3 $ 376.1 $ 373.1 $ 266.7
Liabilities subject to
compromise $ 406.7 $ 406.9 $ - $ - $ -
Long-term debt $ - $ - $ 70.0 $ 70.0 $ -
Shareholders' equity (deficit) $ (89.8) $ (61.8) $ 5.0 $ 214.7 $ 191.7
OTHER DATA
Capital spending $ 26.0 $ 28.3 $ 49.4 $ 48.9 $ 17.4
Depreciation and amortization $ 37.2 $ 34.5 $ 35.5 $ 38.8 $ 36.0
Diaper units sold (millions) 3,176 3,463 3,689 3,761 3,378
- ------------------
<FN>
(1) See Notes 1, 4 and 16 of Notes to Consolidated Financial Statements.
(2) Operating profit (loss) before interest, taxes, depreciation and
amortization and nonrecurring charges discussed in footnotes 3, 4, 5, 6 and 7
below ("EBITDA").
(3) Includes $1.6 for the closure of Brampton, Ontario facility.
(4) Includes settlement contingencies of $78.5 for the estimated settlement
costs of P&G's and K-C's claims asserted in the Company's Chapter 11
reorganization proceeding, including the settlement of the P&G patent judgment
and the K-C Texas action, and a $3.4 asset impairment of the Company's tampon
manufacturing line. See Notes 1, 4 and 16 of Notes to Consolidated Financial
Statements and "ITEM 3: LEGAL PROCEEDINGS."
(5) Includes settlement contingency of $200 for an adverse judgment in a
patent litigation matter with P&G and $10.6 of asset impairments and inventory
adjustments related to the write-off of software and consulting costs and the
discontinuation of the Company's tampon manufacturing operation. See Notes 1, 4
and 16 of Notes to Consolidated Financial Statements.
(6) Includes costs for the integration of Pope & Talbot's disposable diaper
business purchased in February 1996 and costs related to the relocation of the
corporate headquarters to Atlanta. Excluding these costs, operating profit would
be $52.7, net earnings would be $31.7 and basic earnings per share would be
$2.64.
(7) Includes restructuring and charges taken in the first quarter of 1995
for the closure of the La Puente, California plant, corporate headquarters staff
reductions, and other charges. Excluding these charges, operating profit would
be $10.1, net earnings would be $5.4 and basic earnings per share would be $.46.
(8) Includes a $32.6 reserve against deferred and other tax-related assets.
(9) Includes a $100.2 reserve against deferred and other tax-related assets.
</FN>
</TABLE>
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<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
RECENT DEVELOPMENTS
REORGANIZATION. On January 28, 2000, the Company emerged from Chapter 11 as
contemplated under the Plan. All pre-petition obligations were discharged.
Pursuant to the Plan, Wellspring purchased 11,516,405 shares, or approximately
97 percent, of the common stock of the reorganized Company for $115.2 million.
Under the Plan, general unsecured creditors of the Company are entitled to
receive their pro-rata shares of $115.4 million in cash and the New Notes. A
total of 178,365 shares and 625,821 warrants to purchase additional shares of
the Company's new common stock will be distributed to holders of old common
stock under the Plan. Common stockholders of record as of January 13, 2000 will
receive .0149 shares of the Company's new common stock for each share of the
Company's old common stock and .0524 warrants for each share of the Company's
old common stock held on such date and surrendered in accordance with the Plan.
The warrants are transferable, have an exercise price of $18.91 per share and
expire on January 28, 2010. General unsecured creditors and stockholders of
record as of January 13, 2000 are entitled to receive their pro-rata share of
the proceeds, if any, of certain litigation claims that remain with the estate
and which will be prosecuted on their behalf by the litigation claims
representative appointed under the Plan.
CREDIT FACILITY. On January 28, 2000, the Company and certain subsidiaries of
the Company, as guarantors, entered into the Credit Facility. The maximum
borrowing under the Credit Facility may not exceed the lesser of $95 million or
an amount determined by a borrowing base formula. The borrowing base formula is
comprised of certain specified percentages of eligible accounts receivable,
eligible inventory, equipment and personal property and real property of the
Company. The Credit Facility has a sub-limit of $15 million for the issuance of
letters of credit.
Borrowings under the Credit Facility are secured by a security interest in,
pledge and lien on substantially all of the Company's North American assets and
properties and the proceeds thereof. Borrowings under the Credit Facility are
guaranteed by certain domestic subsidiaries and may be used to fund working
capital and other general corporate purposes including acquisitions and
investments in existing and new international joint ventures. The Credit
Facility contains restrictive covenants, including among other things, a
prohibition on dividends, limitations on the creation of additional liens and
indebtedness, limitations on capital expenditures, investments, loans and
advances, the sales of assets and transactions with affiliates. Financial
covenants include the maintenance of minimum earnings before interest, taxes,
depreciation and amortization, fixed charges, coverage ratio, tangible net worth
and a maximum leverage ratio.
The Credit Facility provides that borrowings will bear interest at a rate of
1.50 percent in excess of Citibank's base rate, or at the Company's option, a
rate of 2.50 percent in excess of the reserve adjusted eurodollar rate for
interest periods of one, two, three or six months. After March 31, 2001,
borrowing rates will be subject to a pricing grid based upon the Company's
leverage ratio and could decrease by a maximum of .5 percent and increase by a
maximum of .25 percent. The Company will pay a commitment fee of .5 percent per
annum on the unused portion of the Credit Facility, a letter of credit fee equal
to 2.75 percent per annum on the average outstanding letters of credit and
certain other fees.
On January 28, 2000, the Company borrowed approximately $15.0 million to
consummate the Plan. As of March 7, 2000 the Company had approximately $12.0
million of borrowings and $2.0 million in letters of credit outstanding under
the Credit Facility. See "RISKS AND UNCERTAINTIES" herein.
SENIOR SUBORDINATED NOTES. On January 28, 2000, the Company issued the New Notes
as contemplated under the Plan. The New Notes are guaranteed by certain domestic
subsidiaries and are not callable until February 1, 2003. Interest is payable
semi-annually and during the first two years can be paid in kind if free cash
flow, as
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<PAGE>
defined in the Indenture, falls below projected levels. The New Notes are
subordinated in right of payment to the payment of all senior indebtedness. The
New Notes contain customary restrictive covenants, including among other things,
limitations on dividends and restricted payments, the incurrence of additional
indebtedness, liens, investments, loans and advances, the sales of assets and
transactions with affiliates. SEE "RISKS AND UNCERTAINTIES" herein.
FRESH START ACCOUNTING. The Company will record the reorganization and related
transactions using "fresh start" accounting as required by SOP 90-7 issued by
the American Institute of Certified Public Accountants. In accordance with SOP
90-7, the reorganization value will be allocated to specific tangible and
identifiable assets and liabilities. The following Selected Consolidated Pro
Forma Financial Data (Unaudited) reflect the Plan and fresh start accounting as
if the Plan was consummated on December 26, 1999.
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Adjustments Pro-Forma
Pre-Fresh Start To Record Fresh Start
Balance Sheet Plan Of Fresh Start Balance Sheet
December 26, 1999 Confirmation Adjustments December 26, 1999
----------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Current assets $ 155,707 $ (17,656)(1)(3) $ - $ 138,051
Long-term assets 213,913 1,222 (2) 7,564 222,699
Goodwill 30,900 - (30,900) -
----------------- --------------- -------------- ---------------
Total assets $ 400,520 $ (16,434) $ (23,336) $ 360,750
================= =============== ============== ===============
Current liabilities $ 76,499 $ (5,048)(1)(3) $ (3,508) $ 67,943
Liabilities subject to compromise 406,723 (406,723)(1)(4) - -
Long-term debt - 164,507 (5) - 164,507
Other long-term liabilities 7,115 - - 7,115
----------------- --------------- -------------- ---------------
Total liabilities 490,337 (247,264) (3,508) 239,565
Shareholders equity (deficit) (89,817) 230,830 (6) (19,828) 121,185
----------------- --------------- -------------- ---------------
Total liabilities and shareholder's
equity (deficit) $ 400,520 $ (16,434) $ (23,336) $ 360,750
================= =============== ============== ===============
- ------------------
<FN>
(1) To record reduction of cost to pay certain liabilities subject to
compromise and reduction of certain receivables that were offset against
liabilities subject to compromise.
(2) To record deferred financing costs of the Credit Facility.
(3) To record payment of certain accrued professional fees related to the
bankruptcy.
(4) To record the extinguishment of liabilities subject to compromise per
the Plan.
(5) To record the issuance of the New Notes and borrowings under the Credit
Facility.
(6) To record the issuance of 11,891,000 shares of common stock at $10
per share, issuance of 625,821 warrants, gain from extinguishment of debt and
certain fees arising from confirmation of the Plan.
</FN>
</TABLE>
CHAPTER 11 PROCEEDINGS
The Company has previously disclosed that P&G filed a lawsuit in 1994 against it
in the United States District Court for the District of Delaware alleging that
the Company's "Ultra" disposable baby diaper products infringed two of P&G's
dual cuff diaper patents. The lawsuit sought injunctive relief, lost profit and
royalty damages, treble
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damages and attorneys' fees and costs. The Company denied liability under the
patents and counterclaimed for patent infringement and violation of antitrust
laws by P&G. The Company also disclosed that if P&G were to prevail on its
claims, an award of all or a substantial amount of the relief requested by P&G
could have had a material adverse effect on the Company's financial condition
and results of operations.
On December 30, 1997, the District Court issued a Judgment and Opinion finding
that two of P&G's dual cuff diaper patents were valid and infringed by certain
of the Company's disposable diaper products, while also rejecting the Company's
patent infringement claims against P&G. The District Court had earlier dismissed
the Company's antitrust counterclaim on summary judgment. The Judgment entitled
P&G to damages based on sales of the Company's diapers containing the "inner-leg
gather" feature. While the final damages number of approximately $178.4 million
was not entered by the District Court until June 2, 1998, the Company originally
estimated the liability and associated litigation costs to be approximately $200
million. The amount of the award resulted in violation of certain covenants
under the Company's then-existing bank loan agreements. As a result, the
issuance of the Judgment and the uncertainty it created caused an immediate and
critical liquidity issue for the Company.
On January 6, 1998, the Judgment was entered on the docket in Delaware in such a
manner that P&G would have been able to begin placing liens on the Company's
assets. As a result, the Company filed for relief under Chapter 11 of the
Bankruptcy Code on January 6, 1998. None of the Company's subsidiaries were
included in the Chapter 11 filing. The Chapter 11 filing was designed to prevent
P&G from placing liens on Company property, permit the Company to appeal the
Delaware District Court's decision in the P&G case in an orderly fashion and
give the Company the opportunity to resolve liquidated and unliquidated claims
against the Company, which arose prior to the Chapter 11 filing.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to find the Company
in contempt of the Delaware Judgment and P&G's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The P&G Approval Order was
issued on August 6, 1999. The Equity Committee appealed the P&G Approval Order.
See "ITEM 3: LEGAL PROCEEDINGS."
On October 26, 1995, K-C filed a lawsuit against the Company in U.S. District
Court in Dallas, Texas, alleging infringement by the Company's products of two
K-C patents relating to dual cuffs. The lawsuit sought injunctive relief,
royalty damages, treble damages and attorneys' fees and costs. The Company
denied liability under the patents and counterclaimed for patent infringement
and violation of antitrust laws by K-C. In addition, K-C subsequently sued the
Company on another patent issued to K-C which is based upon a further
continuation of one of the K-C dual cuff patents asserted in the case. That suit
was consolidated with the then-pending action.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Approval Order was
issued by the Bankruptcy Court on August 6, 1999. The Equity Committee appealed
the K-C Approval Order. See "ITEM 3: LEGAL PROCEEDINGS."
On July 12, 1999, the Bankruptcy Court approved the Bidding Procedures Order
relating to the Wellspring Transaction. The Bidding Procedures Order provided
for the consideration of competing investment proposals from other qualified
bidders and for the filing by the Company of a stand-alone plan of
reorganization. The Equity Committee appealed the Bidding Procedures Order.
On August 25, 1999, with the support of the Creditors' Committee, the Company
filed the Initial Plan. The Initial Plan provided an alternative to the
Wellspring Transaction. In accordance with the Bidding Procedures Order, an
auction commenced on September 21, 1999. The auction continued thereafter until
the Company, after consultation with the Committees, P&G and K-C, determined to
conclude the auction on October 4, 1999. At the conclusion of the auction, the
Company, after consultation with the Committees, P&G and K-C, determined that
Wellspring had submitted the best bid. On October 15, 1999, the Company and the
Creditors' Committee, as co-proponents, jointly filed the Amended Plan which
incorporated the Wellspring Transaction, as modified by the
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<PAGE>
Company after consultation with its various creditor constituencies. The Amended
Plan also provided that, in the event the Wellspring Transaction was not
consummated, the proponents could have pursued confirmation of a stand-alone
plan of reorganization.
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed the Plan and Disclosure Statement with the Bankruptcy
Court. The Plan incorporated the Wellspring Transaction. By order dated November
18, 1999, the Bankruptcy Court approved the Disclosure Statement. At such time,
the Bankruptcy Court also approved certain voting procedures and established
January 7, 2000 as the voting deadline for the Plan and January 13, 2000 as the
date for a hearing to consider confirmation of the Plan. A confirmation hearing
was held by the Bankruptcy Court on January 13, 2000. By Order dated January 13,
2000, the Bankruptcy Court confirmed the Plan.
On January 28, 2000, Paragon was reorganized pursuant to the Plan through the
consummation of the Wellspring Transaction. As contemplated under the Plan, the
Equity Committee has withdrawn with prejudice its appeals of the P&G Approval
Order, the K-C Approval Order and the Bidding Procedures Order. See "RECENT
DEVELOPMENTS", "ITEM 3: LEGAL PROCEEDINGS
As a result of the Chapter 11 filing, the Company has incurred significant costs
for professional fees. The Company was also required to pay certain expenses of
the Committees, including professional fees, to the extent allowed by the
Bankruptcy Court. Pursuant to the Plan, a reserve has been established from
which any remaining professional fees and expenses related to the Chapter 11
reorganization proceeding will be paid. See "ITEM 3: LEGAL PROCEEDINGS."
The Company has previously disclosed that it had been notified by the NYSE
during 1998 that as a result of the $200 million settlement contingency related
to the P&G litigation and the Company's net loss in 1997, certain minimum
listing requirements had not been maintained. Trading in the common stock of the
Company on the NYSE was suspended prior to the opening of trading on July 8,
1999. As of July 9, 1999, the OTCBB began publishing quotations of the Company's
common stock under the symbol PGNFQ. As a result of the Plan, on February 2,
2000, the OTCBB ceased quotations of the Company's common stock. The Company is
in the process of attempting to qualify its new common stock for quotation on
the OTCBB but cannot predict whether or when such quotation will commence.
The Company operates principally in two segments that are organized based on the
nature of the products sold: (i) infant care and (ii) feminine care and adult
incontinence. Each operating segment contains closely related products that are
unique to that particular segment. The results of Changing Paradigms, Inc.
("Changing Paradigms"), the Company's household cleaners and air freshener
business that was sold in 1998, and the Company's international investments in
joint ventures in Mexico, Argentina, Brazil and China are reported in the
corporate and other segment.
YEAR ENDED DECEMBER 26, 1999 COMPARED TO YEAR ENDED DECEMBER 27, 1998
RESULTS OF OPERATIONS
A net loss of $28.4 million was incurred during 1999 compared to a net loss of
$65.4 million during 1998. Included in the results for 1999 were $9.6 million of
bankruptcy costs. The results in 1999 were also negatively impacted by a price
concession made to an export customer to address product acceptance issues and
by $1.6 million in costs associated with cessation of manufacturing operations
at the Company's Canadian subsidiary, Paragon Trade Brands (Canada) Inc.'s ("PTB
Canada") Brampton, Ontario facility in June. The total of the bankruptcy costs
and plant closure costs was $6.9 million, net of the effect on income taxes. The
results for 1999 were also negatively impacted by a reserve of $6.2 million
taken against the Company's net deferred and other tax-related assets as well as
a decrease in the expected tax benefit of $4.9 million due to certain
non-deductible bankruptcy costs.
Included in the results for 1998 were accrued settlement contingencies of $78.5
million representing the balance of the estimated settlement costs of P&G's and
K-C's claims in the Company's Chapter 11 reorganization proceeding, including
the settlement of the P&G patent judgment and the K-C Texas action. See "Notes 1
and 16
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of Notes to Consolidated Financial Statements" and "ITEM 3: LEGAL PROCEEDINGS"
herein. Also included in the results for 1998 were $6.3 million of bankruptcy
costs and a $3.4 million asset impairment writedown related to the Company's
tampon manufacturing line. The total of the settlement contingencies, bankruptcy
costs and asset impairment writedown was $54.2 million, net of the effect of
income taxes. The results in 1998 were also negatively impacted by a reserve of
$32.6 million taken against the Company's net deferred and other tax-related
assets.
Excluding the settlement contingencies, bankruptcy costs, asset impairment and
tax-related adjustments discussed above, management believes that reduced
volume, higher royalties and product costs, manufacturing inefficiencies due to
the lower volume and start-up costs associated with new product initiatives and
increased SG&A expenditures all contributed to the larger loss in 1999 compared
to 1998.
Basic loss per share during 1999 was $2.37 compared to basic loss per share of
$5.48 during 1998. Excluding the effects of loss contingencies, manufacturing
closing costs and bankruptcy costs, net of tax, and the tax valuation allowance
matters discussed above, basic loss per share was $1.16 during 1999 compared to
basic earnings per share of $1.52 during 1998, after adjusting for contractual
interest charges in both years.
Infant care operating losses were $11.5 million during 1999 compared to an
operating loss of $42.2 million during 1998. The $78.5 million of settlement
contingencies in 1998, discussed above, materially impacted infant care
operating results. Excluding the contingencies, infant care operating profits
were $36.3 million in 1998. Lower unit volume, increased royalties and product
costs, the price concession and the cessation of manufacturing discussed above
and manufacturing inefficiencies due to lower volume and start-up costs
associated with new product initiatives all contributed to the infant care
operating loss in 1999 compared to the operating profit, excluding
contingencies, in 1998.
Feminine care and adult incontinence operating losses were $14.0 million during
1999 compared to operating losses of $16.9 million during 1998. The improved
results were due to increased volume and cost management initiatives. Losses are
expected to continue until volume is significantly increased to absorb existing
manufacturing capacity.
The Company experienced greater than anticipated operating losses in its
feminine care and adult incontinence businesses during 1999, 1998 and 1997.
While the Company expects these losses to continue near-term, the Company has
developed a business plan that supports the realization of its investment in its
feminine care and adult incontinence business. Accordingly, the Company has not
recorded any adjustments in its financial statements relating to the
recoverability of the operating assets of the feminine care and adult
incontinence business. The Company's ability to recover its investment is
dependent upon the successful execution of the Company's feminine care and adult
incontinence business plan now that the Company has exited Chapter 11. The
Company believes that with the distractions and uncertainties of Chapter 11
behind it, the feminine care and adult incontinence business will see an
increase in sales and improved results. There can be no assurances, however,
that such improved results will be realized. See "RISKS AND UNCERTAINTIES"
herein.
NET SALES
Overall net sales were $498.7 million during 1999 compared to $535.2 million
reported in 1998.
Infant care net sales decreased 5.2 percent to $486.1 million during 1999
compared to $512.8 million during 1998. Unit sales decreased 6.9 percent to
3,176 million units during 1999 compared to 3,413 million units during 1998.
Management believes that the decrease in sales was due to a number of reasons,
including the discontinuation of shipments to a major customer from mid-1998
until the third quarter of 1999 due to product design issues, certain product
performance issues experienced by the Company during the first half of 1999, as
well as increased consumer preference for premium priced products, increased
consumer preference for the mechanical closure system offered by one of the
national brand competitors, continued competitive pressures, including loss of
certain customers to competitors, and the uncertainties related to the Company's
Chapter 11 proceedings. In addition, a price concession was made to an export
customer during the first quarter of 1999 to address product acceptance issues.
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<PAGE>
The Company believes that the product performance issues it has experienced
throughout 1999 have been addressed. In addition, shipments to the major
customer that had been suspended in mid-1998 resumed during the third quarter of
1999 and are expected to return to normal levels during 2000. Volume remained
under pressure during 1999 from discounts and promotional allowances offered by
branded manufacturers and value segment competitors. Infant care volume and
sales prices are expected to remain under pressure due to the carryover effect
of product performance and design issues and continued competitive initiatives
from both national brand and store brand competitors. However, the continued
roll-out of an improved Ultra diaper which incorporates stretch tabs and a new
hook and loop closure system, the introduction of a new training pant product
and the launch of certain destination store brand product and marketing programs
had a favorable impact on volume in the last half of 1999 and are expected to
continue to favorably impact results during 2000.
The Company began to implement a price increase of approximately 5 percent
during the fourth quarter of 1998 in response to price increases announced by
K-C and P&G. As a result, excluding the effect of a price concession made to an
export customer in the first quarter of 1999 described above, average sales
prices during 1999 were higher compared to 1998. Pricing, however, will remain
under pressure due to competitive factors previously discussed.
During the fourth quarter of 1999, one of the Company's major customers began
shifting a significant portion of the Company's existing volume to a competitor.
The Company expects to offset the loss of this business with new product
introductions that began rollout during the third quarter of 1999 with the same
customer. During the fourth quarter of 1999, another large customer began
shifting the Company's diaper volume to another store brand competitor. This
loss of business is expected to negatively impact results for 2000.
Feminine care and adult incontinence sales increased to $12.6 million during
1999 compared to $6.6 million during 1998 due to the shipment of product to new
customers. However, the uncertainty caused by the Company's chapter 11 filing
significantly impacted the ability to attract additional sales. See "RISKS AND
UNCERTAINTIES" herein.
Corporate and other net sales of $15.8 million during 1998 were related to
Changing Paradigms, which was sold in October of 1998.
COST OF SALES
Overall cost of sales during 1999 was $435.6 million compared to $428.6 million
during 1998. As a percentage of net sales, cost of sales was 87.3 percent during
1999 compared to 80.1 percent during 1998.
Infant care cost of sales was $409.9 million during 1999 compared to $397.1
million during 1998. As a percentage of net sales, infant care cost of sales was
84.3 percent during 1999 compared to 77.4 percent in 1998. Management believes
that this increase in costs as a percentage of sales was due to manufacturing
inefficiencies due to lower volume and new product rollouts, increased raw
material costs associated with new products and higher royalties as a result of
the settlement and licensing agreements reached in the first quarter of 1999
with P&G and K-C. Product costs have increased significantly in 1999 due to the
payment of royalties to P&G and K-C, increased price and usage of the new SAP
and increased product and manufacturing costs associated with the continuing
roll-out of the improved Ultra diaper described above. The royalties and
increased product costs are expected to continue into the future. The Company
anticipates that the inefficiencies associated with the product start-ups should
decrease during 2000.
Infant care raw material prices, primarily pulp, were at similar price levels
during 1999 compared to 1998. SAP costs, however, increased during 1999 compared
to 1998. Pulp prices began to increase during the fourth quarter of 1999 and are
expected to increase throughout 2000. SAP costs are expected to decrease
slightly during the same period. All other raw material costs are expected to
remain at similar levels throughout 2000.
Infant care depreciation costs were $25.1 million during 1999 compared to $25.8
million in 1998.
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<PAGE>
Feminine care and adult incontinence cost of sales was $25.7 million during 1999
compared to $18.6 million during 1998. As a percentage of net sales, cost of
sales was 204.0 percent during 1999 compared to 281.8 percent during 1998. The
benefit of increased volume and cost management efforts helped to reduce the
cost as a percentage of net sales. Depreciation costs were $4.1 million in 1999
compared to $4.7 million in 1998. Overall cost of sales is expected to remain
greater than net sales until volume is significantly increased to absorb
existing manufacturing capacity. See "RISKS AND UNCERTAINTIES" herein.
Corporate and other cost of goods sold of $12.9 million in 1998 relates to
Changing Paradigms, which was sold in October of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses were $83.4 million during 1999 compared to $78.4 million during
1998. As a percentage of net sales, these expenses were 16.7 percent during 1999
compared to 14.6 percent in 1998. The increase in SG&A is primarily attributable
to an increase in promotional spending, packaging design and artwork,
information technology and sales and marketing expenditures. Depreciation and
amortization costs included in SG&A increased to $7.5 million during 1999
compared to $3.9 million during 1998. This increase resulted from the
amortization of software and consulting costs associated with the implementation
of an enterprise resource planning system in the fourth quarter of 1998. These
increases were partially offset by lower incentive-based compensation accruals,
outside sales commissions and non-bankruptcy related legal charges. Expenses are
expected to decrease in 2000 primarily due to lower promotional spending and
packaging design and artwork.
RESEARCH AND DEVELOPMENT
Research and development expenses were $3.6 million during 1999 compared to $4.2
million during 1998. The decrease is primarily due to lower baby diaper product
development and testing costs.
MANUFACTURING OPERATION CLOSING COSTS
As discussed above, $1.6 million in costs were incurred during 1999 related to
the cessation of manufacturing operations at PTB Canada's Brampton, Ontario
facility during the second quarter. The costs were primarily severance and other
employee-related expenses.
INTEREST EXPENSE
Interest expense was $.5 million during 1999 and 1998. There were no direct
borrowings under the DIP Credit Facility during 1999 or 1998.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
The equity in earnings of unconsolidated subsidiaries was $2.3 million during
1999 compared to $4.1 million during 1998. The decrease in earnings reflects the
write-off of capitalized start-up costs, losses associated with the Company's
China joint venture and losses associated with the Company's Brazil joint
venture.
DIVIDEND INCOME
Dividend income of $1.0 million was recorded in 1999 compared to $.9 million in
1998. The dividend represented a distribution from Mabesa, an unconsolidated
subsidiary accounted for using the cost method and included in the corporate and
other segment.
BANKRUPTCY COSTS
Bankruptcy costs were $9.6 million during 1999 compared to $6.3 million during
1998. These costs were primarily related to professional fees.
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INCOME TAXES
Income tax benefit was $1.4 million in 1999 compared to income tax expense of
$8.1 million in 1998. In 1999, the Company recorded a reserve adjustment of $6.2
million against its net deferred and other tax-related assets. The Company also
reduced its tax benefit by $4.9 million to account for the effects of certain
non-deductible bankruptcy costs. In 1998, the Company recorded a reserve of
$32.6 million against its net deferred and other tax-related assets. The reserve
was necessary as the utilization of the Company's loss carryforwards is
dependent upon sufficient future taxable income to offset the loss
carryforwards.
YEAR ENDED DECEMBER 27, 1998 COMPARED TO YEAR ENDED DECEMBER 28, 1997
RESULTS OF OPERATIONS
A net loss of $65.4 million was incurred during 1998 compared to a net loss of
$212.7 million in 1997. Included in the results for 1998 were accrued settlement
contingencies of $78.5 million representing the balance of the estimated
settlement costs of P&G's and K-C's claims in the Company's Chapter 11
reorganization proceeding, including the settlement of the P&G patent judgment
and the K-C Texas action. See "Notes 1 and 16 of Notes to Consolidated Financial
Statements" and "ITEM 3: LEGAL PROCEEDINGS" herein. Also included in the results
for 1998 was $6.3 million of bankruptcy costs and a $3.4 million asset
impairment writedown relating to the Company's tampon manufacturing line that
was taken out of service in early 1998. The total of the settlement
contingencies, bankruptcy costs and asset impairment writedown was $54.2
million, net of the effect of income taxes. The results in 1998 were also
negatively impacted by a reserve of $32.6 million taken against the Company's
net deferred and other tax-related assets.
Included in the 1997 results was an estimated accrued settlement contingency of
$200 million for the P&G patent litigation judgment and associated litigation
costs. See "Notes 1 and 16 of Notes to Consolidated Financial Statements" and
"ITEM 3: LEGAL PROCEEDINGS" herein. Also included in the results for 1997 were
asset impairments and other write-offs totaling $10.6 million related to the
write-off of software and consulting costs related to the enterprise-wide
information system installation and discontinuation of the Company's tampon
production. The total of the loss contingency and asset impairments was $129.5
million, net of the effect of income taxes. The results in 1997 were also
negatively impacted by a reserve of $100.2 million taken against the Company's
net deferred and other tax-related assets.
Basic loss per share in 1998 was $5.48 compared to basic loss per share of
$17.86 in 1997. Basic earnings per share was $1.52 in 1998 compared to $1.43 in
1997, excluding charges discussed above in both periods and bankruptcy costs and
adjusting for the Company's contractual interest charges in 1998.
Infant care operating loss totaled $42.2 million in 1998 compared to an
operating loss of $155.0 million in 1997. The $78.5 million of settlement
contingencies in 1998 and the $200.0 million settlement contingency in 1997
discussed above, materially impacted infant care operating results. Excluding
these contingencies, infant care operating profits were $36.3 million in 1998
compared to $45.0 million in 1997. Reduced volume and increased SG&A were the
major factors contributing to this decline.
Feminine care and adult incontinence operating loss totaled $16.9 million in
1998 compared to an operating loss of $23.7 million in 1997. Operating loss
includes asset impairments related to a tampon manufacturing operation that was
shut down in 1998 of $3.4 million in 1998 and $4.4 million in 1997. The
reduction of the operating loss resulted from increased volume, the
discontinuation of the tampon manufacturing operation and cost management
initiatives.
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NET SALES
Overall net sales were $535.2 million in 1998, a 4.8 percent decrease from the
$562.0 million reported in 1997.
Infant care net sales decreased 5.9 percent to $512.8 million from $545.2
million in 1997. Unit sales decreased 7.5 percent to 3,413 million diapers in
1998 compared to 3,689 million diapers in 1997. The decrease in sales was
primarily due to uncertainties related to the Company's Chapter 11 proceeding
and the temporary discontinuation of shipments to a customer during the second
half of the year due to product design issues associated with a new product
rollout. Volume remained under pressure from discounts and promotional
allowances offered by branded manufacturers and value segment competitors and by
customer losses to store brand diaper competitors.
Excluding the effect of a favorable product mix, average sales prices for the
Company's products during 1998 were lower compared to 1997. The decrease in
prices was primarily due to the use of multi-packs by the branded manufacturers
and value segment competitors, competitive pressure from store brand diaper
competitors and price decreases in Canada. The Company began to implement a
price increase of approximately 5 percent during the fourth quarter of 1998 in
response to increases announced by K-C and P&G
Feminine care and adult incontinence sales increased to $6.6 million in 1998
from $4.3 million in 1997 due to the initiation of shipments of product to new
customers. However, the uncertainty caused by the Company's Chapter 11 filing
significantly impacted the Company's ability to attract additional sales.
Corporate and other net sales increased to $15.8 million in 1998 from $12.5
million in 1997 and relate to Changing Paradigms, which was sold in October of
1998.
COST OF SALES
Overall cost of sales in 1998 was $428.6 million compared to $454.9 million in
1997, a 5.8 percent decrease. As a percentage of net sales, cost of sales was
80.1 percent in 1998 compared to 80.9 percent in 1997.
Infant care costs were $397.1 million in 1998 compared to $423.4 million in
1997, a decrease of 6.4 percent. As a percentage of net sales, infant care cost
of sales was 77.4 percent in 1998 compared to 77.8 percent in 1997. This
improvement was primarily due to lower raw material costs, improved operating
efficiencies and lower overhead costs. The lower costs were partially offset by
the sourcing of products from PMI under a supply contract and charges related to
royalties payable to P&G under a product conversion agreement. Costs were also
higher due to the product design costs associated with the Company's conversion
to a single leg cuff diaper in June of 1998.
Infant care raw material costs, primarily pulp and SAP, were at lower price
levels in 1998 compared to 1997. Infant care labor costs were lower during 1998
compared to 1997.
Infant care labor costs were lower during 1998 compared to 1997. The lower costs
reflected increased manufacturing efficiencies including the use of automated
packaging. Infant care overhead costs were lower during 1998 compared to 1997
due to cost management efforts.
Infant care depreciation costs were $25.8 million in 1998 compared to $29.1
million in 1997.
Feminine care and adult incontinence cost of sales were $18.6 million in 1998
compared to $20.4 million in 1997, a decrease of 4.1 percent. As a percentage of
net sales, cost of sales was 281.8 percent in 1998 compared to 451.2 percent in
1997. Increased volume, lower labor and overhead costs resulting from cost
management initiatives and the shut down of tampon-related production equipment
were offset by an increase in depreciation to $4.7 million in 1998 from $2.3
million in 1997.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expenses were $78.4 million in 1998 compared to $76.3 million in 1997. As a
percentage of net sales, these expenses were 14.6 percent in 1998 compared to
13.6 percent in 1997. The increase in costs is primarily attributable to an
increase in trade merchandising expenses, incentive-based accruals, selling
expenses and information system costs related to the Company's new information
system installation, which was part of the Company's Year 2000 remediation
project. These increased costs were partially offset by lower legal expenses,
excluding bankruptcy costs, and packaging artwork and design costs.
RESEARCH AND DEVELOPMENT
Research and development expenses were $4.2 million in 1998 compared to $5.1
million in 1997. The decrease was primarily due to a reduction of infant care
product development and testing in the second half of 1998.
SETTLEMENT CONTINGENCIES
The settlement contingencies of $78.5 million recorded in 1998 represent
additional accruals for the balance of the estimated settlement costs of P&G's
and K-C's claims in the Company's Chapter 11 reorganization proceeding,
including the settlement of the P&G patent judgment and the K-C Texas action.
The settlement contingency of $200 million in 1997 represented the accrual of
the estimated liability and associated litigation costs from the adverse
judgment in the P&G patent litigation. See "Notes 1 and 16 of Notes to
Consolidated Financial Statements" and "ITEM 3: LEGAL PROCEEDINGS" herein.
ASSET IMPAIRMENTS
Asset impairments were $3.4 million in 1998 compared to $9.4 million in 1997.
The 1998 asset impairment related to the Company's feminine care and adult
incontinence business tampon manufacturing line which was removed from service
in early 1998 and is currently held for sale. The 1997 asset impairments
included a $5.0 million write-off of software and associated consulting costs
related to the Company's enterprise-wide information system installation, which
was charged to the corporate and other segment. The write-off was due to the
inability of the software to perform as represented during the software
selection process. Also included in 1997 was a write-down of $4.4 million for
the shut down of the feminine care and adult incontinence business'
tampon-related production equipment. In conjunction with the shut down of the
tampon manufacturing operation write-offs of $.9 million were taken for raw
material, finished goods and spare-part inventories which were charged to cost
of sales.
INTEREST EXPENSE
Interest expense was $.5 million in 1998 compared to $4.7 million in 1997. The
decrease resulted from the suspension of interest on the Company's prepetition
credit facilities due to the Chapter 11 filing. There were no direct borrowings
under the DIP Credit Facility during 1998. 1997 included interest on approximate
average borrowings of $80.2 million under the prepetition revolving credit
facility and lines of credit.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
The equity in earnings of unconsolidated subsidiaries, which is included in the
corporate and other segment, was $4.1 million in 1998 compared to $1.0 million
in 1997. The increase primarily reflected improved operating results of PMI and
earnings of Stronger Corporation S.A.
DIVIDEND INCOME
Dividend income of $.9 million was recorded in 1998 compared to $1.1 million in
1997. The dividend represented a distribution from Mabesa, an unconsolidated
subsidiary accounted for using the cost method and included in the corporate and
other segment.
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BANKRUPTCY COSTS
Bankruptcy costs were $6.3 million during 1998. These costs were primarily
related to professional fees.
INCOME TAXES
Income tax expense was $8.1 million in 1998 as the Company recorded a reserve of
$32.9 million against its net deferred and other tax-related assets. The reserve
was necessary as the utilization of the Company's loss carryforwards is
dependent upon sufficient future taxable income to offset the loss
carryforwards. See "FUTURE REALIZATION OF NET DEFERRED TAX ASSET."
LIQUIDITY AND CAPITAL RESOURCES
During 1999, cash flow from operations was $6.4 million compared to $61.3
million in 1998. Cash flow was negatively impacted by reduced infant care
operating profits and continues to be negatively impacted by operating losses in
the feminine care and adult incontinence business. During 1998, cash flow was
positively impacted by an increase of approximately $37.6 million in
postpetition accounts payable and checks issued but not cleared. During 1999,
cash flow was positively impacted by a reduction in inventory and receivables.
These benefits were partially offset by a reduction of checks issued but not
cleared. Cash flow was also positively impacted by $6.4 million of proceeds from
property and equipment sales and $5.6 million in scheduled repayments of
advances to an unconsolidated subsidiary.
The cash produced from operations and cash and short-term investments supported
capital expenditures of $27.7 million and $37.3 million in 1999 and 1998,
respectively. These capital expenditures included approximately $1.7 million and
$9.0 million in 1999 and 1998, respectively, of computer software and consulting
costs related to the installation of a new business information system, which
was the primary component of the Company's Year 2000 remediation efforts
discussed below. The expenditures during 1999 were primarily related to the
addition of increased training pant capacity and new product enhancements.
Capital spending is expected to total approximately $28.0 million during 2000
which the Company expects will be funded through a combination of internally
generated funds and borrowings under the Credit Facility.
Cash produced from operations and cash and short-term investments supported
additional investments of $.8 million in the Company's Goodbaby joint venture in
China and $2.0 million in the Company's joint venture in Brazil.
Cash and short-term investments decreased from $22.6 million at December 27,
1998 to $11.7 million at December 26, 1999.
In connection with the Chapter 11 filing, on January 30, 1998, the Bankruptcy
Court entered a Final Order approving the DIP Credit Facility as provided under
the Revolving Credit and Guarantee Agreement dated as of January 7, 1998, among
the Company, as Borrower, certain subsidiaries of the Company, as guarantors,
and a bank group led by The Chase Manhattan Bank ("Chase"). Pursuant to the
terms of the DIP Credit Facility, as amended and restated as of June 14, 1999,
Chase and a syndicate of banks made available to the Company a revolving credit
and letter of credit facility in an aggregate principal amount of $75 million.
The Company's maximum borrowing under the DIP Credit Facility could not exceed
the lesser of $75 million or an available amount as determined by a borrowing
base formulation. The borrowing base formulation was comprised of certain
specified percentages of eligible accounts receivable, eligible inventory,
equipment and personal and real property of the Company. The DIP Credit Facility
had a sublimit of $10 million for the issuance of letters of credit. The DIP
Credit Facility expired on January 28, 2000 in accordance with its terms and was
replaced with the Credit Facility.
At December 26, 1999, there were no outstanding direct borrowings under the DIP
Credit Facility. The Company had an aggregate of $2.0 million in letters of
credit issued under the DIP Credit Facility at December 26, 1999. See "Recent
Developments" and "Note 13 of Notes to Consolidated Financial Statements."
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On January 28, 2000 the Company entered into the Credit Facility. The maximum
borrowing under the Credit Facility may not exceed the lesser of $95 million or
an amount determined by a borrowing base formula. The borrowing base formula is
comprised of certain specified percentages of eligible accounts receivable,
eligible inventory, equipment and personal property and real property of the
Company. The Credit Facility has a sub-limit of $15 million for the issuance of
letters of credit.
Borrowings under the Credit Facility are secured by a security interest in,
pledge and lien on substantially all of the Company's North American assets and
properties and the proceeds thereof. Borrowings under the Credit Facility are
guaranteed by certain domestic subsidiaries and may be used to fund working
capital and other general corporate purposes including acquisitions and
investments in existing and new international joint ventures. The Credit
Facility contains customary restrictive covenants, including among other things,
a prohibition on dividends, limitations on the creation of additional liens and
indebtedness, limitations on capital expenditures, investments, loans and
advances, the sales of assets and transactions with affiliates. Financial
covenants include the maintenance of minimum earnings before interest, taxes,
depreciation and amortization, fixed charges, coverage ratio, tangible net worth
and a maximum leverage ratio.
The Credit Facility provides that borrowings will bear interest at a rate of
1.50 percent in excess of Citibank's base rate, or at the Company's option, a
rate of 2.50 percent in excess of the reserve adjusted eurodollar rate for
interest periods of one, two, three or six months. After March 31, 2001,
borrowing rates will be subject to a pricing grid based upon the Company's
leverage ratio and could decrease by a maximum of .5 percent and increase by a
maximum of .25 percent. The Company will pay a commitment fee of .5 percent per
annum on the unused portion of the Credit Facility, a letter of credit fee equal
to 2.75 percent per annum on the average outstanding letters of credit and
certain other fees.
On January 28, 2000, the Company borrowed approximately $15.0 million to
consummate the Plan. As of March 7, 2000, the Company had approximately $12.0
million of borrowings and $2.0 million in letters of credit outstanding under
the Credit Facility. See "RISKS AND UNCERTAINTIES" AND "RECENT DEVELOPMENTS."
At December 28, 1997, the Company maintained a $150 million revolving credit
facility with a group of nine financial institutions available through February
2001. At December 28, 1997, borrowings under this credit facility totaled $70
million. The Company also had access to short-term lines of credit on an
uncommitted basis with several major banks. At December 28, 1997, the Company
had approximately $50 million in uncommitted lines of credit. Borrowings under
these lines of credit totaled $12.8 million at December 28, 1997. As a result of
the Chapter 11 filing, the Company was prohibited from paying any prepetition
liabilities without Bankruptcy Court approval. The Chapter 11 filing resulted in
a default under the Company's prepetition revolving credit facility and its
borrowings under uncommitted lines of credit. See "Note 16 of Notes to
Consolidated Financial Statements."
FUTURE REALIZATION OF NET DEFERRED TAX ASSET
The Company accounts for income taxes based on the liability method and,
accordingly, deferred income taxes are provided to reflect temporary differences
between financial and tax reporting. Significant components of deferred income
taxes include temporary differences due to goodwill ($7.0 million) and reserves
not currently deductible ($116.2 million). To realize the full benefit of the
deferred tax asset, the Company needs to generate approximately $353.6 million
in future taxable income before considering the availability of carryback
periods, if any. The Company currently has fully reserved its net deferred tax
asset of $136.1 million. See "--Income Taxes."
YEAR 2000
The "Year 2000 issue" is generally defined as the inability of computer
hardware, software and embedded systems to properly recognize and process
date-related information for dates after December 31, 1999. The Company began
its efforts to address this problem as early as 1995. The Company's efforts were
generally separated into three areas: (i) business information systems
("Business Systems"), (ii) non-information technology systems, including real
estate facilities and manufacturing equipment ("Infrastructure Systems"), and
(iii) vendors, suppliers, customers and third party information interfaces
("Third Party Dependencies").
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The Company established a formal "Y2K Project Office" to assess, manage and
implement its Year 2000 activities. The Company also established a formal "Y2K
Steering Committee" to oversee the Company's Year 2000 efforts, including the
efforts of the Project Office. The Company also engaged Deloitte Consulting/ICS
to assist with implementation of certain Year 2000 related Business Systems and
the GartnerGroup to assist with its Year 2000 efforts for Infrastructure Systems
and Third Party Dependencies. To date, the Company has experienced no Year 2000
issues.
THE COMPANY'S STATE OF READINESS
Most of the Year 2000 issues arising with respect to the Business Systems of the
Company were addressed by replacement of the majority of those systems with SAP
R/3 enterprise resource planning software. The SAP R/3 software was implemented
and operating at the Company's corporate headquarters and in its U.S. infant
care plants in early November of 1998 and is warranted to be Year 2000 compliant
by its manufacturer. The SAP R/3 implementation was designed to significantly
minimize any Year 2000 related disruptions for approximately 80 percent of the
Company's Business Systems at those locations. The remaining systems were
remediated or replaced, tested and implemented prior to the end of 1999. With
respect to Business Systems that were not addressed by the overall SAP R/3
implementation, the Company addressed certain issues with certain of its desktop
computer operating systems. Overall, the Company remediated and tested all of
its critical Business Systems by the end of 1999.
The Company engaged the GartnerGroup to evaluate and analyze the Company's
overall Year 2000 preparedness. The Company received formal reports from the
GartnerGroup and initiated remediation/ replacement procedures for certain
processes and systems identified in such reports.
The Company also internally evaluated certain of its Infrastructure Systems for
Year 2000 related problems. These systems included the manufacturing capacity
for the Company's products and therefore were critical to the Company's ability
to produce products and realize revenue from sales. As part of the evaluation
process, the Company surveyed critical machinery, equipment and systems
suppliers, and significant product and service vendors for its material real
estate facilities and security systems. Responses to such surveys did not
indicate any problems which, taken on their own, could have materially adversely
affected the Company's ability to manufacture products.
Year 2000 problems with respect to certain material customers that would have
prevented the taking or filling of orders for products or interfered with the
collections process could have had a material impact on the Company's revenues.
Approximately 80 percent of the Company's orders for products are delivered via
electronic data interchange facilities ("EDI"). While the SAP R/3 implementation
was designed to address Year 2000 related issues for Company systems required
for these EDI exchanges, the Company is not able to control the EDI facilities
of its customers. As a result, the Company surveyed its customer base as to
their EDI facilities and their overall Year 2000 state of preparedness during
the fourth quarter of 1998. The Company received survey responses from customers
who, in the aggregate, represented more than 90 percent of its 1998 revenues.
The Company also conducted Year 2000 testing of EDI with approximately 60
percent of those customers. Neither the survey results nor the testing revealed
significant Year 2000 related problems which could have materially impaired the
Company's ability to conduct EDI exchanges with its customers, although such
testing should not be considered a conclusive indicator of how EDI exchanges
will perform in the future. The Company also prepared an inventory and surveyed
those vendors, service providers and raw materials suppliers that may have had a
material impact on the Company in the event of Year 2000 problems. Approximately
60 percent of the suppliers surveyed responded and did not indicate any
anticipated Year 2000 problems which, taken on their own, could have
significantly adversely affected operations critical to the Company's ability to
realize revenues.
Contingency planning for Business Systems, Infrastructure Systems and Third
Party Dependencies was substantially completed during the first quarter of 1999.
This process attempted to address critical Year 2000 issues known to the Company
and other unanticipated (but reasonably possible) internal and external Year
2000 related events that may have a material impact on the Company's ability to
conduct its operations.
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COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The total costs associated with required modifications to address Year 2000
related issues for the Company had a material adverse impact on the Company's
financial position. The cost of the project through December 26, 1999 was $23.4
million, all of which was related to the SAP R/3 implementation. It is not
possible to identify what portion of the total SAP R/3 cost is attributable to
the Year 2000 remediation. The Company planned to implement an enterprise
resource planning system for its Business Systems, regardless of Year 2000
issues, with respect to its former Business Systems.
All statements made herein regarding the Company's Year 2000 efforts are Year
2000 Readiness Disclosures made pursuant to the Year 2000 Information and
Readiness Disclosure Act and, to the extent applicable, are entitled to the
protections of such act.
RISKS AND UNCERTAINTIES
INCREASED COSTS. As a part of the License Agreements entered into in connection
with the Company's settlements with P&G and K-C, the Company has incurred and
will continue to incur significant added costs in the form of running royalties
payable to both parties for sales of the licensed diaper and training pant
products. While the Company believes that the royalties being charged by P&G and
K-C under their respective License Agreements are approximately the same
royalties that will be paid by the Company's major store brand competitors for
similar patent rights, the royalties will have a material adverse impact on the
Company's future financial condition and results of operations. While these
royalty costs have been partially offset by projected raw material cost savings
related to the conversion to a dual cuff product, the Company's overall raw
material costs have increased. These royalty costs have been partially offset by
price increases announced by the Company in the fourth quarter of 1998 and will
continue to be offset to the extent such price increases are maintained.
Further, the Company's operating results may be adversely affected by
anticipated increases in raw materials prices, primarily fluff pulp, in 2000.
In addition, as a part of the License Agreement entered into in connection with
the K-C Settlement Agreement, the Company has changed to a new SAP for its
diapers and training pants which exhibits certain performance characteristics.
The Company experienced certain product performance issues which it believes
impacted volume for the first half of 1999. The Company is encountering
increased product costs due to the increased price and usage of the new SAP.
While the Company is working diligently with its SAP suppliers to develop a more
cost-effective alternative, the Company cannot predict at this time whether or
when the added costs will be fully offset. The Company expects that these
increased product costs will have a material adverse impact on its financial
condition and results of operations for at least 2000 and potentially beyond.
PRICING. In the fourth quarter of 1998 the Company implemented a price increase
of 5 percent. A significant part of this price increase was required to offset
the increased costs of certain of the Company's infant care product designs. The
Company has realized some of the benefit of the price increase. However,
competitive factors have prevented and may continue to prevent the Company from
realizing the full benefit of the price increase. Additional price increases are
needed to fully offset the added royalty cost to be incurred by the Company
pursuant to the P&G and K-C settlements described above. Should the Company not
be able to realize future price increases, its margins are expected to continue
to be negatively impacted.
VOLUME. During the fourth quarter of 1999, one of the Company's major customers
began shifting a significant portion of the Company's existing volume to a
competitor. The Company expects to offset the loss of this business with new
product introductions that began rollout during the third quarter of 1999 with
the same customer. During the fourth quarter of 1999, another large customer
began shifting the Company's diaper volume to another store brand competitor.
This loss of business is expected to negatively impact results for 2000.
REALIZATION OF INVESTMENT IN FEMININE CARE AND ADULT INCONTINENCE BUSINESS.
Given the slow start-up of the feminine care and adult incontinence business,
which was exacerbated by the Company's Chapter 11 filing, and given the
resulting feminine care and adult incontinence losses, the Company's ability to
recover its investment in such business is highly uncertain. The Company's
ability to recover its investment is dependent upon the
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successful execution of the Company's feminine care and adult incontinence
business plan now that the Company has exited Chapter 11. The Company believes
that without the distractions and uncertainties related to Chapter 11, the
feminine care and adult incontinence business will see an increase in sales and
improved results. There can be no assurances, however, that such improved
results will be realized.
BRANDED PRODUCT INNOVATIONS. Because of the emphasis on product innovations in
the disposable diaper, feminine care and adult incontinence markets, patents and
other intellectual property rights are an important competitive factor. The
national branded manufacturers have sought to vigorously enforce their patent
rights. Patents held by the national branded manufacturers could severely limit
the Company's ability to keep up with branded product innovations by prohibiting
the Company from introducing products with comparable features. P&G and K-C have
also heavily promoted diapers in the multi-pack configuration. These packages
offer a lower unit price to the retailer and consumer. It is possible that the
Company may continue to realize lower selling prices and/or lower volumes as a
result of these initiatives.
INCREASED FINANCIAL LEVERAGE. In connection with the Plan, the Company issued
the New Notes. As a result of this increased leverage, the Company's principal
and interest obligations have increased substantially. The degree to which the
Company is leveraged could adversely affect the Company's ability to obtain
additional financing for working capital, acquisitions or other purposes and
could make it more vulnerable to economic downturns and competitive pressures.
The Company's increased leverage could also adversely affect its liquidity and
its ability to fund capital expenditures, as a substantial portion of available
cash from operations will have to be applied to meet debt service requirements.
The indenture related to the New Notes (the "Indenture") provides that, if
certain coverage tests are not met, interest on the New Notes may be paid in
kind for the first two years. The Indenture contains customary financial
covenants restricting the payments of dividends, the repurchase of the Company's
stock, the issuance of additional equity or the incurrence of additional
indebtedness. Also in connection with the Plan, on January 28, 2000, the Company
entered into the Credit Facility. The Credit Facility contains customary
financial covenants.
Based upon anticipated improvements in the Company's operations and certain cost
savings measures, the Company believes that its cash flows from operations,
borrowings under the Credit Facility and other sources of liquidity, will be
adequate to meet the Company's anticipated requirements for working capital,
capital expenditures, interest payments and scheduled principal payments for the
foreseeable future. There can be no assurance, however, that anticipated
improvements in operations and cost savings will be realized. If the Company is
unable to generate sufficient cash flows from operations in the future, it may
be required to refinance all or a portion of its existing debt or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing could be obtained on terms that are
favorable or acceptable to the Company.
MARKET FOR THE COMPANY'S COMMON STOCK. Pursuant to the Plan, Wellspring, and its
affiliates purchased 11,516,405 shares, or approximately 97 percent, of the
Company's new common stock. Approximately 178,365 shares, or 1.5 percent of the
new common stock, was distributed under the Plan to the Company's then-existing
stockholders. There is currently no established public trading market for the
Company's common stock. The Company is in the process of attempting to qualify
its new common stock for quotation on the OTCBB. There are no assurances,
however, when or whether such quotations will be published on the OTCBB or
whether a trading market in the Company's new common stock will develop.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which must be
adopted by the Company in fiscal year 2001. This statement establishes
accounting and reporting standards for derivative instruments - including
certain derivative instruments embedded in other contracts - and for hedging
activities. The Company is currently evaluating the impact of the statement on
the Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued a Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This
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statement requires capitalization of certain costs of internal-use software. The
Company adopted this statement in the quarter ended March 28, 1999, and it did
not have a material impact on the financial statements.
In April 1998, the AICPA issued a Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." This statement requires that the costs of
start-up activities and organizational costs be expensed as incurred. Any of
these costs previously capitalized by a company must be written off in the year
of adoption. The Company adopted this statement in the quarter ended March 28,
1999, and the equity in earnings of unconsolidated subsidiaries included $.5
million in charges as a result of the adoption of the statement.
INFLATION
Inflation has not been a significant factor in the Company's results of
operations in recent years due to the modest rate of price increases in the
United States and Canada.
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including the Annual Report on Form 10-K) may include
statements that are not historical facts, so-called "forward-looking
statements." The words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those expressed in the Company's forward-looking
statements. Factors which could affect the Company's financial results,
including but not limited to: increased raw material prices and product costs;
new product and packaging introductions by competitors; increased price and
promotion pressure from competitors; increased financial leverage; year 2000
compliance issues; and patent litigation, are described herein. Readers are
cautioned not to place undue reliance on the forward-looking statements, which
speak only as of the date hereof, and which are made by management pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's market risk-sensitive instruments and foreign currency exchange
rate risks do not subject the Company to material market risk exposures.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES:
PAGE
<S> <C>
Responsibility for Financial Reporting 33
Report of Independent Public Accountants 34
Consolidated Statements of Operations for the three years in
the period ended December 26, 1999 35
Consolidated Balance Sheets as of December 26, 1999 and
December 27, 1998 36
Consolidated Statements of Cash Flows for the three years in
the period ended December 26, 1999 37
Consolidated Statements of Comprehensive Loss for the three years in
the period ended December 26, 1999 38
Consolidated Statements of Changes in Shareholders' Deficit
for the three years in the period ended December 26, 1999 39
Notes to Financial Statements 40
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 66
</TABLE>
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RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the preparation of the Company's consolidated
financial statements appearing in this Annual Report. The financial statements
have been prepared in accordance with generally accepted accounting principles
and, in the opinion of management, present fairly the Company's financial
position, results of operations and cash flows. The financial statements
necessarily contain amounts that are based on the best estimates and judgments
of management.
The Company maintains a system of internal controls which management believes is
adequate to provide reasonable assurance as to the integrity and reliability of
the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial reporting.
The selection and training of qualified personnel, the establishment and
communication of accounting and administrative policies and procedures, and a
program of internal audit are important elements of these control systems.
The Company maintains a strong internal auditing program that independently
assesses the effectiveness of the internal controls and recommends possible
improvements thereto. Management has considered the internal auditors'
recommendations concerning the Company's system of internal controls and has
taken actions that management believes are cost-effective in the circumstances
to respond appropriately to these recommendations.
The Audit Committee of the Board of Directors oversees the fulfillment by
management of its responsibilities over financial controls and the preparation
of financial statements. The Committee meets regularly with representatives of
management and internal and external auditors to review accounting, auditing and
financial reporting matters.
As part of their audit of the Company's consolidated financial statements,
Arthur Andersen LLP considered the Company's system of internal controls to the
extent they deemed necessary to determine the nature, timing and extent of their
audit tests.
/S/ ALAN J. CYRON
Alan J. Cyron
Executive Vice President & Chief Financial Officer
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Paragon Trade Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Paragon Trade
Brands, Inc., a Delaware Corporation, and subsidiaries, as of December 26, 1999
and December 27, 1998, and the related consolidated statements of operations,
comprehensive loss, changes in shareholders' deficit and cash flows for each of
the three years in the period ended December 26, 1999. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Paragon Trade Brands, Inc. and
subsidiaries as of December 26, 1999 and December 27, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 26, 1999, in conformity with accounting principles generally
accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The financial statement schedule listed in the
index to financial statements and schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 2, 2000
(Except for the matter discussed in
the next to the last paragraph of Note 16,
as to which the date is March 24, 2000.)
Page 34
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales, net of discounts and allowances $498,656 $535,207 $ 561,975
Cost of sales 435,611 428,572 454,911
--------- --------- --------------
Gross profit 63,045 106,635 107,064
Selling, general and administrative expense 83,366 78,447 76,347
Research and development expense 3,644 4,248 5,063
Manufacturing operation closing costs 1,555 - -
Asset impairments - 3,416 9,442
Settlement contingencies (Notes 1 and 16) - 78,500 200,000
--------- --------- --------------
Operating loss (25,520) (57,976) (183,788)
Equity in earnings of unconsolidated subsidiaries 2,339 4,077 953
Dividend income from unconsolidated subsidiary 992 922 1,055
Interest expense(1) 482 450 4,667
Other income, net 2,483 2,437 1,664
--------- --------- --------------
Loss before income taxes and bankruptcy costs (20,188) (50,990) (184,783)
Bankruptcy costs 9,538 6,302 -
Provision for (benefit from) income taxes (1,350) 8,091 27,934
--------- --------- --------------
Net loss $(28,376) $(65,383) $ (212,717)
========= ========= ==============
Basic loss per common share $ (2.37) $ (5.48) $ (17.86)
========= ========= ==============
Diluted loss per common share $ (2.37) $ (5.48) $ (17.86)
========= ========= ==============
Dividends paid $ - $ - $ -
========= ========= ==============
- ---------------
<FN>
(1) Contractual interest $5,626 $5,836
========= =========
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 35
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and short-term investments $ 11,685 $ 22,625
Receivables 85,976 79,156
Inventories 48,744 53,282
Current portion of deferred income taxes 5,557 4,260
Prepaid expenses 3,745 4,323
----------------- -----------------
Total current assets 155,707 163,646
Property and equipment, net 113,637 106,200
Construction in progress 6,525 19,626
Assets held for sale 3,312 4,691
Investment in unconsolidated subsidiary at cost 22,929 22,743
Investment in and advances to unconsolidated
subsidiaries, at equity 56,215 66,041
Goodwill 30,900 32,819
Other assets, net 11,295 13,521
----------------- -----------------
Total assets $ 400,520 $ 429,287
================= =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Checks issued but not cleared $ 7,525 $ 12,433
Accounts payable 34,715 32,416
Accrued liabilities 34,259 33,646
----------------- -----------------
Total current liabilities 76,499 78,495
Liabilities subject to compromise (Notes 1, 14 and 16) 406,723 406,859
Deferred compensation 211 -
Deferred income taxes 6,904 5,773
----------------- -----------------
Total liabilities 490,337 491,127
----------------- -----------------
Commitments and contingencies (Notes 1, 16 and 17)
Shareholders' deficit:
Preferred stock: authorized 10,000,000 shares,
no shares issued, $.01 par value - -
Common stock: authorized 25,000,000 shares,
issued 12,388,464 and 12,378,616 shares, $.01 par value 124 124
Capital surplus 143,736 143,918
Accumulated other comprehensive loss (1,213) (1,840)
Accumulated deficit (222,134) (193,758)
Less: treasury stock, 438,750 and 429,696 shares, at cost (10,330) (10,284)
----------------- -----------------
Total shareholders' deficit (89,817) (61,840)
----------------- -----------------
$ 400,520 $ 429,287
================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 36
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,376) $ (65,383) $ (212,717)
Non-cash charges to earnings:
Depreciation and amortization 37,160 34,459 35,514
Deferred income taxes (166) (343) 36,464
Equity in (earnings) loss of unconsolidated
subsidiaries (1,546) (2,807) 615
Write-down of assets 660 3,408 7,967
Changes in working capital:
Accounts receivable 3,659 (16,010) (5,430)
Inventories and prepaid expenses 5,116 (12,230) (3,997)
Accounts payable (1,062) 34,529 3,238
Accrued liabilities and loss contingency 491 85,255 192,615
Prepetition reclamation payment
authorized by court (546) (1,034) -
Checks issued but not cleared (4,908) 3,058 (858)
Other (4,037) (1,598) 652
----------------- ----------------- -----------------
Net cash provided by operating activities 6,445 61,304 54,063
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (25,993) (28,283) (49,420)
Proceeds from sale of property and equipment 6,447 3,435 10,266
Proceeds from sale of Changing Paradigms, Inc. 350 5,163 -
Repayment of advance to unconsolidated
subsidiary, at equity 5,612 - -
Investment in Grupo P.I. Mabe, S.A. de C.V. (186) (2,779) (3,433)
Investment in and advances to
unconsolidated subsidiaries, at equity (2,760) (5,375) (24,102)
Other (855) (9,043) (9,104)
----------------- ----------------- -----------------
Net cash used by investing activities (17,385) (36,882) (75,793)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings - (921) 14,185
Prepetition debt payment authorized by court - (1,867) -
Proceeds from U.S. bank credit facility - - 25,000
Repayments of U.S. bank credit facility - - (25,000)
Sale of common stock - - 239
----------------- ----------------- -----------------
Net cash provided (used) by financing
activities - (2,788) 14,424
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND
SHORT TERM INVESTMENTS: (10,940) 21,634 (7,306)
Cash and short-term investments at beginning
of period 22,625 991 8,297
----------------- ----------------- -----------------
Cash and short-term investments at end of period $ 11,685 $ 22,625 $ 991
================= ================= =================
Cash paid (received) during the year for:
Interest (net of amounts capitalized) $ 645 $ 1,557 $ 4,259
================= ================= =================
Income taxes $ 235 $ 78 $ (4,242)
================= ================= =================
Bankruptcy costs $ 7,507 $ 2,461 $ -
================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 37
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net loss $ (28,376) $ (65,383) $ (212,717)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments(1) 627 (774) (452)
----------------- ------------------ ------------------
Comprehensive loss $ (27,749) $ (66,157) $ (213,169)
================= ================== ==================
- ------------------
<FN>
(1) Tax expense (benefit) $ 393 $ (485) $ (283)
================= ================== ==================
</FN>
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 38
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Retained Treasury
Common Stock Capital Surplus Loss Deficit Stock
------------ --------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 29, 1996 $ 123 $ 143,205 $ (614) $ 84,341 $ (12,350)
Net loss - - - (212,717) -
Issue common stock - 1,163 - - 2,255
Translation adjustment - - (452) - -
------------ --------------- ------------- ------------ -------------
BALANCE, December 28, 1997 123 144,368 (1,066) (128,376) (10,095)
Net loss - - - (65,383) -
Issue common stock 1 150 - - -
Translation adjustment - - (774) - -
Restricted stock forfeiture - (600) - - (189)
------------ --------------- ------------- ------------ -------------
BALANCE, December 27, 1998 124 143,918 (1,840) (193,758) (10,284)
Net loss - - - (28,376) -
Issue common stock - 28 - - -
Translation adjustment - - 627 - -
Restricted stock forfeiture - (210) - - (46)
------------ --------------- ------------- ------------ -------------
BALANCE, December 26, 1999 $ 124 $ 143,736 $ (1,213) $ (222,134) $ (10,330)
============ =============== ============= ============ =============
</TABLE>
The following summarizes the changes in the number of shares of capital stock:
<TABLE>
<CAPTION>
Common Stock Treasury Stock
-------------------------- -----------------------
<S> <C> <C>
BALANCE, December 29, 1996 12,288,293 535,250
Issue common stock - 1995 Incentive Compensation Plan 36,655 -
Issue common stock - 1996 Non-Officer Employee
Incentive Compensation Plan 12,279 -
Issue common stock - Profit Sharing and Savings Plan 3,597 (135,845)
Issue common stock - Exercise of stock options 2,500 (10,747)
----------- --------
BALANCE, December 28, 1997 12,343,324 388,658
Issue common stock - Profit Sharing and Savings Plan 35,292 -
Restricted stock forfeiture - 41,038
----------- --------
BALANCE, December 27, 1998 12,378,616 429,696
Issue common stock - Profit Sharing and Savings Plan 9,848 -
Restricted stock forfeiture - 9,054
----------- --------
BALANCE, December 26, 1999 12,388,464 438,750
=========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 39
<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1: CHAPTER 11 PROCEEDINGS
On January 6, 1998, Paragon Trade Brands, Inc. ("Paragon" or the "Company")
filed for relief under Chapter 11 of the United States Bankruptcy Code (the
"Chapter 11 filing"), in the United States Bankruptcy Court for the Northern
District of Georgia.
The Procter & Gamble Company ("P&G") filed a lawsuit in 1994 against the Company
in the United States District Court for the District of Delaware (the "Delaware
District Court"), alleging that the Company's disposable baby diaper products
infringed two of P&G's dual cuff diaper patents. The lawsuit sought injunctive
relief, lost profit and royalty damages, treble damages and attorneys' fees and
costs. The Company denied liability under the patents and counterclaimed for
patent infringement and violation of antitrust laws by P&G.
On December 30, 1997, the Delaware District Court issued a Judgment and Opinion
finding that P&G's dual cuff diaper patents were valid and infringed by certain
of the Company's disposable diaper products, while also rejecting the Company's
patent infringement claims against P&G. The Delaware District Court had earlier
dismissed the Company's antitrust counterclaim on summary judgment. The Judgment
entitled P&G to damages based on sales of the Company's diapers containing the
"inner-leg gather" feature. While the final damages number of approximately
$178,400 was not entered by the Delaware District Court until June 2, 1998, the
Company originally estimated the liability and associated litigation costs to be
approximately $200,000. The amount of the award resulted in violation of certain
covenants under the Company's then-existing bank loan agreements. As a result,
the issuance of the Judgment and the uncertainty it created caused an immediate
and critical liquidity issue for the Company. The Chapter 11 filing was designed
to prevent P&G from placing liens on Company property, permit the Company to
appeal the Delaware District Court's decision in the P&G case in an orderly
fashion and give the Company the opportunity to resolve liquidated and
unliquidated claims against the Company which arose prior to the Chapter 11
filing.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to find the Company
in contempt of the Delaware Judgment and P&G's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The P&G Settlement Agreement was
approved by the Bankruptcy Court on August 6, 1999 (the "P&G Approval Order").
The Official Committee of Equity Security Holders (the "Equity Committee")
appointed in the Chapter 11 reorganization proceeding to represent the Company's
stockholders appealed the P&G Approval Order. See Note 16.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to dual cuffs. The lawsuit
sought injunctive relief, royalty damages, treble damages and attorneys' fees
and costs. The Company denied liability under the patents and counterclaimed for
patent infringement and violation of antitrust laws by K-C. In addition, K-C
subsequently sued the Company on another patent issued to K-C which is based
upon a further continuation of one of the K-C dual cuff patents asserted in the
case. That suit was consolidated with the then-pending action.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Settlement Agreement was
approved by the Bankruptcy Court on August 6, 1999 (the "K-C Approval Order").
The Equity Committee appealed the K-C Approval Order. See Note 16.
Page 40
<PAGE>
On July 12, 1999, the Bankruptcy Court approved certain bidding procedures, an
expense reimbursement and a termination fee (the "Bidding Procedures Order")
relating to a proposed investment by Wellspring Capital Management LLC
("Wellspring"), a private investment company, to acquire the Company as part of
a plan of reorganization (the "Wellspring Transaction"). The Bidding Procedures
Order provided for the consideration of competing investment proposals from
other qualified bidders and for the filing by the Company of a stand-alone plan
of reorganization. The Equity Committee appealed the Bidding Procedures Order.
On August 25, 1999, with the support of the Official Committee of Unsecured
Creditors (the "Creditors' Committee" and, together with the Equity Committee,
the "Committees"), the Company filed a stand-alone plan of reorganization (the
"Initial Plan") with the Bankruptcy Court. The Initial Plan provided an
alternative to the Wellspring Transaction. In accordance with the Bidding
Procedures Order, an auction commenced on September 21, 1999. The auction
continued thereafter until the Company, after consultation with the Committees,
P&G and K-C, determined to conclude the auction on October 4, 1999. At the
conclusion of the auction, the Company, after consultation with the Committees,
P&G and K-C, determined that Wellspring had submitted the best bid. On October
15, 1999, the Company and the Creditors' Committee, as co-proponents, jointly
filed an amendment to the Plan (the "Amended Plan") which incorporated the
Wellspring Transaction, as modified by the Company after consultation with its
various creditor constituencies. The Amended Plan also provided that, in the
event the Wellspring Transaction was not consummated, the proponents could have
pursued confirmation of a stand-alone plan of reorganization.
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed a Second Amended Plan of Reorganization (as subsequently
modified through January 13, 2000, the "Plan") and related Disclosure Statement
(as subsequently modified through November 18, 1999, the "Disclosure Statement")
with the Bankruptcy Court. The Plan incorporated the Wellspring Transaction. By
order dated November 18, 1999, the Bankruptcy Court approved the Disclosure
Statement. At such time, the Bankruptcy Court also approved certain voting
procedures and established January 7, 2000 as the voting deadline for the Plan
and January 13, 2000 as the date for a hearing to consider confirmation of the
Plan. A confirmation hearing was held by the Bankruptcy Court on January 13,
2000. By Order dated January 13, 2000, the Bankruptcy Court confirmed the Plan.
On January 28, 2000, Paragon was reorganized pursuant to the Plan through the
consummation of the Wellspring Transaction. As contemplated under the Plan, the
Equity Committee has withdrawn with prejudice its appeals of the P&G Approval
Order, the K-C Approval Order and the Bidding Procedures Order.
As a result of the Chapter 11 filing, the Company has incurred significant costs
for professional fees. The Company was also required to pay certain expenses of
the Committees, including professional fees, to the extent allowed by the
Bankruptcy Court. Pursuant to the Plan, a reserve has been established from
which any remaining professional fees and expenses related to the Chapter 11
reorganization proceeding will be paid. See Note 16.
The Chapter 11 filing did not include the Company's wholly owned subsidiaries
including Paragon Trade Brands (Canada) Inc., ("PTB Canada"), PTB International,
Inc., ("PTBI"), PTB Acquisition Sub, Inc., Paragon Trade Brands FSC, Inc. and
Changing Paradigms, Inc. ("Changing Paradigms"), which was sold in October 1998.
The following information summarizes the combined results of operations for the
years ended December 26, 1999, December 27, 1998 and December 28, 1997, as well
as the combined balance sheets as of December 26, 1999 and December 27, 1998 for
these subsidiaries. This information has been prepared on the same basis as the
consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 26, 1999 DECEMBER 27, 1998 DECEMBER 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales, net of discounts and allowances $ 25,565 $ 55,338 $ 53,523
Gross profit $ 1,714 $ 10,161 $ 8,649
Earnings before income taxes $ 1,967 $ 10,034 $ 4,814
Net earnings $ 2,354 $ 7,277 $ 4,121
Page 41
<PAGE>
DECEMBER 26, 1999 DECEMBER 27, 1998
----------------- -----------------
Current assets $ 5,612 $ 17,863
Non-current assets $ 59,477 $ 54,734
Current liabilities $ 1,840 $ 5,700
Non-current liabilities $ 3,306 $ 8,495
</TABLE>
NOTE 2: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES
BASIS OF PRESENTATION AND RELATED INFORMATION
Paragon is the leading manufacturer of store brand infant disposable diapers in
North America. Paragon manufactures a line of premium and economy diapers,
training pants, and feminine care and adult incontinence products, which are
distributed throughout North America, primarily through grocery and food stores,
mass merchandisers, warehouse clubs, toy stores and drug stores that market the
products under their own store brand names. Paragon has also established
international joint ventures in Mexico, Argentina, Brazil and China for the
manufacture and sale of infant disposable diapers and other absorbent personal
care products.
The consolidated financial statements include the accounts of Paragon Trade
Brands, Inc. and its wholly owned subsidiaries, PTB Canada and PTBI. All
significant intercompany transactions and accounts have been eliminated.
The consolidated financial statements were prepared in conformity with generally
accepted accounting principles and necessarily include amounts based on
management's estimates and assumptions. The estimates and assumptions of
management affect the reported amounts of assets, liabilities, revenues and
expenses, including disclosures regarding contingent assets and liabilities.
Actual results may differ from those reported due to these estimates and
assumptions.
The Company uses a 52/53-week year. The fiscal years ended December 26, 1999,
December 27, 1998 and December 28, 1997 include 52 weeks.
CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow and fair value reporting, short-term investments with
original maturities of 90 days or less are considered as cash equivalents.
Short-term investments are stated at cost, which approximates fair value. The
obligation for outstanding checks is reflected as checks issued but not cleared.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the fair value of its financial instruments
approximate their carrying values as of the balance sheet dates, other than the
guarantees of PTBI discussed below. The Company has determined that it is not
practicable to determine the fair value of such guarantees. Accordingly, no
separate disclosure of fair value is made.
NONCASH TRANSACTIONS
During the fiscal years ended December 26, 1999 and December 27, 1998, the
Company issued 9,848 and 35,292, respectively, shares of common stock to key
management and employees through the Paragon Retirement Investment Savings
Management Plan (the "PRISM Plan") and its Profit Sharing and Savings Plan. See
Note 8.
Page 42
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes labor,
materials and production overhead. The last-in, first-out ("LIFO") method is
used to cost domestic pulp and diaper-related finished goods inventories. The
first-in, first-out ("FIFO") method is used to cost all other inventories. Had
the FIFO method been used to cost the domestic pulp and finished goods
inventories, the amounts at which they are stated would have been $3,883 and
$346 greater at December 26, 1999 and December 27, 1998, respectively. During
1999, the Company liquidated certain LIFO inventories. The effect of this
liquidation was to decrease loss before taxes by approximately $136.
PROPERTY AND EQUIPMENT
Paragon's property accounts are maintained on an individual asset basis.
Betterments and replacements of major units are capitalized. Maintenance,
repairs and minor replacements are expensed. Depreciation is provided on the
straight-line method at rates based upon estimated useful lives as follows:
Buildings 20 to 40 years
Building improvements 10 years
Machinery, equipment, furniture and fixtures 2 to 10 years
The cost and related depreciation of property sold or retired is removed from
the property and allowance for depreciation accounts and the gain or loss is
recorded.
PATENTS AND TRADEMARKS
The Company operates in a commercial field in which patents relating to the
products, processes, apparatus and materials are more numerous than in many
other fields. The Company takes careful steps in designing, producing and
selling its products to avoid infringing any valid patents of its competitors.
However, there can be no assurance that the Company will not be challenged with
respect to patents in the future (see Notes 1 and 16).
Purchased patents and trademarks are amortized on a straight-line basis over a
five-year life. In 1999, the Company acquired a non-exclusive, fully paid-up,
irrevocable worldwide license to the Tracy patent for $500. See Note 16.
Amortization expense for such patent license was $50 for the year ended December
26, 1999. In 1997, the Company evaluated the remaining value of one of the
purchased patents and wrote-off the entire amount of $255. Amortization expense
was $676 for the year ended December 28, 1997, including the write-off.
Accumulated amortization was $5,573 and $5,523 at December 26, 1999 and December
27, 1998, respectively.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
On January 26, 1996, the Company through PTBI completed the purchase of a 15
percent interest in Grupo P.I. Mabe, S.A. de C.V. ("Mabesa"), the second largest
manufacturer of infant disposable diapers in Mexico, for $15,300 in cash plus
additional consideration based on Mabesa's future financial results through
2001. The Company also acquired an option to purchase an additional 34 percent
interest in Mabesa at a contractually determined price. In 1999, 1998 and 1997,
based on Mabesa's prior year's financial results, the Company paid additional
consideration of $200, $2,800 and $3,400, respectively. The investment is
carried at cost in the accompanying consolidated balance sheets.
The Company also owns a 49 percent interest in Paragon-Mabesa International,
S.A. de C.V. ("PMI"). The investment is accounted for using the equity method.
On August 26, 1997, PTBI purchased a 49 percent interest in Stronger Corporation
S.A. ("Stronger"), a financial investment corporation incorporated under
Uruguayan law. An affiliate of Mabesa owns the remaining 51 percent. Stronger
has been used to establish joint ventures in Argentina and Brazil and can be
used to establish additional Latin American joint ventures. In each of 1998 and
1999, the Company made additional capital contributions to Stronger of $2,000.
The investment is accounted for using the equity method.
Page 43
<PAGE>
On August 26, 1997, Stronger acquired 70 percent of Serenity S.A., the third
largest diaper manufacturer in Argentina, for approximately $11,600 in cash plus
additional consideration based on Serenity's future financial results through
2000. Stronger also acquired an option to purchase the remaining 30 percent
interest in Serenity by 2002 at a contractually determined exercise price.
Serenity manufactures infant disposable diapers, sanitary napkins and adult
incontinence products in two facilities. PTBI advanced $5,700 to Stronger, its
pro-rata share of the purchase price, and paid additional consideration of $600
in 1998. Stronger paid the 1999 additional consideration. PTBI has guaranteed
Stronger's additional consideration obligation which is estimated not to exceed
an aggregate of $1,200 in 2000.
On November 10, 1997, Stronger acquired 99 percent of the disposable diaper
business of MPC Productos para Higiene Ltda. ("MPC") for approximately $10,500
in cash from Cremer S.A., a Brazilian textile manufacturer. MPC is engaged in
the manufacture, distribution, and sale of disposable diapers, skin lotions for
children and other personal care products. PTBI advanced $5,100 to Stronger, its
pro-rata share of the purchase price in 1997.
The investment in Stronger exceeds the underlying net assets by $5,873. The
difference is being amortized over a 20-year life.
In 1998, Paragon established Goodbaby Paragon Hygienic Products Co. Ltd., a
manufacturing and marketing joint venture in China with Goodbaby Group of
Kunshan City and First Shanghai Investment of Hong Kong. Paragon purchased a 40
percent interest in the joint venture with Goodbaby Group and First Shanghai
Investment at 30 percent each. Initial registered capital of the venture was
approved by the Chinese government at $15,000, to be funded over a two-year
period. A joint venture business license was approved by the Chinese government
on December 31, 1997. Groundbreaking for a new factory took place in February
1998. The joint venture began production and distribution of infant disposable
diapers in October 1998. Paragon made capital contributions of $4,000 in 1998
and $800 in 1999.
There have been no dividend distributions to the Company from PMI, Stronger or
Goodbaby. The Company received a dividend distribution of $992 from Mabesa in
the year ended December 26, 1999. The Company recorded a dividend of $922
declared by Mabesa in the year ended December 27, 1998 which was paid in 1999.
The Company received a dividend distribution of $1,055 from Mabesa in the year
ended December 28, 1997.
GOODWILL
On February 8, 1996, the Company completed the purchase of substantially all of
the assets of Pope & Talbot, Inc.'s disposable diaper business. Goodwill
represents the excess of the cost of these assets over their estimated fair
value at the date of acquisition and is amortized on a straight-line basis over
20 years. Management continually evaluates whether events or circumstances have
occurred that indicate the remaining useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be realizable. When
factors indicate that goodwill should be evaluated for possible impairment, the
Company compares an estimate of the related business segment's undiscounted net
cash flow over the remaining life of the related goodwill to determine whether
the goodwill is recoverable.
Amortization expense was $1,919 each for the years ended December 26, 1999,
December 27, 1998 and December 28, 1997, respectively. Accumulated amortization
was $7,492 and $5,573 as of December 26, 1999 and December 27, 1998,
respectively.
OTHER ASSETS - SOFTWARE
The primary component of other assets is capitalized software and development
costs. During 1998, the Company implemented SAP R/3 software at corporate
headquarters and in its U.S. infant care plants.
The SAP -R/3 software and development costs are being amortized on a
straight-line basis over a 10-year life. Other software and development costs
related to the project are being primarily amortized on a straight-line basis
over a one- to three-year life. Amortization expense was $3,028 and $442 for the
years ended December 26,
Page 44
<PAGE>
1999 and December 27, 1998, respectively. Accumulated amortization was $3,470
and $442 at December 26, 1999 and December 27, 1998, respectively.
TREASURY STOCK
In July 1995, the Board of Directors authorized the repurchase of up to 1.0
million shares of the Company's outstanding common stock. Purchases may be made
periodically in the open market or in privately-negotiated transactions over an
extended period of time, if and when management believes market conditions
warrant. During the fiscal years ended December 26, 1999 and December 27, 1998,
the Company acquired 9,054 and 41,038 shares, respectively, through employee
forfeiture of restricted stock.
SIGNIFICANT CUSTOMER
During the years ended December 26, 1999, December 27, 1998 and December 28,
1997, the percentages of net sales to an individual customer whose sales
represent in excess of 10 percent of net sales were 25 percent, 19 percent and
15 percent, respectively. These sales consisted primarily of infant care
products.
REVENUE RECOGNITION
Revenue is recognized when goods are delivered and title has passed to
customers.
INCOME TAXES
The Company accounts for income taxes based on the liability method and,
accordingly, deferred income taxes are provided to reflect temporary differences
between financial and tax reporting. Deferred tax assets and liabilities are
measured based on enacted tax laws and rates without anticipation of future
changes. Effects on deferred taxes of enacted changes in tax laws are recognized
in income for financial statement purposes in the period of enactment.
As of December 26, 1999, there were approximately $20,985 of cumulative
undistributed earnings of the Company's foreign subsidiaries and investments
accounted for by the equity method. U.S. taxes have not been provided for on
these earnings. Under existing law, undistributed earnings are not subject to
U.S. tax until distributed as dividends. Any future earnings are intended to be
indefinitely reinvested in these operations. Furthermore, any taxes that are
paid to foreign governments on such future earnings may be used, in whole or in
part, as credits against the U.S. tax on any distributions from such earnings.
Income taxes have been provided for all items included in the consolidated
statements of operations, regardless of the period when such items will be
deductible for tax purposes. The principal temporary differences between
financial and tax reporting arise from tax-basis goodwill and reserves not
currently deductible.
FOREIGN CURRENCY
Non-U.S. assets and liabilities are translated into U.S. dollars using
period-end exchange rates. Revenues and expenses are translated at average rates
during the period.
PROFIT SHARING AND 401(K) PLANS
Paragon has both a defined contribution profit sharing plan and a 401(k) savings
plan, known as the PRISM Plan, covering most of its employees. As amended in
1999, the Prism Plan provides for employee 401(k) deferrals as well as employer
contributions for retirement and profit sharing. Prism Plan participants are
fully vested with respect to employer profit sharing and 401 (k) matching
contributions made prior to March 1, 1999, after three years of service.
Employee contributions and employer retirement contributions after March 1,
1999, vest immediately. Contributions to the Prism Plan are based on a
percentage of employees' wages. Prism Plan expense for the fiscal years ended
December 26, 1999, December 27, 1998 and December 28, 1997 was $2,936, $2,589
and $1,141, respectively.
Page 45
<PAGE>
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which must be
adopted in the Company's fiscal year 2001. This statement establishes accounting
and reporting standards for derivative instruments - including certain
derivative instruments embedded in other contracts - and for hedging activities.
The Company is currently evaluating the impact of the statement on the Company's
financial statements.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued a Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement requires
capitalization of certain costs of internal-use software. The Company adopted
this statement in the quarter ended March 28, 1999, and it did not have a
material impact on the financial statements.
In April 1998, the AICPA issued a Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." This statement requires that the costs of
start-up activities and organizational costs be expensed as incurred. Any of
these costs previously capitalized by a company must be written off in the year
of adoption. The Company adopted this statement in the quarter ended March 28,
1999, and the equity in earnings of unconsolidated subsidiaries included $500 in
charges as a result of the adoption of the statement.
NOTE 3: MANUFACTURING OPERATION CLOSING COSTS
On April 30, 1999, the Company announced that its Canadian subsidiary, PTB
Canada, would cease manufacturing infant disposable diapers at its Brampton,
Ontario facility. The Company announced that the facility would curtail
manufacturing operations over a few weeks' period of time while the Company
transitioned its Canadian customers to its Harmony, Pennsylvania facility.
Manufacturing operations ceased during June and resulted in severing the
employment of approximately 110 employees. The Company expects to utilize the
Brampton diaper making equipment in its U.S. operations and placed the Brampton
facility for sale in the fourth quarter of 1999. For the period ended December
26, 1999, the consolidated statements of operations include $1,555 of pre-tax
charges as a result of cessation of manufacturing operations. The following
summarizes amounts accrued and costs incurred for the period ended December 26,
1999:
<TABLE>
<CAPTION>
Amount Costs Balance
Accrued Incurred Remaining
-------------- -------------- ------------
<S> <C> <C> <C>
Employee severance and related items.............................. $ 1,400 $ 1,365 $ 35
Asset write-downs................................................. 155 155 -
-------------- -------------- ------------
$ 1,555 $ 1,520 $ 35
============== ============== ============
</TABLE>
NOTE 4: ASSET IMPAIRMENTS
There were no asset impairments for the year ended December 26, 1999. Asset
impairments were $3,416 and $9,442 for the years ended December 27, 1998 and
December 28, 1997, respectively.
The asset impairment for the year ended December 27, 1998 represented a further
write down of the tampon-related manufacturing equipment that was shutdown in
early 1998. The equipment has been written down to estimated net selling price
and is categorized as assets held for sale on the accompanying consolidated
balance sheet.
The asset impairments for the year ended December 28, 1997 include a $5,000
write-off of software and associated consulting costs related to the Company's
enterprise-wide information system installation. The write off was due to the
inability of the software to perform as represented during the software
selection process. The asset impairments also include a write-down of $4,442 for
the shutdown of the tampon-related manufacturing equipment at the feminine care
products operation. Also included in the shut-down of the tampon producing
Page 46
<PAGE>
operation were write-offs of $900 for raw material, finished goods and
spare-part inventories which were charged to cost of sales for the year ended
December 28, 1997.
The Company experienced operating losses in its feminine care and adult
incontinence business since 1996 and expects these losses to continue in the
near-term. The Company has developed a business plan that supports the
realization of its investment in its feminine care and adult incontinence
business. Accordingly, the Company has not recorded any adjustments in its
financial statements relating to the recoverability of the operating assets of
the feminine care and adult incontinence business. The Company's ability to
recover its investment is dependent upon its successful execution of the
Company's feminine care and adult incontinence business plan now that the
Company has emerged from Chapter 11. The Company believes that with the
distractions and uncertainties related to Chapter 11 behind it, the feminine
care and adult incontinence business will see an increase in sales and improved
results.
NOTE 5: OTHER INCOME, NET
Other income was $3,475, $2,437 and $1,664 in 1999, 1998 and 1997, respectively,
and consisted primarily of interest income from PMI.
NOTE 6: BANKRUPTCY COSTS
Bankruptcy costs were directly associated with the Company's Chapter 11
reorganization proceeding and consisted of the following:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------
December 26, 1999 December 27, 1998
------------------------ ------------------------
<S> <C> <C>
Professional fees $ 9,061 $ 6,772
Amortization of DIP credit facility deferred
financing costs 616 813
Other 156 160
Interest Income (295) (1,443)
------------------------ ------------------------
$ 9,538 $ 6,302
======================== ========================
</TABLE>
NOTE 7: INCOME TAXES
Taxes on income are based on earnings (losses) before taxes as follows:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Domestic $ (28,441) $ (62,239) $ (188,784)
Foreign (1,285) 4,947 4,001
------------------------ ----------------------- -----------------------
$ (29,726) $ (57,292) $ (184,783)
======================== ======================= =======================
</TABLE>
Page 47
<PAGE>
Provisions for (benefits from) income taxes include the following:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Federal:
Current $ (744) $ 4,647 $ (6,594)
Deferred 0 967 33,494
------------------------ ----------------------- -----------------------
(744) 5,614 26,900
------------------------ ----------------------- -----------------------
State:
Current (138) 598 (1,197)
Deferred 0 161 833
------------------------ ----------------------- -----------------------
(138) 759 (364)
------------------------ ----------------------- -----------------------
Foreign:
Current (333) 2,096 1,803
Deferred (135) (378) (405)
------------------------ ----------------------- -----------------------
(468) 1,718 1,398
------------------------ ----------------------- -----------------------
$ (1,350) $ 8,091 $ 27,934
======================== ======================= =======================
</TABLE>
A reconciliation between the federal statutory rate and the effective tax rate
follows:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Expected benefit at the statutory rate $ (10,404) $ (20,052) $ (64,674)
State income taxes, net of federal tax
benefit (1,040) (2,005) (6,640)
Undistributed earnings of subsidiaries (892) (983) 215
Nondeductible bankruptcy expenses 4,940 - -
Change in valuation allowance 6,181 32,585 99,052
All other, net (135) (1,454) (19)
------------------------ ----------------------- -----------------------
$ (1,350) $ 8,091 $ 27,934
======================== ======================= =======================
</TABLE>
Page 48
<PAGE>
Net deferred tax liabilities at December 26, 1999 and December 27, 1998 were
$1,346 and $1,513, respectively. The amounts recorded primarily reflect the
following: (1) reserves not currently deductible and (2) deferred tax assets due
to the enactment of the Omnibus Budget Reconciliation Act of 1993, which allows
amortization of intangibles, including goodwill. Net deferred income taxes are
attributable to the following temporary differences:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
------------------------ -----------------------
<S> <C> <C>
Intangible assets $ (1,857) $ (1,992)
------------------------ -----------------------
Deferred tax liabilities (1,857) (1,992)
------------------------ -----------------------
Depreciation/amortization (4,495) (1,737)
Goodwill 6,992 7,168
Reserves not currently deductible 116,272 113,465
Package design costs 2,198 2,045
Land 389 392
Net operating loss carryforwards 3,369 3,057
Credit carryforwards 8,768 9,045
All other, net 3,158 (1,038)
------------------------ -----------------------
Deferred tax assets 136,652 132,397
------------------------ -----------------------
Deferred tax assets valuation allowance (136,141) (131,918)
------------------------ -----------------------
Total deferred taxes, net $ (1,346) $ (1,513)
======================== =======================
</TABLE>
The Company has recorded a valuation allowance with respect to its net deferred
tax assets as realization is dependent upon sufficient future taxable income.
NOTE 8: LONG-TERM INCENTIVE, DEFERRED COMPENSATION, PROFIT SHARING AND
PENSION PLANS, INCLUDING 401(K)
LONG-TERM INCENTIVE PLANS
The Company's Long-Term Incentive Compensation Plan ("LTIC Plan") and its 1995
Incentive Compensation Plan ("1995 Plan") are administered by the Compensation
Committee of the Board of Directors. In February 1996, the Company adopted its
1996 Non-Officer Employee Incentive Compensation Plan ("1996 Plan"). The 1996
Plan is administered by an Administrative Committee appointed by the Board of
Directors. The LTIC, 1995 and 1996 Plans are designed to link management rewards
with the long-term interests of Paragon's stockholders. Given the uncertainties
related to the Company's Chapter 11 filing, the Compensation Committee of the
Company's Board of Directors decided in early 1998 to suspend the grant of stock
option awards or stock appreciation rights ("SARs") until the Company
successfully emerged from Chapter 11. As a result, no options or SARs were
granted in 1998 or 1999.
RESTRICTED STOCK GRANTS
9,054 and 41,038 shares of restricted stock previously granted under the various
plans were forfeited by employees during the years ended December 26, 1999 and
December 27, 1998, respectively. The 1995 and 1996 Plans provide that a maximum
of 150,000 and 250,000 shares, respectively, are available for grant thereunder
as restricted shares or other stock based awards. Compensation expense is
recorded for the stock grants at their discounted amounts. Compensation expense
(income) recorded for the fiscal years ended December 26, 1999, December 27,
1998 and December 28, 1997 was $(256), $(788) and $856, respectively. The
weighted average fair value per share of stock granted was $17.50 for the year
ended December 28, 1997. The weighted average fair value per share at the date
of grant of stock forfeited for the years ended December 26, 1999 and December
27, 1998 was $28.25 and $19.20, respectively.
Page 49
<PAGE>
STOCK OPTIONS AND SARS
The LTIC, 1995 and 1996 Plans have a maximum of 800,000, 450,000 and 400,000
shares available, respectively, for grant as stock options or SARs. Stock
options, when granted to key management, are granted at amounts that approximate
market value at the date of the grant. Awards, when made, vest 25 percent per
year for four years and have a term of 10 years. The Company will also have a
maximum of 100,000 shares available for grant under the Stock Option Plan for
Non-Employee Directors ("Director Plan") proposed to be adopted by the Board.
Other than the initial awards, stock options are proposed to be awarded to
directors at amounts that approximate market value at the date of the grant.
Awards vest 100 percent after one year and have a term of 10 years.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies APB Opinion 25 in accounting for stock options granted under
the 1995, LTIC and Director Plans. Accordingly, no compensation cost has been
recognized for these plans in 1999, 1998 or 1997. Had compensation cost been
recognized on the basis of fair value pursuant to FASB Statement No. 123, net
loss and loss per share would have been affected as follows:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
NET LOSS
- --------
As reported $ (28,376) $ (65,383) $ (212,717)
Pro forma $ (27,963) $ (65,646) $ (213,265)
BASIC LOSS PER COMMON SHARE
- ---------------------------
As reported $ (2.37) $ (5.48) $ (17.86)
Pro forma $ (2.34) $ (5.50) $ (17.90)
DILUTED LOSS PER COMMON SHARE
- -----------------------------
As reported $ (2.37) $ (5.48) $ (17.86)
Pro forma $ (2.34) $ (5.50) $ (17.90)
</TABLE>
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes multiple option pricing model with the following assumptions
for the year ended December 27, 1997: a range of risk-free interest rates of
6.15 - 6.43 percent was used; a dividend yield of 0.0 percent; and an estimated
volatility of 40 percent.
Page 50
<PAGE>
Following is a summary of the status of the 1995, LTIC and Director Plans during
the years ended December 26, 1999, December 27, 1998 and December 28, 1997.
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
------------------------------ ------------------------------ ------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Outstanding,
beginning of period 699,491 $20.45 774,935 $20.46 735,932 $21.00
Granted - - - - 91,000 $16.42
Exercised - - - - 13,247 $18.03
Forfeited 52,824 $18.83 75,444 $20.54 38,750 $22.10
------------- ------------- -------------
Outstanding, end of period 646,667 $20.58 699,491 $20.45 774,935 $20.46
============= ============= =============
Options exercisable
end of period 602,167 $20.68 569,407 $20.96 518,103 $21.18
============= ============= =============
Weighted average
fair value of
options granted
during the period - - $ 8.95
============= ============= =============
</TABLE>
Following is a summary of the status of options granted under the 1995, LTIC and
Director Plans at December 26, 1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
--------------------------------------------------------------- -------------------------------
Weighted Average
Remaining Weighted
Exercise Price Contractual Weighted Average Average
Range Number Life (Years) Exercise Price Number Exercise Price
- -------------- ---------- ---------------- ---------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$12.69-$16.44 207,947 5.93 $14.50 177,947 $14.18
$19.00-$22.13 237,500 3.10 $19.72 237,500 $19.72
$22.25-$31.13 201,220 4.96 $27.87 186,720 $28.11
----------- -----------
$12.69-$31.13 646,667 4.59 $20.58 602,167 $20.68
=========== ===========
</TABLE>
Page 51
<PAGE>
The following summarizes transactions involving SARs granted to key management
during the years ended:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
------------------------------- ----------------------------- ----------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
SARs Price SARs Price SARs Price
------------- -------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period 150,740 $20.19 235,660 $20.35 121,330 $24.32
Granted - - - - 122,330 $16.64
Forfeited 48,832 $20.11 84,920 $20.63 8,000 $23.82
------------- ------------- -----------
Outstanding, end of period 101,908 $20.23 150,740 $20.19 235,660 $20.35
Exercisable, end of period 68,913 $20.88 61,917 $21.26 28,585 $24.28
</TABLE>
SARs, when granted, are granted at amounts that approximate market value at the
date of the grant. Awards, when made, vest 25 percent per year for four years
and have a term of 10 years. Compensation expense (income) is recorded based on
the period-ending stock price in relation to the SAR exercise price.
Compensation income recorded in 1998 and 1997 was $184 and $34, respectively.
Redemption of the SARs, when exercised, will be in cash.
DEFERRED COMPENSATION PLAN
The Company adopted the Paragon Trade Brands, Inc. Deferred Compensation Plan
("DCP") in April 1997. The DCP was an unfunded, non-qualified deferred
compensation plan under which eligible employees of the Company and members of
the Board of Directors could elect, on a voluntary basis, to defer compensation
until retirement or termination from the Company or the Board. Eligible
participants were selected for participation by a committee (the "Plan
Committee") which consisted of the Board or a committee appointed by the Board.
As of December 31, 1997, the DCP was terminated and no further compensation
deferrals were permitted under the DCP.
PROFIT SHARING AND 401(K) PLANS
To further encourage the ownership of common stock by all employees, the Company
maintains the PRISM Plan that offers both profit sharing and 401(k) features.
For the year ended December 26, 1999, profit sharing contributions were made in
cash. There were no profit sharing contributions made during the fiscal year
ended December 27, 1998. Profit sharing contributions made during the fiscal
year ended December 28, 1997 consisted of 110,520 shares of common stock. For
the years ended December 26, 1999 and December 27, 1998, the Company's 401(k)
contributions consisted of 9,848 and 35,292 shares of common stock,
respectively, and cash. The Company's 401(k) contributions consisted of 28,915
shares of common stock and cash for the year ended December 28, 1997.
NOTE 9: RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Accounts receivable - trade $ 68,011 $ 71,079
Current portion of advances to subsidiary 11,059 -
Other receivables 20,705 16,777
----------------- -----------------
99,775 87,856
Less: Allowance for doubtful accounts (13,799) (8,700)
----------------- -----------------
Net receivables $ 85,976 $ 79,156
================= =================
</TABLE>
Page 52
<PAGE>
NOTE 10: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
LIFO:
Raw materials - pulp $ 83 $ 232
Finished goods 25,235 31,417
FIFO:
Raw materials - other 7,995 7,346
Materials and supplies 21,890 20,924
----------------- -----------------
55,203 59,919
Reserve for excess and obsolete
Items (6,459) (6,637)
----------------- -----------------
Net Inventories $ 48,744 $ 53,282
================= =================
</TABLE>
NOTE 11: PROPERTY AND EQUIPMENT
Property and equipment, at cost, are as follows:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Land $ 3,443 $ 3,715
Buildings and improvements 39,038 40,150
Machinery and equipment 248,927 227,433
----------------- -----------------
291,409 271,298
Less: Allowance for depreciation (177,772) (165,098)
----------------- -----------------
Net property and equipment $ 113,637 $ 106,200
================= =================
</TABLE>
NOTE 12: ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement, vacation and severance pay $ 8,369 $ 16,977
Coupons and promotions 8,214 5,994
Royalties 8,225 718
Other 9,451 9,957
----------------- -----------------
Total $ 34,259 $ 33,646
================= =================
</TABLE>
NOTE 13: BANK CREDIT FACILITIES
On January 30, 1998, the Bankruptcy Court entered a final order (the "Final
Order") approving the Credit Agreement (the "DIP Credit Facility") as provided
under the Revolving Credit and Guaranty Agreement dated as of January 7, 1998,
among the Company, as borrower, certain subsidiaries of the Company as
guarantors, and The Chase Manhattan Bank, as agent ("Chase"). Pursuant to the
terms of the DIP Credit Facility, as amended and restated as of June 14, 1999,
Chase and a syndicate of banks made available to the Company a revolving credit
Page 53
<PAGE>
and letter of credit facility in an aggregate principal amount of $75,000. The
Company's maximum borrowing under the DIP Credit Facility could not exceed the
lesser of $75,000 or an available amount as determined by a borrowing base
formula. The borrowing base formula is comprised of certain specified
percentages of eligible accounts receivable, eligible inventory, equipment and
personal and real property of the Company. The DIP Credit Facility had a
sublimit of $10,000 for the issuance of letters of credit. The DIP Credit
Facility expired on January 28, 2000 in accordance with its terms and was
replaced with the Credit Facility defined herein.
At December 26,1999, there were no outstanding direct borrowings under the DIP
Credit Facility. The Company had an aggregate of $2,000 in letters of credit
issued under the DIP Credit Facility at December 26, 1999.
On January 28, 2000 the Company and certain subsidiaries of the Company as
guarantors entered into a three-year $95,000 financing facility (the "Credit
Facility") with a bank group led by Citicorp USA, Inc. as Agent. The maximum
borrowing under the Credit Facility may not exceed the lesser of $95,000 or an
amount determined by a borrowing base formula. The borrowing base formula is
comprised of certain specified percentages of eligible accounts receivable,
eligible inventory, equipment and personal property and real property of the
Company. The Credit Facility has a sub-limit of $15,000 for the issuance of
letters of credit.
Borrowings under the Credit Facility are secured by a security interest in,
pledge and lien on substantially all of the Company's North American assets and
properties and the proceeds thereof. Borrowings under the Credit Facility are
guaranteed by certain domestic subsidiaries and may be used to fund working
capital and other general corporate purposes including acquisitions and
investments in existing and new international joint ventures. The Credit
Facility contains customary restrictive covenants, including among other things,
a prohibition on dividends, limitations on the creation of additional liens and
indebtedness, limitations on capital expenditures, investments, loans and
advances, the sales of assets and transactions with affiliates. Financial
covenants include the maintenance of minimum earnings before interest, taxes,
depreciation and amortization, fixed charges, coverage ratio, tangible net worth
and a maximum leverage ratio.
The Credit Facility provides that borrowings will bear interest at a rate of
1.50 percent in excess of Citibank's base rate, or at the Company's option, a
rate of 2.50 percent in excess of the reserve adjusted eurodollar rate for
interest periods of one, two, three or six months. After March 31, 2001,
borrowing rates will be subject to a pricing grid based upon the Company's
leverage ratio and could decrease by a maximum of .5 percent and increase by a
maximum of .25 percent. The Company will pay a commitment fee of .5 percent per
annum on the unused portion of the Credit Facility, a letter of credit fee equal
to 2.75 percent per annum on the average outstanding letters of credit and
certain other fees.
On January 28, 2000, the Company borrowed approximately $15,000 to consummate
the Plan. As of March 7, 2000 the Company had approximately $12,000 of
borrowings and $2,000 in letters of credit outstanding under the Credit
Facility.
At December 28, 1997, the Company maintained a $150,000 revolving credit
facility with a group of nine financial institutions available through February
2001. At December 28, 1997, borrowings under this credit facility totaled
$70,000. Interest was at fixed or floating rates based on the financial
institution's cost of funds. Paragon Trade Brands (Canada) Inc. has guaranteed
obligations under this revolving credit facility. At December 28, 1997, the
Company had approximately $50,000 in uncommitted lines of credit. Borrowings
under these lines of credit totaled $12,800 at December 28, 1997. The Chapter 11
filing resulted in a default under the Company's prepetition revolving credit
facility and its borrowings under uncommitted lines of credit.
The terms of the revolving credit facility and the short-term lines of credit
above provided that a voluntary filing of a Chapter 11 petition would result in
an event of default on such indebtedness. Amounts outstanding under these
facilities are reflected as Liabilities Subject to Compromise in the
accompanying consolidated balance sheet as of December 26, 1999 and December 27,
1998. As a result of its Chapter 11 filing, the Company was prohibited from
paying any prepetition liabilities without Bankruptcy Court approval.
Accordingly, no interest expense was recorded with respect to prepetition debt
balances in the accompanying financial statements for the period subsequent to
January 6, 1998.
Page 54
<PAGE>
Paragon Trade Brands (Canada) Inc. entered into a new $3,000 Cdn operating
credit facility with a financial institution dated February 11, 1998. Borrowings
under the prior Canadian revolving credit facility were repaid in full with the
proceeds from borrowings under the new Canadian operating credit facility.
Borrowings under this Canadian operating credit facility were secured by
substantially all of Paragon Trade Brands (Canada) Inc.'s assets and bore
interest at a rate of 1 percent over the financial institution's prime rate. The
Company did not guaranty borrowings under the Canadian operating credit
facility. The maximum borrowings under the Canadian operating credit facility
were limited to the lesser of $3,000 Cdn or 75 percent of Paragon Trade Brands
(Canada) Inc.'s trade accounts receivable. This Canadian operating facility was
cancelled in September 1999.
NOTE 14: LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise under the Company's reorganization proceeding
include substantially all current and long-term unsecured debt as of the date of
the Chapter 11 filing. Pursuant to the Bankruptcy Code, payment of these
liabilities may not be made except pursuant to a plan of reorganization or
Bankruptcy Court order while the Company continues to operate as a
debtor-in-possession. The Company received approval from the Bankruptcy Court to
pay or otherwise honor certain of its prepetition obligations including a
portion of short-term borrowings, claims subject to reclamation and employee
wages, benefits and expenses.
Liabilities subject to compromise are comprised of the following:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
----------------- -------------------
<S> <C> <C>
Accrued settlement contingencies $ 278,500 $ 278,500
Bank debt 81,397 81,397
Accounts payable 39,510 39,752
Accrued liabilities 5,920 5,920
Deferred compensation 1,396 1,290
----------------- -------------------
$ 406,723 $ 406,859
================= ===================
</TABLE>
NOTE 15: RELATED PARTY TRANSACTIONS
The Company has entered into various agreements with its subsidiaries and
affiliates to sell certain diaper making equipment and purchase a portion of its
diaper needs. Prices for the various transactions are established through
negotiations between the related parties. The following is a summary of
significant transactions and balances with its subsidiaries and affiliates as of
or for the years ended December 26, 1999, December 27, 1998 and December 28,
1997:
PMI
Pursuant to the Joint Venture Agreement dated January 26, 1996 whereby the
Company acquired a 49 percent interest in PMI, the Company agreed to sell to PMI
certain diaper manufacturing equipment, finance the construction of a building
and purchase a portion of its diaper needs from PMI.
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sale of equipment $ - $ - $ 194
Purchase of diapers from PMI $ 72,724 $ 67,346 $ 40,823
Due from PMI $ 45,181 $ 43,381 $ 39,725
Due to PMI $ 12,047 $ 7,340 $ 5,313
</TABLE>
The amounts due from PMI are primarily for equipment purchased, the financing of
the building construction and working capital funding. They are evidenced by
interest-bearing promissory notes and corresponding Purchase Loan and Security
Agreements. The notes bore an interest rate of 10 percent until December 1,
1997. The notes
Page 55
<PAGE>
currently bear an interest rate of approximately 7 percent. The amounts due
under these agreements are reflected as either receivables or investments in and
advances to unconsolidated subsidiaries, at equity on the accompanying balance
sheets depending upon their maturities. Amounts due to PMI are carried as
accounts payable and liabilities subject to compromise on the accompanying
balance sheets.
MABESA
The Company has purchased certain diaper product needs from Mabesa and also sold
excess diaper making equipment to Mabesa.
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sale of equipment $ 517 $ - $ 4,843
Purchase of diapers from Mabesa $ 154 $ 1,733 $ 2,196
Due from Mabesa $ 10 $ 2,732 $ 3,623
Due to Mabesa $ 318 $ 312 $ 119
</TABLE>
The amounts due from Mabesa for equipment purchased are classified as
receivables on the balance sheets. The amounts due to Mabesa are classified as
accounts payable and liabilities subject to compromise on the accompanying
balance sheets.
MPC
The Company has sold certain diaper making equipment to MPC.
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sale of equipment and technology
transfer $ - $ - $ 2,400
Due from MPC $ 287 $ 287 $ 2,000
</TABLE>
The amounts due from MPC are classified as receivables on the accompanying
balance sheets.
GOODBABY
The Company has sold certain diaper making equipment to Goodbaby.
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sale of equipment $ - $ - $ 2,415
Due from Goodbaby $ 722 $ 1,182 $ 2,710
</TABLE>
The amounts due from Goodbaby are classified as receivables on the accompanying
balance sheets.
At December 26, 1999 and December 27, 1998, the Company had deferred gains on
the sales of equipment of $3,647 and $3,927, respectively. These gains are
amortized to income over the depreciable life of the equipment.
NOTE 16: LEGAL PROCEEDINGS
THE PROCTER & GAMBLE COMPANY V. PARAGON TRADE BRANDS, INC. - P&G filed a lawsuit
in January 1994 in the Delaware District Court alleging that the Company's
"Ultra" infant disposable diaper products infringed two of P&G's dual cuff
diaper patents. The lawsuit sought injunctive relief, lost profit and royalty
damages, treble
Page 56
<PAGE>
damages and attorneys' fees and costs. The Company denied liability under the
patents and counterclaimed for patent infringement and violation of antitrust
laws by P&G. In March 1996, the Delaware District Court granted P&G's motion for
summary judgment to dismiss the Company's antitrust counterclaim. The trial was
completed in February 1997, the parties submitted post-trial briefs and closing
arguments were conducted on October 22, 1997. Legal fees and costs for this
litigation were significant.
On December 30, 1997, the Delaware District Court issued a Judgment and Opinion
finding that P&G's dual cuff patents were valid and infringed, while at the same
time finding the Company's patent to be invalid, unenforceable and not infringed
by P&G's products. Judgment was entered on January 6, 1998. Damages of
approximately $178,400 were entered against Paragon by the Delaware District
Court on June 2, 1998. At the same time, the Delaware District Court entered
injunctive relief agreed upon by P&G and the Company. On August 4, 1998, the
Company filed with the Federal Circuit Court of Appeals its amended notice of
appeal. The appeal was fully briefed, and oral argument was scheduled for
February 5, 1999.
The Judgment had a material adverse effect on the Company's financial position
and its results of operations. As a result of the District Court's Judgment, the
Company filed for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
Section 101 et seq., in the United States Bankruptcy Court for the Northern
District of Georgia (Case No. 98-60390) on January 6, 1998.
P&G filed alleged claims in the Company's Chapter 11 reorganization proceeding
ranging from approximately $2,300,000 (without trebling) to $6,500,000 (with
trebling), which included a claim of $178,400 for the Delaware Judgment.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to find the Company
in contempt of the Delaware Judgment and P&G's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The P&G Approval Order was
issued on August 6, 1999. As a part of the P&G settlement, Paragon granted P&G
an allowed unsecured prepetition claim of $158,500 and an allowed administrative
claim of $5,000. As a part of the settlement, the Company entered into License
Agreements for the U.S. and Canada, which are exhibits to the Settlement
Agreement, with respect to certain of the patents asserted by P&G in its proof
of claim, including those asserted in the Delaware action. The U.S. and Canadian
patent rights licensed by the Company permitted the Company to convert to a dual
cuff baby diaper design. The product conversion is complete. In exchange for
these rights, the Company pays P&G running royalties on net sales of the
licensed products equal to 2 percent through October 2005, .75 percent
thereafter through October 2006 and .375 percent thereafter through March 2007
in the U.S.; and 2 percent through October 2008 and 1.25 percent thereafter
through December 2009 in Canada. The Settlement Agreement also provides, among
other things, that P&G will grant the Company and/or its affiliates "most
favored licensee" status with respect to patents owned by P&G on the date of the
Settlement Agreement or for which an application was pending on that date. In
addition, the Company has agreed with P&G that prior to litigating any future
patent dispute, the parties will engage in good faith negotiations and will
consider arbitrating the dispute before resorting to litigation. The Equity
Committee appealed the P&G Approval Order.
The Company believes that the royalty rates being charged by P&G, together with
royalties to be paid to K-C described herein, have had, and will continue to
have, a material adverse impact on the Company's future financial condition and
results of operations.
Under the terms of the P&G Settlement Agreement, the Company has withdrawn with
prejudice its appeal of the Delaware Judgment to the Federal Circuit, and P&G
has withdrawn with prejudice its motion in Delaware District Court to find the
Company in contempt of the Delaware Judgment. In addition, pursuant to the terms
of the Plan, the Equity Committee has withdrawn with prejudice its appeal of the
P&G Approval Order.
KIMBERLY-CLARK CORPORATION V. PARAGON TRADE BRANDS, INC. - On October 26, 1995,
K-C filed a lawsuit against the Company in the U.S. District Court in Dallas,
Texas, alleging infringement by the Company's products of two K-C patents
relating to dual cuffs. The lawsuit sought injunctive relief, royalty damages,
treble damages and attorneys' fees and costs. The Company denied liability under
the patents and counterclaimed for patent infringement and
Page 57
<PAGE>
violation of antitrust laws by K-C. Several pre-trial motions were filed by each
party, including a motion for summary judgment filed by K-C with respect to the
Company's antitrust counterclaim and a motion for summary judgment filed by the
Company on one of the patents asserted by K-C. In addition, K-C subsequently
sued the Company on another patent issued to K-C which is based upon a further
continuation of one of the K-C dual cuff patents asserted in the case. That
action was consolidated with the then-pending action. Legal fees and costs in
connection with this litigation were significant.
As a result of the Company's Chapter 11 filing, the proceedings in the K-C
litigation were stayed. The Bankruptcy Court issued an order on April 10, 1998
permitting, among other things, a partial lifting of the stay to allow the
issuance of the special master's report on the items under his consideration.
K-C filed with the Bankruptcy Court a motion for reconsideration of the
Bankruptcy Court's April 10, 1998 order, which was denied on June 15, 1998. K-C
has appealed this denial of reconsideration to the District Court for the
Northern District of Georgia. The Company objected to K-C's appeal and sought to
have it dismissed. K-C also filed a motion with the District Court in Atlanta to
withdraw the reference (the "Withdrawal Motion") with respect to all matters
pertaining to its proof of claim from the jurisdiction of the Bankruptcy Court.
By order executed February 18, 1999, the appeal, the Withdrawal Motion and the
Company's motion to dismiss the appeal were dismissed by the District Court
without prejudice to the right of either party within sixty days to re-open the
actions if a settlement was not consummated.
The Company has previously disclosed that had K-C prevailed on its claims, an
award of all or a substantial portion of the relief requested by K-C could have
had a material adverse effect on the Company's financial condition and its
results of operations.
K-C filed alleged claims in the Company's Chapter 11 reorganization proceeding
ranging from approximately $893,000 (without trebling) to $2,300,000 (with
trebling).
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Approval Order was
issued by the Bankruptcy Court on August 6, 1999. Under the terms of the K-C
Settlement Agreement, the Company granted K-C an allowed unsecured prepetition
claim of $110,000 and an allowed administrative claim of $5,000. As a part of
the settlement, the Company entered into License Agreements for the U.S. and
Canada, which are exhibits to the Settlement Agreement, with respect to the
patents asserted by K-C in the Texas action. The patent rights licensed by the
Company from K-C permitted the Company to convert to a dual cuff diaper design.
The product conversion is complete. In exchange for these patent rights, the
Company pays K-C annual running royalties on net sales of the licensed products
in the U.S. and Canada equal to: 2.5 percent of the first $200,000of net sales
of the covered diaper products and 1.5 percent of such net sales in excess of
$200,000 in each calendar year commencing January 1999 through November 2004.
The Company has agreed to pay a minimum annual royalty for diaper sales of
$5,000, but amounts due on the running royalties will be offset against this
minimum. The Company also pays K-C running royalties of 5 percent of net sales
of covered training pant products for the same period, but there is no minimum
royalty for training pants. As part of the settlement, the Company has granted a
royalty-free license to K-C for three patents which the Company in the Texas
action claimed K-C infringed.
The Company believes that the overall effective royalty rate that the Company
will pay to K-C, together with royalties to be paid to P&G described above, has
had, and will continue to have, a material adverse impact on the Company's
future financial condition and results of operations.
As a part of the K-C License Agreement, K-C has agreed not to sue the Company on
two of K-C's patents related to the use of superabsorbent polymer ("SAP") in
diapers and training pants, so long as the Company uses SAP which exhibits
certain performance characteristics (the "SAP Safe Harbor"). The Company
experienced certain product performance issues the Company believes may have
been related to the SAP the Company initially converted to in December of 1998.
In February 1999, the Company converted to a new SAP. The Company is
encountering increased product costs due to the increased price and usage of the
new SAP. While the Company is working diligently with its SAP suppliers to
develop a more cost-effective alternative which is still within the SAP Safe
Harbor, the Company cannot predict at this time whether or when the added costs
will be fully offset. The
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<PAGE>
Company expects that these increased product costs will have a material adverse
impact on its financial condition and results of operations for at least 2000
and potentially beyond.
On October 29, 1999, in accordance with the terms of the K-C Settlement
Agreement, K-C dismissed with prejudice its complaint in the Texas action and
the Company dismissed with prejudice its counterclaims in the Texas action. On
November 4, 1999, K-C filed a stipulation dismissing with prejudice its related
filings in the Georgia District Court. On November 2, 1999, the parties
exchanged mutual releases pursuant to the Settlement Agreement. In addition, as
contemplated under the Plan, the Equity Committee has withdrawn with prejudice
its appeal of the K-C Approval Order.
IN RE PARAGON TRADE BRANDS, INC. -- As described above, on December 30, 1997,
the Delaware District Court issued a Judgment and Opinion in the Company's
lawsuit with P&G finding that two of P&G's diaper patents were valid and
infringed by the Company's "Ultra" disposable baby diapers, while also rejecting
the Company's patent infringement claim against P&G. Judgment was entered on
January 6, 1998. While a final damages number was not entered by the Delaware
District Court until June 2, 1998, the Company originally estimated the
liability and associated litigation costs to be approximately $200,000. The
amount of the award resulted in violation of certain covenants under the
Company's bank loan agreements. As a result, the issuance of the Judgment and
the uncertainty it created caused an immediate and critical liquidity issue for
the Company which necessitated the Chapter 11 filing.
Subsequently, damages of approximately $178,400 were entered against Paragon by
the Delaware District Court on June 2, 1998. At the same time, the Delaware
District Court entered injunctive relief agreed upon by P&G and the Company.
The Chapter 11 filing prevented P&G from placing liens on the Company's assets,
permitted the Company to appeal the Delaware District Court's decision in an
orderly fashion and afforded the Company the opportunity to resolve liquidated
and unliquidated claims against the Company which arose prior to the Chapter 11
filing.
On February 2, 1999, the Company entered into a Settlement Agreement with P&G
which fully and finally settled all matters related to the Delaware Judgment,
the Company's appeal of the Delaware Judgment, P&G's motion to find the Company
in contempt of the Delaware Judgment and P&G's proof of claim filed in the
Company's Chapter 11 reorganization proceeding.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding.
On July 12, 1999, the Bankruptcy Court issued the Bidding Procedures Order. The
Bidding Procedures Order provided for the consideration of competing investment
proposals from qualified bidders in addition to Wellspring and for the filing by
the Company of a stand-alone plan of reorganization. The Bidding Procedures
Order provided for the consideration of competing investment proposals from
other qualified bidders and for the filing by the Company of a stand-alone plan
of reorganization. The Equity Committee filed a motion for amended findings with
respect to the Bankruptcy Court's July 12, 1999 order. The Bankruptcy Court
denied the Equity Committee's motion. The Equity Committee appealed the Bidding
Procedures Order.
On August 25, 1999, with the support of the Creditors' Committee, the Company
filed the Initial Plan with the Bankruptcy Court. The Initial Plan provided a
stand-alone plan alternative to the Wellspring Transaction. In accordance with
the Bankruptcy Court-approved auction procedures, an auction commenced on
September 21, 1999. The auction continued thereafter until the Company, after
consultation with the Creditors' Committee, the Equity Committee, P&G and K-C,
determined to conclude the auction on October 4, 1999. At the conclusion of the
auction, the Company, after consultation with the Creditors' Committee, the
Equity Committee, P&G and K-C, determined that Wellspring had submitted the best
bid. On October 15, 1999, the Company and the Creditors' Committee, as
co-proponents, jointly filed the Amended Plan which incorporated the Wellspring
Transaction, as modified by the Company after consultation with its various
creditor constituencies. The Amended Plan also
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<PAGE>
provided that, in the event the proposed Wellspring transaction was not
consummated, the proponents could have pursued confirmation of a stand-alone
plan of reorganization.
On or about November 15, 1999, the Company and the Creditors' Committee, as
co-proponents, filed the Plan and Disclosure Statement with the Bankruptcy
Court. The Plan incorporated the Wellspring Transaction. By order dated November
18, 1999, the Bankruptcy Court approved the Disclosure Statement. At such time,
the Bankruptcy Court also approved certain voting procedures and established
January 7, 2000 as the voting deadline for the Plan and January 13, 2000 as the
date for a hearing to consider confirmation of the Plan. A confirmation hearing
was held by the Bankruptcy Court on January 13, 2000. By Order dated January 13,
2000, the Bankruptcy Court confirmed the Plan.
On January 28, 2000, Paragon was reorganized pursuant to the Plan through the
consummation of the Wellspring Transaction. As contemplated under the Plan, the
Equity Committee has withdrawn with prejudice its appeals of the P&G Approval
Order, the K-C Approval Order and the Bidding Procedures Order.
TRACY PATENT - The Company previously received notice from a Ms. Rhonda Tracy
that Ms. Tracy believed the Company's diapers infringe a patent issued in August
1998 to Ms. Tracy (U.S. Patent No. 5,797,824). The Company responded, based upon
advice of its independent patent counsel, that it believes its products do not
infringe any valid claim of Ms. Tracy's patent. On April 29, 1999, the Company
received notice that Ms. Tracy had filed suit in the United States District
Court for the Northern District of Illinois against K-C, Tyco International,
Ltd., Drypers Corporation and a number of the Company's customers, alleging
infringement of her patent. The Company was not named as a defendant in this
suit. Rather, Ms. Tracy indicated in her April 29, 1999 letter that the Company
would be sued upon completion of the current suit.
The Company and Ms. Tracy entered into a Settlement Agreement, which was
approved by the Bankruptcy Court on December 8, 1999, pursuant to which the
Company paid Ms. Tracy $500 in exchange for a release from liability from any
claims under Ms. Tracy's patent for the Company, its Affiliates, as defined
therein, and retailers who sell products manufactured by the Company and its
Affiliates. Under the terms of the Settlement Agreement, Ms. Tracy also granted
a nonexclusive, fully paid-up, irrevocable, worldwide license to permit the
Company and its Affiliates to make, have made, lease, use, import, offer to
sell, and sell disposable absorbent products under the terms of Ms. Tracy's
patent. This license also extends to retailers to the extent they are selling
products manufactured by the Company and its Affiliates.
KIMBERLY-CLARK WORLDWIDE, INC. V. PARAGON TRADE BRANDS, INC. - On March 20,
2000, Kimberly-Clark Worldwide, Inc. ("K-C") filed suit in the U.S. District
Court in Delaware against the Company for allegedly infringing a certain K-C
patent related to a method and apparatus for attaching a graphic patch to a
disposable absorbent garment. The suit seeks injunctive relief, unspecified
treble damages, interest and attorneys' fees and expenses. The Company is
currently evaluating the suit.
OTHER -- The Company is also a party to other legal activities generally
incidental to its activities. Although the final outcome of any legal proceeding
or dispute is subject to a great many variables and cannot be predicted with any
degree of certainty, the Company presently believes that any ultimate liability
resulting from any or all legal proceedings or disputes to which it is a party
will not have a material adverse effect on its financial condition or results of
operations.
NOTE 17: COMMITMENTS
Paragon has operating lease agreements for certain facilities that expire during
the years 2000 through 2005. Future minimum lease payments required under these
non-cancelable operating leases are: $265 in 2000, $79 in 2001, $19 in 2002, $8
in 2003 and $21 in 2004 and thereafter. Rental expense for facilities and
equipment was $2,607, $2,676 and $3,015 for the years ended December 26, 1999,
December 27, 1998 and December 28, 1997, respectively.
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<PAGE>
Commitments for capital expenditures as of December 26, 1999 are $552. Other
Company commitments include purchase commitments for raw materials at prevailing
market rates. In April 1998, the Company entered into an agreement with Clariant
International Ltd. (subsequently purchased by BASF Corporation) whereby it
agreed, subject to certain limitations, to purchase 100 percent of its
requirements of SAP through December 31, 2001.
NOTE 18: NET LOSS PER COMMON SHARE
Following is a reconciliation of the numerators and denominators of the basic
and diluted loss per common share:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------------
December 26, 1999 December 27, 1998 December 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss $ (28,376) $ (65,383) $ (212,717)
============= ============= =============
Weighted average number of common shares
used in basic EPS (000's) 11,950 11,937 11,913
Effect of dilutive securities:
Stock options (000's) - - -
----------------- ----------------- -----------------
Weighted average number of common
shares and potentially dilutive
common shares in diluted EPS (000's) 11,950 11,937 11,913
============= ============= =============
Basic loss per common share $ (2.37) $ (5.48) $ (17.86)
Diluted loss per common share $ (2.37) $ (5.48) $ (17.86)
</TABLE>
Options to purchase 646,667, 699,491 and 313,612 shares of common stock
outstanding during the years ended December 26, 1999, December 27, 1998 and
December 28, 1997, respectively, were not included in the calculation because
the options' exercise price was greater than the average market price of the
common shares.
Diluted and basic earnings per share are the same for the years ended December
26, 1999, December 27, 1998 and December 28, 1997 because the computation of
diluted earnings per share was anti-dilutive.
NOTE 19: SEGMENT REPORTING
The Company operates principally in two segments that are organized based on the
nature of the products sold: (i) infant care and (ii) feminine care and adult
incontinence. Each operating segment contains closely related products that are
unique to that particular segment. The results of Changing Paradigms, Inc.,
which was disposed of in October 1998, and the Company's international
investment in joint ventures in Mexico, Argentina, Brazil and China are reported
in the corporate and other segment. Identifiable assets included in the
corporate and other segment include deferred tax assets, international
investments in joint ventures and cash and other financial instruments managed
by the corporate treasury department. Inter-segment net sales are not
significant. Segment accounting policies are the same as those described in Note
2.
Management evaluates the performance of its operating segments separately to
individually monitor the different factors impacting financial performance.
Segment operating profit is comprised of net sales less cost of sales and
selling, general and administrative expense. Loss contingencies and asset
impairments are recorded in the appropriate operating segment.
Certain administrative expenses common to all operating segments are currently
allocated to the infant care operating segment. International investments,
financial costs, such as interest income and expense, and income taxes are
managed by, and recorded in, the corporate and other operating segment.
Corporate and other capital expenditures include substantially all of the
Company's spending for Year 2000 and information technology. Related
depreciation and amortization is allocated to each operating segment.
Page 61
<PAGE>
<TABLE>
<CAPTION>
Feminine
Care/Adult Corporate/
1999 Infant Care Incontinence Other Total
- ---- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 486,086 $ 12,570 $ - $ 498,656
Operating loss (11,532) (13,988) - (25,520)
Equity in earnings of unconsolidated subsidiaries - - 2,339 2,339
Dividend income from unconsolidated subsidiary - - 992 992
Interest expense - - 482 482
Other income - - 2,483 2,483
Earnings (loss) before income taxes and bankruptcy costs (11,532) (13,988) 5,332 (20,188)
Identifiable assets 227,808 41,712 51,856 321,376
Investments in unconsolidated subsidiaries - - 79,144 79,144
Capital expenditures 20,292 641 6,748 27,681
Depreciation and amortization 33,042 4,118 - 37,160
</TABLE>
<TABLE>
<CAPTION>
Feminine
Care/Adult Corporate/
1998 Infant Care Incontinence Other Total
- ---- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 512,759 $ 6,608 $ 15,840 $ 535,207
Operating profit (loss) (42,209)(1) (16,916)(2) 1,149 (57,976)
Equity in earnings of unconsolidated subsidiaries - - 4,077 4,077
Dividend income from unconsolidated subsidiary - - 922 922
Interest expense - - 450 450
Other income - - 2,437 2,437
Earnings (loss)before income taxes and bankruptcy costs (42,209) (16,916) 8,135 (50,990)
Identifiable assets 245,772 39,614 55,117 340,503
Investments in unconsolidated subsidiaries - - 88,784 88,784
Capital expenditures 23,542 1,256 11,655 36,453
Depreciation and amortization 29,536 4,742 181 34,459
</TABLE>
<TABLE>
<CAPTION>
Feminine
Care/Adult Corporate/
1997 Infant Care Incontinence Other Total
- ---- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 545,225 $ 4,264 $ 12,486 $ 561,975
Operating loss (154,989)(3) (23,721)(4) (5,078)(5) (183,788)
Equity in earnings of unconsolidated subsidiaries - - 953 953
Interest expense - - 4,667 4,667
Other income - - 1,664 1,664
Earnings (loss) before income taxes (154,989) (23,721) (6,073) (184,783)
Identifiable assets 234,707 45,540 22,087 302,334
Investments in unconsolidated subsidiaries - - 73,808 73,808
Capital expenditures 31,607 12,415 11,013 55,035
Depreciation and amortization 33,127 2,294 93 35,514
- ------------------
<FN>
(1) Includes $78,500 accrued settlement contingency for estimated settlement costs.
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<PAGE>
(2) Includes asset impairment of $3,408 related to tampon-related machinery.
(3) Includes $200,000 accrued settlement contingency for P&G patent litigation.
(4) Includes asset impairment of $4,442 related to tampon-related machinery.
(5) Includes $5,000 write-off of software and associated consulting.
</FN>
</TABLE>
The following table presents net sales by country based on the country of
origin, including exports from such countries:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
United States $ 473,091 $ 497,919 $ 521,487
Canada 25,565 37,288 40,488
---------- ---------- -----------
Consolidated $498,656 $535,207 $561,975
========== ========== ===========
</TABLE>
The following table presents net property, plant and equipment, including assets
held for sale, based on location of the asset:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
United States $ 112,336 $ 106,705 $ 123,313
Canada 4,613 4,186 6,143
---------- ---------- -----------
Consolidated $116,949 $110,891 $129,456
========== ========== ===========
</TABLE>
NOTE 20: SUBSEQUENT EVENTS
REORGANIZATION. On January 28, 2000, the Company emerged from Chapter 11 as
contemplated under the Plan. All pre-petition obligations were discharged.
Pursuant to the Plan, Wellspring purchased 11,516,405 shares or approximately 97
percent of the common stock of the reorganized Company for a cash contribution
of $115,200.. Under the Plan, general unsecured creditors of the Company were
entitled to a pro-rata distribution of $115,400 cash and $146,000 of 11.25
percent senior subordinated notes. A total of 178,365 shares and 625,821
warrants to purchase additional shares of the Company's new common stock will be
distributed to holders of old common stock under the Plan. Common stockholders
of record as of January 13, 2000 will receive .0149 shares of the Company's
newly issued common stock for each share of the Company's old common stock and
.0524 warrants. The warrants are transferable, have an exercise price of $18.91
per share and expire on January 28, 2010. General unsecured creditors and
stockholders of record as of January 13, 2000 are entitled to receive their
pro-rata share of the proceeds, if any, of certain litigation claims that remain
with the estate and which will be prosecuted on their behalf by the litigation
claims representative appointed under the Plan.
CREDIT FACILITY: On January 28, 2000 the Company and certain subsidiaries of the
Company, as guarantors, entered into a Credit Facility with Citicorp USA, Inc.
as agent ("Citicorp") and a syndicate of banks for a revolving credit and letter
of credit facility for up to $95,000. The maximum borrowing under the Credit
Facility may not exceed the lesser of $95,000 or an amount determined by a
borrowing base formula. The borrowing base formula is comprised of certain
specified percentages of eligible accounts receivable, eligible inventory,
equipment and personal property and real property of the Company. The Credit
Facility has a sub-limit of $15,000 for the issuance of letters of credit.
Borrowings under the Credit Facility are secured by a security interest in,
pledge and lien on substantially all of the Company's North American assets and
properties and the proceeds thereof. Borrowings under the Credit Facility are
guaranteed by certain domestic subsidiaries and may be used to fund working
capital and other general corporate purposes including acquisitions and
investments in existing and new international joint ventures. The
Page 63
<PAGE>
Credit Facility contains restrictive covenants, including among other things, a
prohibition on dividends, limitations on the creation of additional liens and
indebtedness, limitations on capital expenditures, investments, loans and
advances, the sales of assets and transactions with affiliates. Financial
covenants include the maintenance of minimum earnings before interest, taxes,
depreciation and amortization, fixed charges, coverage ratio, tangible net worth
and a maximum leverage ratio.
The Credit Facility provides that borrowings will bear interest at a rate of
1.50 percent in excess of Citibank's base rate, or at the Company's option, a
rate of 2.50 percent in excess of the reserve adjusted eurodollar rate for
interest periods of one, two, three or six months. After March 31, 2001,
borrowing rates will be subject to a pricing grid based upon the Company's
leverage ratio and could decrease by a maximum of .5 percent and increase by a
maximum of .25 percent. The Company will pay a commitment fee of .5 percent per
annum on the unused portion of the Credit Facility, a letter of credit fee equal
to 2.75 percent per annum on the average outstanding letters of credit and
certain other fees.
On January 28, 2000, the Company borrowed approximately $15,000 to consummate
the Plan.
SENIOR SUBORDINATED NOTES. On January 28, 2000, the Company issued the New
Notes. The New Notes are guaranteed by certain domestic subsidiaries and are not
callable until February 1, 2003. Interest is payable semi-annually and during
the first two years can be paid in kind if free cash flow as defined in the
Indenture falls below projected levels. The New Notes are subordinated in right
of payment to the payment of all senior indebtedness. The New Notes contain
customary restrictive covenants, including among other things, limitations on
dividends and restricted payments, the incurrence of additional indebtedness,
liens, investments, loans and advances, the sales of assets and transactions
with affiliates.
FRESH START ACCOUNTING: The Company will record the reorganization and related
transactions using "fresh start" accounting as required by Statement of Position
90-7 ("SOP 90-7") issued by the American Institute of Certified Public
Accountants. In accordance with SOP 90-7, the reorganization value will be
allocated to specific tangible and identifiable assets and liabilities. The
following Selected Consolidated Pro Forma Financial Data (Unaudited) reflect the
Plan and fresh start accounting as if the Plan was consummated on December 26,
1999.
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Adjustments Pro-Forma
Pre-Fresh Start To Record Fresh Start
Balance Sheet Plan Of Fresh Start Balance Sheet
December 26, 1999 Confirmation Adjustments December 26, 1999
----------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Current assets $ 155,707 $ (17,656)(1)(3) $ - $ 138,051
Long-term assets 213,913 1,222 (2) 7,564 222,699
Goodwill 30,900 - (30,900) -
----------------- --------------- -------------- ---------------
Total assets $ 400,520 $ (16,434) $ (23,336) $ 360,750
================= =============== ============== ===============
Current liabilities $ 76,499 $ (5,048)(1)(3) $ (3,508) $ 67,943
Liabilities subject to compromise 406,723 (406,723)(1)(4) - -
Long-term debt - 164,507 (5) - 164,507
Other long-term liabilities 7,115 - - 7,115
----------------- --------------- -------------- ---------------
Total liabilities 490,337 (247,264) (3,508) 239,565
Shareholders equity (deficit) (89,817) 230,830 (6) (19,828) 121,185
----------------- --------------- -------------- ---------------
Total liabilities and shareholder's
equity (deficit) $ 400,520 $ (16,434) $ (23,336) $ 360,750
================= =============== ============== ===============
Page 64
<PAGE>
- ------------------
<FN>
(1) To record reduction of cost to pay certain liabilities subject to
compromise and reduction of certain receivables that were offset against
liabilities subject to compromise.
(2) To record deferred financing costs of the Credit Facility.
(3) To record payment of certain accrued professional fees related to the
bankruptcy.
(4) To record the extinguishment of liabilities subject to compromise per
the Plan.
(5) To record the issuance of the New Notes and borrowings under the Credit
Facility.
(6) To record the issuance of 11,891,000 shares of common stock at $10
per share, issuance of 625,821 warrants, gain from extinguishment of debt and
certain fees arising from confirmation of the Plan.
</FN>
</TABLE>
NOTE 21: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 26, 1999
First Second Third Fourth
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 126,244 $ 117,848 $ 128,507 $ 126,057
Gross profit 16,707 14,468 18,307 13,563
Net loss (7,219) (8,385) (5,235) (7,537)
Basic and diluted loss per common share $ (.60) $ (.70) $ (.44) $ (.63)
Price Range of the Company's common stock:
High $ 6.19 $ 3.50 $ 1.13 $ .54
Low $ 2.06 $ 1.00 $ .17 $ .16
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 27, 1998
First Second Third Fourth
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 138,297 $ 126,991 $ 136,993 $ 132,926
Gross profit 27,498 24,647 27,912 26,578
Net earnings (loss) 6,006 3,369 4,024 (78,782)
Basic and diluted earnings (loss) per common
share $ .50 $ .28 $ .34 $ (6.59)
Price Range of the Company's common stock:
High $ 20.25 $ 6.81 $ 4.63 $ 3.63
Low $ 4.19 $ 2.63 $ 2.63 $ 1.75
</TABLE>
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<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 26, 1999
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged Deductions Balance at
Beginning to From End of
Description of Period Earnings Reserve Period
- ---------------------------------------------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reserve deducted from related assets:
Doubtful accounts - accounts receivable
1999....................................... $ 8,700 $ 5,031 $ 68 $ 13,799
========== ========== ============ ===========
1998....................................... $ 6,535 $ 3,787 $ (1,622) $ 8,700
========== ========== ============ ===========
1997....................................... $ 7,637 $ (587) $ (515) $ 6,535
========== ========== ============ ===========
Excess and obsolete items - inventories
1999....................................... $ 6,637 $ 11,098 $ (11,276) $ 6,459
========== ========== ============ ===========
1998....................................... $ 7,397 $ 3,000 $ (3,760) $ 6,637
========== ========== ============ ===========
1997....................................... $ 7,803 $ 6,140 $ (6,546) $ 7,397
========== ========== ============ ===========
</TABLE>
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<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth certain information regarding the Company's Board
of Directors:
<TABLE>
<CAPTION>
Name Age Principal Occupation
------------------------ ------ -----------------------------------------------------------------------------
<S> <C> <C>
Bobby V. Abraham 58 Chief Executive Officer, Paragon Trade Brands, Inc.
David W. Cole 52 President, Torbitt & Castleman Company, Inc.
Greg S. Feldman 43 Managing Partner, Wellspring Capital Management LLC
David C. Mariano 37 Partner, Wellspring Capital Management LLC
James R. McManus 66 Chief Executive Officer, Beachside Capital Partners, L.L.C.
Thomas F. Ryan, Jr. 58 Private Investor
J. Dale Sherratt 61 Managing General Partner, Wellfleet Investments
Carl M. Stanton 31 Principal, Wellspring Capital Management LLC
Thomas J. Volpe 64 Senior Vice President, Financial Operations,
The Interpublic Group of Companies
</TABLE>
BOBBY V. ABRAHAM has been a director and the Chief Executive Officer of the
Company since its initial public offering in February 1993, served as Chairman
of the Company's Board of Directors from August 1993 to January 2000, and was
appointed to the Executive Committee of the Board of Directors in February 2000.
DAVID W. COLE was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Cole currently serves as President
of Torbitt & Castleman Company, Inc., a consumer food products manufacturer and
supplier. Mr. Cole formerly served as the Company's President from 1993 to 1999.
GREG S. FELDMAN was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Feldman is the Managing Partner of
Wellspring Capital Management LLC, a private equity fund management company and
has been affiliated with Wellspring since January 1995. Mr. Feldman also serves
as a director of The Hockey Company, a sporting goods manufacturer, Lionel LLC,
a manufacturer and marketer of model trains and accessories and Far and Wide
Travel Corporation, a leading tour operator.
DAVID C. MARIANO was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Mariano was appointed to the
Executive and Compensation and Governance Committees of the Board of Directors
in February 2000 and serves as Chair of the Compensation and Governance
Committee. Mr. Mariano is a Partner in Wellspring Capital Management LLC, a
private equity fund management company and is also a director of Far and Wide
Travel Corporation. Prior to joining Wellspring in November 1997, Mr. Mariano
was a Managing Director of The Blackstone Group LP, an investment banking firm.
JAMES R. MCMANUS was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. McManus is currently CEO of
Beachside Capital, LLC, a private investment company which he founded in
September 1997. Mr. McManus previously served as CEO of Marketing Corp. of
America from its founding in March 1971 to September 1999. Mr. McManus also
serves as a director of Family Time.Com, an internet content company, and is a
trustee of Northwestern University and Carnegie Hall, Inc.
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<PAGE>
THOMAS F. RYAN, JR. was appointed a director of the Company as of January 28,
2000 pursuant to the provisions of the Plan. Mr. Ryan was appointed to the Audit
Committee of the Board of Directors in February 2000. Mr. Ryan is currently a
private investor. Mr. Ryan formerly served as President of the American Stock
Exchange, a national securities exchange, from October 1995 to April 1999, and
as Chairman of Kidder, Peabody & Co., Inc., a securities trading and investment
firm, from January 1995 to October 1995.
J. DALE SHERRATT was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Sherratt was appointed to the
Executive Committee of the Board of Directors in February 2000. Mr. Sherratt has
been the Managing General Partner of Wellfleet Investments, a health care
investment company, since May 1992. Mr. Sherratt serves as a Trustee of Mass.
Financial Services, a mutual fund company.
CARL M. STANTON was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Stanton was appointed to the
Executive, Audit and Compensation and Governance Committees of the Board of
Directors in February 2000. Mr. Stanton will serve as Chair of the Audit
Committee. Mr. Stanton currently is a Principal in Wellspring Capital
Management, LLC, a private equity fund management company and has been
affiliated with Wellspring since1998. Prior to joining Wellspring, Mr. Stanton
was a Principal with Dimeling, Schreiber & Park, a private equity fund
management company from 1994 to December 1998
THOMAS J. VOLPE was appointed a director of the Company as of January 28, 2000
pursuant to the provisions of the Plan. Mr. Volpe was appointed to the Audit
Committee in February 2000. Mr. Volpe has served as the Senior Vice President -
Financial Operations for The Interpublic Group of Companies since March 1986.
Mr. Volpe also serves as a director of American Technical Ceramics, Inc, a
capacitor manufacturer, and Alliance Atlantic, Inc., a movie and television
production and distribution company.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
------------------------------ ------ -----------------------------------------------------------------------------
<S> <C> <C>
Bobby V. Abraham 58 Chief Executive Officer
Alan J. Cyron 47 Executive Vice President, Chief Financial Officer and Treasurer
Robert E. McClain 50 Executive Vice President - Sales and Marketing
Christine I. Oliver 42 Executive Vice President - Customer Management
John R. Cook 58 Vice President - Technical Support
Catherine O. Hasbrouck 35 Vice President, General Counsel and Secretary
Stanley Littman 59 Vice President - Technology and Materials
Jeffrey S. Schoen 39 Vice President - Manufacturing
Kathy L. Evenson 40 Director, Human Resources
</TABLE>
BOBBY V. ABRAHAM has been a director and the Chief Executive Officer of the
Company since its initial public offering in February 1993 and was the Chairman
of the Company's Board of Directors from August 1993 to January 2000.
ALAN J. CYRON has been the Executive Vice President, Chief Financial Officer and
Assistant Secretary of the Company since February 1997. Mr. Cyron was
reappointed Treasurer in December 1999. From April 1995 until February 1997, he
served as the Company's Vice President and as Treasurer from May through July
1995. Prior to joining the Company, Mr. Cyron served as Managing Director of
Chemical Securities, Inc., a subsidiary of Chemical Banking Corp., from January
1992 through March 1995.
Page 68
<PAGE>
ROBERT E. MCCLAIN was appointed Executive Vice President - Sales and Marketing
in January 1998. Prior to that time, Mr. McClain had served as the Company's
President of Sales from March 1997, and as Vice President - Business Development
from September 1996 to March 1997. Before joining the Company, Mr. McClain was
the Senior Vice President, Sales and Marketing for Nice Pak Products from 1992
to September 1996.
CHRISTINE I. OLIVER was appointed Executive Vice President - Customer Management
in June 1999. Ms. Oliver also currently serves as President of Paragon Trade
Brands (Canada) Inc., a wholly owned subsidiary of the Company and has served in
that position since October 1997. From February 1993 to October 1997, Ms. Oliver
served as Vice-President-Manufacturing for Paragon Trade Brands (Canada) Inc.
JOHN R. COOK has been Vice President - Technical Support of the Company since
1998. Prior to that time, Mr. Cook served as the Company's Vice President -
Quality Management from 1994 to 1998.
CATHERINE O. HASBROUCK has been Vice President, General Counsel and Secretary of
the Company since June 1996. Prior to joining the Company, Ms. Hasbrouck
practiced law as an associate with the law firm of Troutman Sanders LLP from
January 1992 to June 1996. Ms. Hasbrouck has resigned effective March 15, 2000.
STANLEY LITTMAN has been Vice President - Technology and Materials of the
Company since September 1998. Prior to that time, Mr. Littman served the Company
as Vice President - Supply Management (November 1997 to September 1998) and
Director, Supply Management (April 1996 through October 1997). Prior to joining
the Company, Mr. Littman was employed by Fiberweb, a nonwovens manufacturing
company, as Research Director, Medical Fabrics, from 1992 to 1996.
JEFFREY S. SCHOEN was appointed Vice President - Manufacturing of the Company in
March 1999. Prior to that time, Mr. Schoen served the Company as a Plant Manager
at two of its manufacturing facilities from 1994 to March 1999.
KATHY L. EVENSON was appointed Director, Human Resources for the Company in
April 1998. Prior to that time, Ms. Evenson served the Company as Director,
Compensation and Benefits from February 1998 to April 1998, Compensation and
Benefits Manager June 1995 to February 1998, and Supervisor, Compensation and
Benefits from June 1994 to June 1995.
ITEM 11: EXECUTIVE COMPENSATION
The following table discloses information concerning the compensation of those
persons who were, at December 26, 1999, the last day of the Company's 1999
fiscal year, the Company's Chief Executive Officer, the four other most highly
compensated executive officers on that date and two executive officers of the
Company who had resigned their positions prior to December 26, 1999 (the "named
executive officers").
Page 69
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1)(2) ($)(3) ($)(4) SARS(#) ($)(5)
------------------ ---- --------- --------- --------------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham........ 1999 500,006 0 0 0 0 14,988
Chief Executive Officer 1998 519,237 561,004 0 0 0 234,191
1997 500,006 0 0 0 30,000 104,885
David W. Cole(6)........ 1999 228,923 0 0 0 0 13,292
President 1998 269,537 224,400 9,230 0 0 18,143
1997 304,954 0 13,985 0 20,000 3,146
Alan J. Cyron........... 1999 225,000 0 0 0 0 12,668
Executive Vice 1998 228,422 210,375 0 0 0 16,318
President and 1997 206,612 0 4,615 0 15,000 3,158
Chief Financial Officer
Arrigo D. Jezzi(7)...... 1999 73,558 0 0 0 0 473,146
Executive Vice 1998 224,423 210,375 0 0 0 18,289
President, Operations, 1997 173,679 0 32,179 0 10,000 4,250
Technology and
International
Robert E. McClain ...... 1999 210,000 0 0 0 0 13,447
Executive Vice 1998 177,355 196,350 0 0 0 12,974
President, Sales and
Marketing
Christine I. Oliver(8).. 1999 244,277 0 0 0 0 24,428
Executive Vice
President, Customer
Management
Catherine O. Hasbrouck(9) 1999 150,000 40,000 0 0 0 10,911
Vice President, General
Counsel and Secretary
- ------------------
<FN>
(1) As a result of the Company's performance in fiscal 1997, no annual bonus
payment was made to any of the named executive officers for 1997.
(2) In addition to amounts earned under the Company's Annual Bonus program, Mr.
McClain earned a sales bonus in the amount of $71,210 in 1998. In 1999, Ms.
Hasbrouck received a bonus of $40,000 in connection with settlement and
compromise of certain claims filed in the Company's Chapter 11 reorganization
proceeding.
(3) Messrs. Cole and Cyron received tax gross-up payments in 1997 for
reimbursements by the Company of taxable relocation expenses incurred in
connection with their relocation in 1996 from Washington to Georgia. Amounts
paid to Mr. Jezzi include $14,365 for reimbursement of taxable relocation
expenses, $6,904 for reimbursement of nontaxable relocation expenses and $10,190
for tax gross-up payments, each made in connection with his relocation in 1997
from Pennsylvania to Georgia. Included in such taxable and nontaxable relocation
expenses reported above for Mr. Jezzi were $6,583 in payment of moving expenses
and $9,873 reimbursement for loss on the sale of his Pennsylvania residence.
Messrs. Abraham, Cole and Cyron recognized
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<PAGE>
income in 1997 in the amounts of $84,721, $13,748 and $24,825, respectively, on
the difference between the price paid for shares of the Company's common stock
purchased in lieu of the 1996 bonus and the fair market value of those shares on
the date of purchase.
(4) Restricted stock reported herein is valued at the closing price of the
Common Stock as reported on the New York Stock Exchange, Inc. (the "NYSE") on
the date of grant. Restricted stock awards are forfeitable and vest, generally,
in either two or three equal annual installments from the date of grant, subject
to acceleration in the event of certain mergers or consolidations involving the
Company, a sale, lease, exchange or other transfer of all or substantially all
of the Company's assets, or a liquidation or dissolution of the Company. Such
awards may be granted at up to a 20% discount to the market price of the Common
stock on the date of award. Dividends are payable on restricted stock at the
same rate payable to all stockholders. A restricted stock award in the amount of
$49,750 was made in 1996 in recognition of Mr. Cyron's efforts in connection
with the investment in Mabesa, and such award vested 33.4% on February 19, 1997,
33.3% on February 19, 1998 and 33.3% on February 19, 1999.
Under ordinary circumstances, recipients of restricted stock are able to
pay the tax liability arising upon vesting out of the proceeds of the sale of
Company stock. Since the filing of the Company's Chapter 11 proceeding, however,
certain corporate insiders have been unable to trade in the Company's stock. As
a result, on January 31, 1999 and February 18, 1999, in order to avoid incurring
a tax liability in connection with the vesting of certain restricted stock
awards, Mr. Abraham forfeited 4,887 shares awarded February 1, 1994 and
scheduled to vest on February 1, 1999, and 2,500 shares awarded February 19,
1996 and scheduled to vest on February 19, 1999; and on February 18, 1999, Mr.
Cole forfeited 1,666 shares awarded February 19, 1996 and scheduled to vest on
February 19, 1999.
(5) The amounts shown for fiscal 1999 represent: (i) matching 401(k)
contributions under the Paragon Retirement Savings Investment Management Program
(the "PRISM Plan") in the amounts of $2,308, $1,108, $1,038, $1,038, $767 and
$692 for Messrs. Abraham, Cole, Cyron, Jezzi, McClain and Ms. Hasbrouck,
respectively; (ii) retirement contributions under the PRISM Plan in the amounts
of $4,800 for each of Messrs. Abraham, Cole, Cyron, Jezzi, McClain and Ms.
Hasbrouck; (iii) profit sharing contributions under the PRISM Plan in the
amounts of $7,880, $6,830, $7,880 and $5,419 for Messrs. Abraham, Cyron, McClain
and Ms. Hasbrouck, respectively; (iv) employee and spouse contributions in the
amounts of $14,999.64 and $9,427.95, respectively under the Registered
Retirement Savings Plan (the "RRSP") for Ms. Oliver; (v) payments in the amount
of $450,000 and $17,308 for severance and accrued vacation, respectively, to Mr.
Jezzi pursuant to his Employment Contract; and (vi) payment in the amount of
$7,385 for accrued vacation to Mr. Cole upon his resignation.
(6) Mr. Cole resigned effective as of December 8, 1999.
(7) Mr. Jezzi resigned effective as of April 15, 1999.
(8) Ms. Oliver is a Canadian citizen and is compensated in Canadian Dollars. The
components of Ms. Oliver's compensation are reported in Canadian dollars. The
rate for conversion of Canadian dollars to United States dollars for 1999
averaged US .67 per Canadian dollar.
(9) Ms. Hasbrouck has resigned effective as of March 15, 2000.
</FN>
</TABLE>
1999 OPTION GRANTS AND EXERCISES
There were no option grants under any of the Company's incentive compensation
plans in 1999. SEE "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION: LONG-TERM INCENTIVES," BELOW.
Page 71
<PAGE>
The following table provides information on the aggregated option/SAR exercises
by named executive officers in 1999 and the value of the named executive
officers' unexercised options/SARs at December 26, 1999. Pursuant to the
Company's Plan of Reorganization, all outstanding options were canceled
effective January 28, 2000. No new options have been granted.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED NUMBER OF SECURITIES
OPTION/SAR OPTIONS AT UNDERLYING UNEXERCISED
EXERCISES FISCAL YEAR-END(#) SARS AT FISCAL YEAR END(#)
--------- ------------------------------ ------------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham........... 0 0 229,160 22,500 0 0
David W. Cole.............. 0 0 132,500 0 0 0
Alan J. Cyron.............. 0 0 38,750 11,250 0 0
Arrigo D. Jezzi............ 0 0 0 0 0 0
Robert E. McClain.......... 0 0 0 0 12,500 7,500
Christine I. Oliver........ 0 0 3,340 0 3,000 2,000
Catherine O. Hasbrouck..... 0 0 12,500 7,500 0 0
</TABLE>
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE -MONEY OPTIONS/SARS AT
FISCAL YEAR-END($)(1)
---------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Bobby V. Abraham........... 0 0
David W. Cole.............. 0 0
Alan J. Cyron.............. 0 0
Arrigo D. Jezzi............ 0 0
Robert E. McClain.......... 0 0
Christine I. Oliver........ 0 0
Catherine O. Hasbrouck.....
0 0
- ---------------
<FN>
(1) The value of the options/SARs on December 26, 1999 is based on the average
of the high and low sales price per share of the Common Stock as quoted on the
NASDAQ Over-the-Counter Bulletin Board on December 23, 1999 ($.235). None of the
outstanding options or SARs were in the money at December 26, 1999.
</FN>
</TABLE>
Page 72
<PAGE>
COMPENSATION OF DIRECTORS
FEES. Directors who are employees of the Company do not receive any fees for
their services as directors. As of February 23, 2000, directors who are not
employees of the Company are paid an annual retainer of $20,000 for serving on
the Board of Directors. Each nonemployee director receives an additional fee of
$1,250 per day for attending each meeting of the Board of Directors and $1,000
for attending each meeting of a committee of the Board of Directors. A
nonemployee director serving as a committee chairman receives an additional
$2,500 per annum.
OPTIONS. The Company's Stock Option Plan for Nonemployee Directors (the
"Director Plan") was suspended by the previous Board during the pendancy of the
Company's Chapter 11 reorganization proceeding. As such, no options were granted
to directors under the Director Plan in 1999. At the closing of the Wellspring
Transaction, the Plan Implementation Committee of the Board of Directors of
reorganized Paragon elected to terminate the Director Plan. The new Board of
Directors intends to qualify a stock option plan for nonemployee directors which
would provide that directors who are not employees of the Company may receive
grants of options to purchase Common Stock under such a plan. It is contemplated
that under such a plan each nonemployee director would be eligible to
automatically receive an option to purchase 3,000 shares of Common Stock on the
first business day following his or her initial election as a director of the
Company, at an exercise price of $10.00 per share, and thereafter would be
eligible to receive annually, on the first business day following the date of
each annual meeting of stockholders of the Company, an option to purchase 3,000
shares of Common Stock at its then fair market value.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
CONFIRMATION RETENTION PLAN FOR TOP EIGHT EXECUTIVES. In August 1998, the
Company received Bankruptcy Court approval of its Confirmation Retention Plan
for Top Eight Executives (the "Confirmation Retention Plan"), which had
previously been adopted by the Compensation Committee of the Company's Board of
Directors (the "Committee"). The Confirmation Retention Plan was designed to
provide additional incentive for the Company's eligible executives to remain
with the Company through the conclusion of the Company's Chapter 11
reorganization proceeding and to ensure their continued dedication and efforts
without undue concern for their personal financial and employment security in
order to expedite the Company's emergence from Chapter 11. In particular, the
Confirmation Retention Plan includes a bonus that was payable to the eligible
executives upon emergence from Chapter 11 (the "Confirmation Bonus") and
enhanced severance protection, as described below.
In conjunction with the Confirmation Retention Plan, each of the eligible
executives of the Company, including Mr. Abraham and certain of the other named
executive officers, entered into Employment Agreements with the Company which
provide, among other things, that those executives are eligible to participate
in the Confirmation Retention Plan. These Employment Agreements supersede any
prior employment agreement that any of those executives had with the Company.
Under the Confirmation Retention Plan, the Company paid Confirmation Bonuses in
cash totaling an aggregate $2,160,000 to the eligible executives upon
consummation of its plan of reorganization.
The Confirmation Retention Plan also contains a severance program pursuant to
which an eligible executive shall be entitled to receive severance benefits from
the Company equal to two times base salary, plus a continuation of benefits for
two years, upon a Board Requested Termination, Resignation for Good Reason, or
upon a termination based on Permanent Disability or death (each such capitalized
term as defined in the Confirmation Retention Plan). In general, severance
benefits shall be paid in a lump sum on the last day of employment. No severance
benefits shall be paid upon a termination for Cause or upon voluntary
termination of employment for any reason other than very limited circumstances
specified in the Confirmation Retention Plan. Under the Confirmation Retention
Plan, an executive may voluntarily resign and still receive severance benefits
if (i) the Company does not make an offer to the executive of continued
employment of at least one additional year during the tenth month after
confirmation of a plan of reorganization; (ii) the Company does make such an
offer, but such offer contains terms that would provide the executive with the
option to Resign for Good Reason; or (iii) the executive Resigns for Good
Reason. Should the Company make an offer to the executive of continued
employment of at least one additional year during the tenth month after
confirmation of a plan, which offer does not contain terms that would
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<PAGE>
provide the executive with the option to Resign for Good Reason, and the
executive resigns anyway, then the executive shall receive a lump sum equal to
only one times the executive's base salary upon termination of employment. The
remainder of the severance benefits shall be paid in 12 monthly installments and
shall be reduced in an amount equal to the salary compensation received by the
executive due to other employment, including fees from consulting services.
In addition to the above, the terms of the individual employment agreements with
the eligible executives also require that each executive diligently perform all
acts and duties and furnish such services as are customary for the position that
such executive holds. Each of the eligible executives must also comply with a
noncompete provision contained in their respective employment agreements which
runs during the tenure of the executive's employment and for a period of two
years thereafter. Each of the eligible executives was also required, as part of
their respective employment agreements, to enter into a confidentiality
agreement with the Company. A breach by the executive of his or her obligations
under either the employment agreement or the confidentiality agreement will
result in a forfeiture of the executive's rights under their employment
agreement and will make the executive ineligible to participate in the
Confirmation Retention Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 26, 1999, members of the Committee were
Adrian D.P. Bellamy (Chairman), Thomas B. Boklund and Robert L. Schuyler. No
executive officers or employees of the Company served on the Compensation
Committee in 1999. Members of the Compensation and Governance Committee, as
reconstituted in February 2000 following consummation of the Company's
reorganization proceedings, are David C. Mariano (Chairman) and Carl M. Stanton.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee, as noted above, is composed entirely of nonemployee directors.
The Committee is responsible for establishing and administering the Company's
executive compensation programs.
COMPENSATION POLICIES
The Committee establishes compensation according to the following guiding
principles:
(a) Compensation should be directly linked to the Company's operating and
financial performance.
(b) Total compensation should be competitive when compared to compensation
levels of executives of companies against which the Company competes for
management.
(c) Performance - related pay should be a significant component of total
compensation, placing a substantial portion of an executive's compensation at
risk.
COMPENSATION PRACTICES
Compensation for executives has historically included base salary, annual
bonuses and long-term incentive awards, including stock options, SARs and
restricted stock awards. Consistent with the above principles, a substantial
proportion of executive compensation has depended on Company performance and on
enhancing stockholder value.
BASE SALARY. The Company has historically used externally-developed compensation
surveys to assign a competitive salary range to each salaried position,
including executive positions. The companies included in the survey in the past
have been selected by the Company's outside compensation consultants and include
companies engaged in nondurable manufacturing with annual revenues of between
$400 million and $1 billion. The Committee is in the process of commissioning a
new salary survey for its use in evaluating executive compensation levels going
forward.
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In the past, the Committee has set actual base salary levels for the Company's
executives based on recommendations by management. The Committee intends to
continue this practice, focusing primarily on the executive's performance, the
executive's position in the salary range, the executive's experience and the
Company's salary budget.
ANNUAL BONUS. The Company employs a formal system for developing measures of and
evaluating executive performance. Bonuses are determined with reference to
quantitative measures established by the Committee each year. At the beginning
of each year, the Committee also approves performance targets relating to the
quantitative measures that, if achieved, will establish a bonus pool equal to
the sum of the individual target bonuses for all executives. The Committee also
establishes performance targets that could result in a range of bonus payouts
from a minimum of zero to a maximum bonus payout of 200 percent of target bonus.
At the end of the year, Company performance, as compared to the quantitative
measures described above, determines the bonus pool for the executive group.
Target bonuses for individual executives are in the range of 25 percent to 60
percent of base salary. The Committee retains the discretion to adjust any
individual bonus if deemed appropriate.
In the event Company performance exceeds the performance targets established for
the maximum 200 percent bonus payout, the bonus pool is funded in excess of such
200 percent payout. Such excess bonus funding is retained by the Company and may
be paid out, at the Committee's discretion, in any year in which performance
targets are not achieved, if the Committee determines such event to be the
result of factors unrelated to management performance.
In 1999, the quantitative measure for bonus payments was earnings before
interest, taxes, depreciation and amortization ("EBITDA"). There was no upward
limit on the maximum possible bonus payout. The Company's performance in fiscal
1999 did not meet the minimum quantitative measures and the Committee
accordingly did not award any bonuses.
As a result of the Chapter 11 filing, and in recognition of the need to drive
the operating performance of the Company and to incent employees to remain with
the Company throughout the course of the Chapter 11 proceeding, the Committee
altered the Company's existing incentive compensation plans. The revised plans
include (i) a retention incentive for employees of the Company, other than the
top eight executives, following the Chapter 11 filing and (ii) the Confirmation
Retention Plan described above. These revised plans were approved by the
Bankruptcy Court in August 1998. As a result of the Company's exit from Chapter
11 on January 28, 2000, all retention bonuses approved by the Bankruptcy Court
in August 1998 have been paid.
For 2000, the Committee has determined that the quantitative measure for bonus
payments will again be EBITDA. The plan will provide minimum and target payout
levels. There is no upward limit on the maximum payout level.
LONG-TERM INCENTIVES. Long-term incentives are designed to link management
reward with the long-term interests of the Company's stockholders. Through 1997,
the Committee granted stock options, stock appreciation rights ("SARs") and
restricted stock as long-term incentives. Individual stock option awards and
SARs were based on level of responsibility, the Company's stock ownership
objectives for management and upon the Company's performance versus the
financial performance objectives set each year for the annual bonus plan
described above.
In 1998, the Committee determined, in connection with the Confirmation Retention
Plan described above, that in light of the uncertainties associated with the
Chapter 11 process, the Company should discontinue future stock option, SAR and
restricted stock awards until its emergence from Chapter 11 and, as such, no
options, SARs or restricted stock awards were granted to employees for 1999. As
part of the Company's exit from Chapter 11 on January 28, 2000, all outstanding
stock options have been canceled. As a further part of the Company's Plan of
Reorganization, a new stock option plan for executives was approved by the
Bankruptcy Court. While the Committee anticipates granting options upon
completion of the salary survey described above, no options have been issued
under this plan to date.
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Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
limits the Company's ability to deduct compensation in excess of $1 million paid
during a tax year to the Chief Executive Officer and the four other highest paid
executive officers of the Company. Certain performance-based compensation is not
subject to such deduction limit. The Company intends, at the appropriate time,
to qualify stock option and SAR awards for the "performance-based" exception to
the $1 million limitation on deductibility and otherwise to maximize the
deductibility of executive compensation while retaining the discretion necessary
to compensate executive officers in a manner commensurate with performance and
the competitive market of executive talent.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Abraham has served as the Company's Chief Executive Officer since its
initial public offering in February 1993. Prior to such time, Mr. Abraham was in
charge of the Company's operations as a division of Weyerhaeuser. Mr. Abraham's
base salary was realigned in 1996 from prior year levels to $500,000.
Given the Company's operating performance in 1999, Mr. Abraham did not receive
an annual incentive bonus. Mr. Abraham did participate in the Confirmation Bonus
payable under the Confirmation Retention Plan described above, receiving a bonus
of $1,061,690 on January 28, 2000. This bonus will be reported as income for
2000. SEE "--CONFIRMATION RETENTION PLAN FOR TOP EIGHT EXECUTIVES."
As discussed above, the Committee discontinued the use of annual grants of stock
options, SARs and restricted stock as incentive compensation for Mr. Abraham
while the Company was subject to Chapter 11 protection. In the past, annual
stock option grants were determined by reference to the external compensation
survey data discussed above, as well as the Company's performance versus the
financial performance objectives set each year for the annual bonus plan
described above. It is anticipated that future stock option grants to Mr.
Abraham will be based on similar indicators.
COMPENSATION COMMITTEE
David C. Mariano, Chairman
Carl M. Stanton
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return on the
Common Stock during the period beginning on December 25, 1994 and ending on
December 26, 1999, the last day of the Company's 1999 fiscal year, with the
cumulative total return on the Standard & Poor's 500 Index and the combined
Value Line Household Products and Toiletries/Cosmetics Indices (weighted
equally). The comparison assumes $100 was invested on December 25, 1994 in the
Common Stock, the Standard & Poor's 500 Index and the combined Value Line
Household Products and Toiletries/Cosmetics Indices and assumes reinvestment of
dividends. The stock price performance shown on the graph is not necessarily
indicative of future price performance.
[GRAPHIC OBJECT OMITTED]
PERFORMANCE GRAPH DATA POINTS
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN AS OF:
------------------------------
NAME 25-DEC-94 31-DEC-95 29-DEC-96 28-DEC-97 27-DEC-98 26-DEC-99
- ---- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PARAGON TRADE BRANDS, INC. 100.00 176.42 226.42 97.17 16.04 1.74
Combined Value Line 100.00 136.49 183.18 252.71 285.65 319.70
Household Products and
Toiletries/Cosmetics Indices
Standard & Poor's 500 100.00 137.58 169.17 225.61 290.09 351.13
- ------------------
<FN>
(1) Tambrands, Inc. ("Tambrands") was a member of the Combined Value Line
Household Products and Toiletries/Cosmetics Indices ("Peer Group") for the years
1994-1996. Tambrands was acquired by P&G during 1997 and total return data for
1997 is not available. Tambrands was removed from the Value Line Household
Products and Toiletries/Cosmetics Indices as of 1997.
</FN>
</TABLE>
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<PAGE>
(2) First Brands Corp. ("First Brands"), General Housewares Corp ("General
Housewares") and Rubbermaid, Incorporated ("Rubbermaid") were each members of
the Combined Value Line Household Products and Toiletries/Cosmetics Indices
("Peer Group") for the years 1994 through 1998. First Brands, General Housewares
and Rubbermaid were acquired by or merged with The Clorox Co., CCPC Acquisition
Corp. and Newell Co., respectively, during 1999 and total return data for 1999
is not available. First Brands, General Housewares and Rubbermaid were removed
from the Value Line Household Products and Toiletries/Cosmetics Indices as of
1999.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the common stock as
of February 29, 2000, by (a) each stockholder known by the Company to be the
beneficial owner of more than 5 percent of the common stock, (b) the Company's
directors, (c) the Company's named executive officers, as defined herein, and
(d) all the Company's directors and executive officers, as a group. Each of the
named persons and members of the group has sole voting and investment power with
respect to the shares shown, except as otherwise stated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------------------------ -------------------- -----------
<S> <C> <C>
PTB Acquisition Company, LLC
Wellspring Capital Partners II, LP and
Wellspring Capital Management LLC.................. 11,516,405 (1) 96.85%
620 Fifth Avenue, Suite 216
New York, NY 10020-1579
Co-Investment Partners, L.P........................ 2,401,953 (1) 20.2%
660 Madison Avenue
New York, NY 10021
Ontario Teachers' Pension Plan Board............... 2,401,953 (1) 20.2%
5650 Yonge Street
North York, Ontario M2M 4H5, Canada
Bobby V. Abraham................................... 3,568 (2) *
David W. Cole...................................... 1,123 (3) *
Greg S. Feldman.................................... 0 0
David C. Mariano................................... 0 0
James R. McManus................................... 0 0
Thomas F. Ryan, Jr................................. 0 0
J. Dale Sherratt................................... 0 0
Carl M. Stanton.................................... 0 0
Thomas J. Volpe.................................... 0 0
Alan J. Cyron...................................... 1,556 (4) *
Arrigo D. Jezzi.................................... 101 (5) *
Robert E. McClain.................................. 1 (6) *
Christine I. Oliver................................ 6 (7) *
Catherine O. Hasbrouck............................. 17 (8) *
All directors and executive officers as a group
(19 persons) ...................................... 7,046 (9) *
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<PAGE>
- ------------------
<FN>
* Represents holdings of less than 1%.
(1) PTB Acquisition Company, LLC (of which Wellspring Capital Partners II, LP is
the sole member), an affiliate of Wellspring Capital Management LLC,
(collectively, "Wellspring"), agreed to acquire substantially all of the new
common stock of the Company as part of the Company's plan of reorganization (the
"Wellspring Transaction").
Prior to the consummation of the Wellspring Transaction, Wellspring assigned
assigned (i) its right to purchase approximately 20.2% of the new common stock
of the Company to Co-Investment Partners, L.P. ("CIP"), and (ii) its right to
purchase approximately a further 20.2% of the new common stock of the Company to
Ontario Teachers' Pension Plan Board ("Ontario"). Pursuant to the Wellspring
Transaction, Wellspring, CIP and Ontario purchased, in the aggregate,
approximately 96.8% of the new common stock (the "Investor Shares") issued
pursuant to the Plan on January 28, 2000 for a purchase price equal to $10.00
per share of new common stock, or approximately $115 million, in cash.
After giving effect to the assignment by Wellspring of its rights under the
Stock Purchase Agreement as described above, Wellspring invested approximately
$67 million, which funds were provided by Wellspring Capital Partners II, L.P.
from funds contributed by its limited and general partners, to acquire
approximately 56.5% of the new common stock, CIP invested approximately $24
million, which funds were provided by its limited and general partners, to
acquire approximately 20.2% of the new common stock and Ontario invested
approximately $24 million, which funds came from the pension fund which it
manages, to acquire approximately 20.2% of the new common stock.
Pursuant to proxies given on January 28, 2000 by CIP and Ontario,
Wellspring has sole voting power to vote all of the Investor Shares and shared
dispositive power with respect to all of the Investor Shares. Therefore,
Wellspring may be deemed to beneficially own these shares of new common stock.
(2) Includes Warrants to purchase 2,778 shares of common stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(3) Includes Warrants to purchase 874 shares of common stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(4) Includes Warrants to purchase 2,778 shares of common stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(5) Mr. Jezzi resigned effective April 1, 1999. Mr. Jezzi's Section 16
reporting obligation terminated shortly following his resignation from the
Company. Information reported is based on Mr. Jezzi's final Form 4 filed with
the SEC for April 1999 and the assumption that such shares of old common stock
were exchanged for shares of new common stock and Warrants pursuant to the
Company's Plan of Reorganization. Includes 79 Warrants to purchase 2,778 shares
of common stock at $18.91 per share, exercisable immediately and expiring
January 28, 2010.
(6) Includes Warrants to purchase 1 share of common stock at $18.91 per share,
exercisable immediately and expiring January 28, 2010.
(7) Includes Warrants to purchase 5 shares of common stock at $18.91 per share,
exercisable immediately and expiring January 28, 2010.
(8) Ms. Hasbrouck has resigned effective March 15, 2000. Includes Warrants to
purchase 13 shares of common stock at $18.91 per share, exercisable immediately
and expiring January 28, 2010.
(9) Includes Warrants to purchase 5,487 shares of common stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
</FN>
</TABLE>
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<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants
Consolidated Statements of Operations for the three years in
the period ended December 26, 1999
Consolidated Balance Sheets as of December 26, 1999 and
December 27, 1998
Consolidated Statements of Cash Flows for the three years in
the period ended December 26, 1999
Consolidated Statements of Comprehensive Loss for the three years in
the period ended December 26, 1999
Consolidated Statements of Changes in Shareholders' Deficit for the
three years in the period ended December 26, 1999
Notes to Financial Statements
Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts
(b) Report on Form 8-K dated November 19, 1999 regarding the Bankruptcy
Court approval of the Company's Disclosure Statement.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit 3.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc.
Exhibit 3.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc., as amended through January 28,
2000
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc. (see Exhibit 3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26, 1993, by and between Weyerhaeuser and
Paragon(1)
Exhibit 10.2 Intellectual Property Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon(1)
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon(1)
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<PAGE>
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987, by and between Weyerhaeuser and Johnson
and Johnson, as amended(1)
Exhibit 10.6 Letter Supply Agreement between Weyerhaeuser and Paragon dated as of October 22, 1997(2)
Exhibit 10.7* Employment Agreement, dated as of August 11, 1998, between Paragon and Bobby V. Abraham(3)
Exhibit 10.8* Employment Agreement, dated as of August 11, 1998, between Paragon and David W. Cole(3)
Exhibit 10.9* Employment Agreement, dated as of August 11, 1998, between Paragon and Alan J. Cyron(3)
Exhibit 10.10* Employment Agreement, dated as of August 11, 1998, between Paragon and Arrigo D. (Rick)
Jezzi(3)
Exhibit 10.11* Employment agreement, dated as of August 11, 1998, between Paragon and Robert E. McClain(3)
Exhibit 10.12* Employment Agreement, dated as of August 11, 1998, between Paragon and Catherine O.
Hasbrouck(3)
Exhibit 10.13* Employment Agreement, dated as of August 11, 1998, between Paragon and Kevin P. Higgins(3)
Exhibit 10.14* Paragon Trade Brands, Inc. Confirmation Retention Plan for Top Eight Executives and Summary
Plan Description(3)
Exhibit 10.15* Paragon Trade Brands, Inc. Stock Option Plan
Exhibit 10.16 Credit Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. as Borrower
and The Lenders and Issuers Party Hereto and Citicorp USA, Inc. as Administrative Agent and
Salomon Smith Barney as Arranger
Exhibit 10.16.1 Pledge and Security Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc.
and Each Other Grantor from Time to Time Party Hereto and Citicorp USA, Inc. as
Administrative Agent
Exhibit 10.17 Indemnification Agreements, dated as of February 2, 1993, between Weyerhaeuser and Bobby V.
Abraham and Gary M. Arnts(1)
Exhibit 10.18 Asset Purchase Agreement dated December 11, 1995 by and among Paragon Trade Brands, Inc.,
PTB Acquisition Sub, Inc., Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.(4)
Exhibit 10.19** Sales Contract, dated as of January 30, 1996, between Hoechst Celanese Corporation and
Paragon Trade Brands, Inc.(5)
Exhibit 10.20** Sales Contract, dated as of April 30, 1998, between Clariant Corporation and Paragon Trade
Brands, Inc.(6)
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<PAGE>
Exhibit 10.21 Lease Agreement between Cherokee County, South Carolina and Paragon Trade Brands, Inc.,
dated as of October 1, 1996(7)
Exhibit 10.22 Settlement Agreement, dated as of February 2, 1999 between Paragon Trade Brands, Inc. and
The Procter & Gamble Company(8)
Exhibit 10.23 U.S. License Agreement, dated as of February 2, 1999 between The Procter & Gamble Company
and Paragon Trade Brands, Inc. (8)
Exhibit 10.24 Canadian License Agreement, dated as of February 2, 1999 between The Procter & Gamble
Company and Paragon Trade Brands, Inc. (8)
Exhibit 10.25 U.S. License Agreement, dated as of February 2, 1999 between The Procter & Gamble Company
and Paragon Trade Brands, Inc. (8)
Exhibit 10.26 Canadian License Agreement, dated as of February 2, 1999 between The Procter & Gamble
Company and Paragon Trade Brands, Inc. (8)
Exhibit 10.27 Settlement Agreement, dated as of March 19, 1999 between Kimberly-Clark Corporation and
Paragon Trade Brands, Inc. (8)
Exhibit 10.28 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated
as of March 15, 1999(8)
Exhibit 10.29 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated
as of March 15, 1999(8)
Exhibit 10.30 Modified Second Amended Plan of Reorganization(9)
Exhibit 10.31 Stock Purchase Agreement by and Between PTB Acquisition Company LLC and Paragon Trade
Brands, Inc., dated as of November 16, 1999(10)
Exhibit 10.32 Shareholders' Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC,
Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other
Shareholders, dated as of January 28, 2000
Exhibit 10.33 Registration Rights Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company,
Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other
Shareholders, dated as of January 28, 2000
Exhibit 10.34 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January
28, 2000(11)
Exhibit 10.35 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005,
dated as of January 28, 2000(11)
Exhibit 11 Computation of Per Share Earnings (See Note 18 to Financial Statements)
Exhibit 21.1 Subsidiaries of the Company(8)
Exhibit 23.1 Consent of Independent Public Accountants
Exhibit 27 Financial Data Schedule (for SEC use only)
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<PAGE>
- ------------------
<FN>
*Management contract or compensatory plan or arrangement. **Confidential
treatment has been requested as to a portion of this document.
(1) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
(2) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 28, 1997.
(3) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 27, 1998.
(4) Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of February 8, 1996.
(5) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(6) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 28, 1998.
(7) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
(8) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 27, 1998.
(9) Incorporated by reference from Paragon Trade Brands, Inc.'s current report
on Form 8-K dated January 13, 2000.
(10) Incorporated by reference from Paragon Trade Brands, Inc.'s Application for
Qualification of Indenture Under the Trust Indenture Act of 1939 on Form T-3,
filed with the Commission on January 26, 2000.
(11) Incorporated by reference from Paragon Trade Brands, Inc.'s current report
on Form 8-K dated January 28, 2000.
</FN>
</TABLE>
Page 83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 27th day of March,
2000.
PARAGON TRADE BRANDS, INC.
By: /S/ BOBBY V. ABRAHAM
-----------------------
Bobby V. Abraham
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on this 27th day of March, 2000.
/S/ BOBBY V. ABRAHAM /S/ DAVID W. COLE
- ------------------------------------ ------------------
Bobby V. Abraham David W. Cole
Chief Executive Officer Director
/S/ ALAN J. CYRON /S/ GREG S. FELDMAN
- -------------------------------------------- --------------------
Alan J. Cyron Greg S. Feldman
Executive Vice President and Chief Director
Financial Officer (Principal Financial Officer)
/S/ DAVID C. MARIANO
---------------------
/S/ GARY M. ARNTS David C. Mariano
- -------------------------------------------- Director
Gary M. Arnts
Vice President and Controller /S/ JAMES R. MCMANUS
(Principal Accounting Officer) ---------------------
James R. McManus
Director
/S/ THOMAS F. RYAN, JR.
------------------------
Thomas F. Ryan, Jr.
Director
/S/ J. DALE SHERRATT
---------------------
J. Dale Sherratt
Director
/S/ CARL M. STANTON
--------------------
Carl M. Stanton
Director
/S/ THOMAS J. VOLPE
--------------------
Thomas J. Volpe
Director
Page 84
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit 3.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc.
Exhibit 3.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc., as amended through January 28,
2000
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc. (see Exhibit 3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26, 1993, by and between Weyerhaeuser and
Paragon(1)
Exhibit 10.2 Intellectual Property Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon(1)
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987, by and between Weyerhaeuser and Johnson
and Johnson, as amended(1)
Exhibit 10.6 Letter Supply Agreement between Weyerhaeuser and Paragon dated as of October 22, 1997(2)
Exhibit 10.7* Employment Agreement, dated as of August 11, 1998, between Paragon and Bobby V. Abraham(3)
Exhibit 10.8* Employment Agreement, dated as of August 11, 1998, between Paragon and David W. Cole(3)
Exhibit 10.9* Employment Agreement, dated as of August 11, 1998, between Paragon and Alan J. Cyron(3)
Exhibit 10.10* Employment Agreement, dated as of August 11, 1998, between Paragon and Arrigo D. (Rick)
Jezzi(3)
Exhibit 10.11* Employment agreement, dated as of August 11, 1998, between Paragon and Robert E. McClain(3)
Exhibit 10.12* Employment Agreement, dated as of August 11, 1998, between Paragon and Catherine O.
Hasbrouck(3)
Exhibit 10.13* Employment Agreement, dated as of August 11, 1998, between Paragon and Kevin P. Higgins(3)
Exhibit 10.14* Paragon Trade Brands, Inc. Confirmation Retention Plan for Top Eight Executives and Summary
Plan Description(3)
Exhibit 10.15* Paragon Trade Brands, Inc. Stock Option Plan
Page 85
<PAGE>
Exhibit 10.16 Credit Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. as Borrower
and The Lenders and Issuers Party Hereto and Citicorp USA, Inc. as Administrative Agent and
Salomon Smith Barney as Arranger
Exhibit 10.16.1 Pledge and Security Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc.
and Each Other Grantor from Time to Time Party Hereto and Citicorp USA, Inc. as
Administrative Agent
Exhibit 10.17 Indemnification Agreements, dated as of February 2, 1993, between Weyerhaeuser and Bobby V.
Abraham and Gary M. Arnts(1)
Exhibit 10.18 Asset Purchase Agreement dated December 11, 1995 by and among Paragon Trade Brands, Inc.,
PTB Acquisition Sub, Inc., Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.(4)
Exhibit 10.19** Sales Contract, dated as of January 30, 1996, between Hoechst Celanese Corporation and
Paragon Trade Brands, Inc.(5)
Exhibit 10.20** Sales Contract, dated as of April 30, 1998, between Clariant Corporation and Paragon Trade
Brands, Inc.(6)
Exhibit 10.21 Lease Agreement between Cherokee County, South Carolina and Paragon Trade Brands, Inc.,
dated as of October 1, 1996(7)
Exhibit 10.22 Settlement Agreement, dated as of February 2, 1999 between Paragon Trade Brands, Inc. and
The Procter & Gamble Company(8)
Exhibit 10.23 U.S. License Agreement, dated as of February 2, 1999 between The Procter & Gamble Company
and Paragon Trade Brands, Inc. (8)
Exhibit 10.24 Canadian License Agreement, dated as of February 2, 1999 between The Procter & Gamble
Company and Paragon Trade Brands, Inc. (8)
Exhibit 10.25 U.S. License Agreement, dated as of February 2, 1999 between The Procter & Gamble Company
and Paragon Trade Brands, Inc. (8)
Exhibit 10.26 Canadian License Agreement, dated as of February 2, 1999 between The Procter & Gamble
Company and Paragon Trade Brands, Inc. (8)
Exhibit 10.27 Settlement Agreement, dated as of March 19, 1999 between Kimberly-Clark Corporation and
Paragon Trade Brands, Inc. (8)
Exhibit 10.28 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated
as of March 15, 1999(8)
Exhibit 10.29 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated
as of March 15, 1999(8)
Exhibit 10.30 Modified Second Amended Plan of Reorganization(9)
Exhibit 10.31 Stock Purchase Agreement by and Between PTB Acquisition Company LLC and Paragon Trade
Brands, Inc., dated as of November 16, 1999(10)
Page 86
<PAGE>
Exhibit 10.32 Shareholders' Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC,
Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other
Shareholders, dated as of January 28, 2000
Exhibit 10.33 Registration Rights Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company,
Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other
Shareholders, dated as of January 28, 2000
Exhibit 10.34 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January
28, 2000(11)
Exhibit 10.35 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005,
dated as of January 28, 2000(11)
Exhibit 11 Computation of Per Share Earnings (See Note 18 to Financial Statements)
Exhibit 21.1 Subsidiaries of the Company(8)
Exhibit 23.1 Consent of Independent Public Accountants
Exhibit 27 Financial Data Schedule (for SEC use only)
- ------------------
<FN>
*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
(1) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
(2) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 28, 1997.
(3) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 27, 1998.
(4) Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of February 8, 1996.
(5) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(6) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 28, 1998.
(7) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
(8) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 27, 1998.
(9) Incorporated by reference from Paragon Trade Brands, Inc.'s current report
on Form 8-K dated January 13, 2000.
(10) Incorporated by reference from Paragon Trade Brands, Inc.'s Application for
Qualification of Indenture Under the Trust Indenture Act of 1939 on Form T-3,
filed with the Commission on January 26, 2000.
Page 87
<PAGE>
(11) Incorporated by reference from Paragon Trade Brands, Inc.'s current report
on Form 8-K dated January 28, 2000.
</FN>
</TABLE>
Page 88
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
PARAGON TRADE BRANDS, INC.
----------------------
(Pursuant to Sections 242, 245 and 303 of the General
Corporation Law of the State of Delaware)
PARAGON TRADE BRANDS, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The Corporation's name is Paragon Trade Brands, Inc.,
and it was originally incorporated under such name. The original Certificate
of Incorporation was filed with the Secretary of State on June 30, 1992.
SECOND: On January 6, 1998, the Corporation filed a voluntary
petition pursuant to Chapter 11 of title 11 of the United States Code, 11 U.S.C.
Sectins 101, ET SEQ. (the "Bankruptcy Code"), in the United States Bankruptcy
Court for the Norther District of Georgia (the "Bankruptcy Court"), case number
98-60390 (the "Bankruptcy Case").
THIRD: This Amended and Restated Certificate of Incorporation
has been duly executed and acknowledged by an officer of the Corporation and is
authorized under the Second Amended Plan of Reorganization of Paragon Trade
Brands, Inc., dated November 15, 1999, approved and confirmed by an order dated
January 13, 2000 of the Bankruptcy Court.
FOURTH: This Amended and Restated Certificate of Incorporation
amends, restates and integrates the Certificate of Incorporation of the
Corporation, as now in effect, to read as follows:
<PAGE>
1. NAME. The name of the corporation is Paragon Trade
Brands, Inc. (the "Corporation").
2. ADDRESS; REGISTERED OFFICE AND AGENT. The address
of the Corporation's registered office is 1013 Centre Road, City of Wilmington,
County of New Castle, State of Delaware; and its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
3. PURPOSES. The purpose of the Corporation is to engage
in, carry on and conduct any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware (the
"General Corporation Law").
4. NUMBER OF SHARES.
4.1 The total number of shares of stock that the
Corporation shall have authority to issue is 25,000,000 of which 5,000,000
shares shall be shares of preferred stock of the par value of One Cent ($.01)
per share (hereinafter called "Preferred Stock"), and 20,000,000 shares shall
be shares of common stock of the par value of One Cent ($.01) per share
(hereinafter called "Common Stock").
4.2 The designation, relative rights, preferences
and limitations of the shares of each class are as follows:
4.2.1 The shares of Preferred Stock may be
issued from time to time in one or more series of any number of shares, provided
that the aggregate number of shares issued and not cancelled of any and all such
series shall not exceed the total number of shares of Preferred Stock
hereinabove authorized, and with distinctive serial designations, all as shall
hereafter be stated and expressed in the resolution or resolutions providing for
the issue of such shares of Preferred Stock from time to time adopted by the
Board pursuant to authority so to do which is hereby vested in the Board. Each
series of shares of Preferred Stock (a) may have such voting powers, full or
limited, or may be without voting powers; (b) may be subject to redemption at
such time or times and at such prices; (c) may be entitled to receive dividends
(which may be cumulative or non-cumulative) at such rate or rates, on such
conditions and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes or series of stock; (d)
may have such rights upon the dissolution of, or upon any distribution of the
assets of, the Corporation; (e) may be made convertible into or exchangeable
for, shares of any other class or classes or of any other
2
<PAGE>
series of the same or any other class or classes of shares of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; (f)
may be entitled to the benefit of a sinking fund to be applied to the purchase
or redemption of shares of such series in such amount or amounts; (g) may be
entitled to the benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the issue of any
additional shares (including additional shares of such series or of any other
series) and upon the payment of dividends or the making of other distributions
on, and the purchase, redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding shares of the Corporation and (h) may have such
other relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof; all as shall be stated in said resolution
or resolutions providing for the issue of such shares of Preferred Stock. Any of
the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of any such series of Preferred Stock may be made
dependent upon facts ascertainable outside of the resolution or resolutions
providing for the issue of such Preferred Stock adopted by the Board pursuant to
the authority vested in it by this Section 4.2.1, provided that the manner in
which such facts shall operate upon the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
series of Preferred Stock is clearly and expressly set forth in the resolution
or resolutions providing for the issue of such Preferred Stock. The term "facts"
as used in the next preceding sentence shall have the meaning given to it in
section 151(a) of the General Corporation Law. Shares of Preferred Stock of any
series that have been redeemed (whether through the operation of a sinking fund
or otherwise) or that if convertible or exchangeable, have been converted into
or exchanged for shares of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock of the same series and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of shares of Preferred Stock
to be created by resolution or resolutions of the Board or as part of any other
series of shares of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the Board providing for the issue of any series of shares of Preferred Stock.
4.2.2 Subject to the provisions of any
applicable law or of the By-laws of the Corporation, as from time to time
amended, with respect to the closing of the transfer books or the fixing of a
record date for the determination of stockholders entitled to vote and except as
otherwise provided by law or by the resolution or resolutions providing for the
issue of any series of shares of Preferred Stock, the holders of outstanding
shares of Common Stock shall exclusively possess voting power for the election
of directors and for all other purposes, each holder of
3
<PAGE>
record of shares of Common Stock being entitled to one vote for each share of
Common Stock standing in his or her name on the books of the Corporation. Except
as otherwise provided by the resolution or resolutions providing for the issue
of any series of shares of Preferred Stock, the holders of shares of Common
Stock shall be entitled, to the exclusion of the holders of shares of Preferred
Stock of any and all series, to receive such dividends as from time to time may
be declared by the Board. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
shall have been made to the holders of shares of Preferred Stock of the full
amount to which they shall be entitled pursuant to the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the holders
of shares of Common Stock shall be entitled, to the exclusion of the holders of
shares of Preferred Stock of any and all series, to share, ratably according to
the number of shares of Common Stock held by them, in all remaining assets of
the Corporation available for distribution to its stockholders.
4.2.3 Subject to the provisions of this
Certificate of Incorporation and except as otherwise provided by law, the stock
of the Corporation, regardless of class, may be issued for such consideration
and for such corporate purposes as the Board may from time to time determine.
4.2.4 The Corporation shall not issue any
non-voting stock, PROVIDED, HOWEVER, that this provision is included in this
Certificate of Incorporation in compliance with section 1123(a)(6) of the
Bankruptcy Code and shall have no force or effect beyond that required by
section 1123(a)(6) of the Bankruptcy Code and shall be effective only for so
long as section 1123(a)(6) of the Bankruptcy Code is in effect and applicable to
the Corporation.
5. LIMITED PREEMPTIVE RIGHTS.
5.1 Subject to Section 5.5 hereof, if the
Corporation or any of its Subsidiaries shall propose to issue or sell to an
Identified Investor Affiliated Entity (as defined in Section 5.4 hereof) any
additional shares of Common Stock or any other class of capital stock of the
Corporation or any rights to subscribe for or purchase pursuant to any option or
otherwise any shares of any class of capital stock of the Corporation or any
securities convertible into or exchangeable for shares of any class of capital
stock of the Corporation (collectively, the "Additional Securities") or enter
into any contracts, commitments, agreements, understandings or arrangements of
any kind relating to the issuance or sale to any Identified Investor Affiliated
Entity of any Additional Securities, each Stockholder other than such Identified
Investor Affiliated
4
<PAGE>
Entity (each, an "Other Stockholder") shall have the right to purchase that
number of Additional Securities at the same price and on the same terms proposed
to be issued and sold to the Identified Affiliated Entity so that each Other
Stockholder would, after the issuance or sale of all of such Additional
Securities (and assuming the exercise in full by each Other Stockholder of its
right to purchase its Proportionate Percentage (as defined below)), hold the
same proportional interest of the outstanding shares of the capital stock of the
Corporation (assuming that any securities or other rights convertible into or
exchangeable or exercisable for shares of the capital stock have been converted,
exchanged or exercised) as was held by it prior to such issuance and sale (the
"Proportionate Percentage"). For purposes of determining each Other
Stockholder's Proportionate Percentage, if the issuance and sale of Additional
Securities to an Identified Investor Affiliated Entity will coincide with the
issuance and sale to any person other than such Identified Investor Affiliated
Entity or an Other Stockholder exercising its rights under this Section 5 (such
person being a "New Investor") of any shares of Common Stock or any other class
of capital stock of the Corporation or any rights to subscribe for or purchase
pursuant to any option or otherwise any shares of any class of capital stock of
the Corporation or any securities convertible into or exchangeable for shares of
any class of capital stock of the Corporation, the issuance and sale to the New
Investor shall be deemed to have occurred prior to the issuance or sale to the
Identified Investor Affiliated Entity. The Corporation shall offer to sell to
each Other Stockholder its Proportionate Percentage of such Additional
Securities (the "Offered Securities") at the price and on the terms described
above, which shall be specified by the Corporation in a written notice delivered
to each Other Stockholder (the "Preemptive Offer"). The Preemptive Offer shall
by its terms remain open for a period of at least 15 business days from the date
of receipt thereof and shall specify the date on which the Offered Securities
will be sold to accepting Other Stockholders.
5.2 Each Other Stockholder shall have the right,
during the period of the Preemptive Offer referred to in Section 5.1 above, to
purchase any or all of its Proportionate Percentage of the Offered Securities at
the purchase price and on the terms stated in the Preemptive Offer. Notice by
any Other Stockholder of its acceptance, in whole or in part, of a Preemptive
Offer shall be in writing (a "Notice of Acceptance") signed by such Other
Stockholder and delivered to the Corporation prior to the end of the specified
period of the Preemptive Offer, setting forth the number of Offered Securities
such Other Stockholder elects to purchase.
5.3 In the case of any Preemptive Offer, if
Notices of Acceptance given by the Other Stockholders do not cover in the
aggregate all of the Offered Securities, the Corporation may during the period
of 180 days following the
5
<PAGE>
date of expiration of such Preemptive Offer sell to any other Person or Persons,
including, without limitation, an Identified Investor Affiliated Entity, all or
any part of the Offered Securities not covered by a Notice of Acceptance, and
also may sell to any Person or Persons the Additional Securities giving rise to
these preemptive rights, but only on terms and conditions that are no more
favorable to such Person or Persons or less favorable to the Corporation than
those set forth in the Preemptive Offer.
5.4 As used herein, an "Identified Investor
Affiliated Entity" shall mean any Wellspring Affiliated Entity, any Ontario
Affiliated Entity or any CIP Affiliated Entity (each as defined below). A
"Wellspring Affiliated Entity" shall mean Wellspring Capital Management, LLC and
any other person (within the meaning of the Securities Exchange Act of 1934, as
amended), including, without limitation, PTB Acquisition Company, LLC, directly
or indirectly controlling, controlled by, or under common control with
Wellspring Capital Management, LLC, and shall also mean the direct and indirect
general partners or managing members and the direct and indirect limited
partners and members of any Wellspring Affiliated Entity that is a partnership
or a limited liability company. An "Ontario Affiliated Entity" shall mean the
Ontario Teachers Pension Plan Board and any other person directly or indirectly
controlling, controlled by or under common control with Ontario Teachers Pension
Plan Board. A "CIP Affiliated Entity" shall mean Co-Investment Partners, L.P.
and any other person directly or indirectly controlling, controlled by or under
common control with Co-Investment Partners, L.P. Any reference herein to an
Identified Investor Affiliated Entity shall be deemed to refer, in the case of
(i) a Wellspring Affiliated Entity, to all of the Wellspring Affiliated
Entities, considered as a single person, (ii) an Ontario Affiliated Entity, to
all of the Ontario Affiliated Entities, considered as a single person, or (iii)
a CIP Affiliated Entity, to all CIP Affiliated Entities, considered as a single
person.
5.5 The foregoing Sections 5.1 through 5.4 shall
be inapplicable to any issuance or sale by the Corporation to any Identified
Investor Affiliated Entity (i) if the Corporation has obtained an opinion from a
nationally recognized investment banking firm to the effect that the
consideration being paid by the Identified Investor Affiliated Entity to the
Corporation in connection with such issuance or sale represents not less than
the fair market value of the securities being offered, (ii) if at the time of
such sale or as a direct result of such sale either (1), the Identified
Investors Affiliated Entities, taken as a whole, beneficially own (determined in
the manner specified in Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended), or will
beneficially own, shares of capital stock of the Corporation entitling the
Identified
6
<PAGE>
Investor Affiliated Entities, taken as a whole, to cast less than thirty percent
(30%) of the votes for the election of directors of the Corporation, or (2) any
person (within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) shall beneficially own shares of capital stock of the
Corporation entitling such person to cast a greater number of votes for the
election of directors of the Corporation than the number of votes entitled to be
cast by the shares beneficially owned by the Identified Investor Affiliated
Entities, taken as a whole, or (iii) where such issuance and sale results from
the exercise of a stock option granted to a Wellspring Affiliate as contemplated
by that certain Stock Purchase Agreement, dated November 16, 1999, between the
Corporation and PTB Acquisition Company, LLC. In addition, the foregoing
Sections 5.1 through 5.4 notwithstanding, nothing set forth in this Section 5
shall be deemed to grant any Other Stockholder any Preemptive Rights in
connection with, or otherwise limit or prevent (x) the offering and sale by the
Corporation or any Subsidiary of any shares of its capital stock, or other
securities convertible into or exchangeable therefor, pursuant to an
underwritten public offering registered under the Securities Act of 1933, as
amended, or (y) the purchase by any Identified Investor Affiliated Entity of any
shares of the Corporation's or any Subsidiary's capital stock, or other
securities convertible into or exchangeable therefor, offered in any such
underwritten public offering.
6. ELECTION OF DIRECTORS. Members of the Board of
Directors of the Corporation (the "Board") may be elected either by written
ballot or by voice vote.
7. LIMITATION OF LIABILITY. No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided that
this provision shall not eliminate or limit the liability of a director (a) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the General Corporation Law or (d) for any transaction from which the director
derived any improper personal benefits.
Any repeal or modification of the foregoing provision shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
7
<PAGE>
8. INDEMNIFICATION.
8.1 To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 8.
8.2 The Corporation shall, from time to time,
reimburse or advance to any director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; PROVIDED, HOWEVER, that,
if required by the General Corporation Law, such expenses incurred by or on
behalf of any director or officer or other person may be paid in advance of the
final disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Section 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Certificate of Incorporation, the
By-laws of the Corporation (the "By-laws"), any agreement, any vote of
stockholders or disinterested directors or
8
<PAGE>
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
8.4 The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Section 8
shall continue as to a person who has ceased to be a director or officer (or
other person indemnified hereunder) and shall inure to the benefit of the
executors, administrators, legatees and distributees of such person.
8.5 The Corporation shall have power to purchase
and maintain insurance on behalf of any person who 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 an Other
Entity, against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Section 8, the By-laws or
under Section 145 of the General Corporation Law or any other provision of law.
8.6 The provisions of this Section 8 shall be a
contract between the Corporation, on the one hand, and each director and officer
who serves in such capacity at any time while this Section 8 is in effect and
any other person entitled to indemnification hereunder, on the other hand,
pursuant to which the Corporation and each such director, officer, or other
person intend to be, and shall be, legally bound. No repeal or modification of
this Section 8 shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
8.7 The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Section 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board, its independent legal counsel and
9
<PAGE>
its stockholders) that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
8.8 Any director or officer of the Corporation
serving in any capacity of (a) another corporation of which a majority of the
shares entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation or (b) any employee benefit plan of the
Corporation or any corporation referred to in clause (a) shall be deemed to be
doing so at the request of the Corporation.
8.9 Any person entitled to be indemnified or to
reimbursement or advancement of expenses as a matter of right pursuant to this
Section 8 may elect to have the right to indemnification or reimbursement or
advancement of expenses interpreted on the basis of the applicable law in effect
at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; PROVIDED, HOWEVER, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. ADOPTION, AMENDMENT AND/OR REPEAL OF BY-LAWS. The Board may
from time to time adopt, amend or repeal the By-laws of the Corporation;
PROVIDED, HOWEVER, that any By-laws adopted or amended by the Board may be
amended or repealed, and any By-laws may be adopted, by the stockholders of the
Corporation by vote of a majority of the holders of shares of stock of the
Corporation entitled to vote in the election of directors of the Corporation.
10. ACTION BY STOCKHOLDERS. Notwithstanding the provisions of
Section 228 of the General Corporation Law (or any successor statute), any
action required or permitted by the General Corporation Law to be taken at any
annual or special meeting of stockholders of the Corporation may be taken at
such an annual or special meeting of stockholders or by written consent without
a meeting.
10
<PAGE>
IN WITNESS WHEREOF, PARAGON TRADE BRANDS, INC. has caused this
certificate to be signed by its Executive Vice President and Chief Financial
Officer, and attested by its Secretary, on the 28TH day of January, 2000.
PARAGON TRADE BRANDS, INC.
By: /S/ ALAN J. CYRON
--------------------
Name: Alan J. Cyron
Executive Vice President and
Chief Financial Officer
Attest:
/S/ CATHERINE O. HASBROUCK
- --------------------------
Name: Catherine O. Hasbrouck
Secretary
11
AMENDED AND RESTATED
BY-LAWS
of
PARAGON TRADE BRANDS, INC.
(A Delaware Corporation)
------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise
requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of
the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of
the Corporation.
1.3 "Board" means the Board of Directors of the
Corporation.
1.4 "By-laws" means the initial by-laws of the
Corporation, as amended from time to time.
1.5 "Certificate of Incorporation" means the amended
and restated certificate of incorporation of the Corporation, as further
amended, supplemented or restated from time to time.
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2
1.6 "Chairman" means the Chairman of the Board of
Directors of the Corporation.
1.7 "Corporation" means Paragon Trade Brands, Inc.
1.8 "Directors" means directors of the Corporation.
1.9 "Entire Board" means all directors of the Corporation
in office, whether or not present at a meeting of the Board, but disregarding
vacancies.
1.10 "General Corporation Law" means the General
Corporation Law of the State of Delaware, as amended from time to time.
1.11 "Office of the Corporation" means the executive
office of the Corporation, anything in Section 131 of the General Corporation
Law to the contrary notwithstanding.
1.12 "President" means the President of the Corporation.
1.13 "Secretary" means the Secretary of the Corporation.
1.14 "Stockholders" means stockholders of the Corporation.
1.15 "Treasurer" means the Treasurer of the Corporation.
1.16 "Vice President" means a Vice President of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of Stockholders shall be
held at the office of the Corporation or at such other place within or without
the State of Delaware as shall be specified or fixed in the notice of such
meeting or in the waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of Stockholders shall be held
annually for the election of Directors and the transaction of other business at
such hour
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3
and on such business day in each year as may be determined by resolution adopted
by affirmative vote of the Entire Board and designated in the notice of meeting.
2.3 DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If the
annual meeting of Stockholders for the election of Directors and the transaction
of other business is not held on the date designated therefor or at any
adjournment of a meeting convened on such date, the Board, by resolution adopted
by affirmative vote of the Entire Board, shall call a meeting of Stockholders
for the election of Directors and the transaction of other business as soon
thereafter as convenient.
2.4 OTHER SPECIAL MEETINGS. A special meeting of Stockholders
(other than a special meeting for the election of Directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the Chairman
or by the President. At any special meeting of Stockholders only such business
may be transacted as is related to the purpose or purposes of such meeting set
forth in the notice thereof given pursuant to Section 2.6 hereof or in any
waiver of notice thereof given pursuant to Section 2.7 hereof.
2.5 FIXING RECORD DATE. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, (ii) unless otherwise provided in the Certificate of
Incorporation, to express consent to corporate action in writing without a
meeting or (iii) to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more
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4
than sixty nor less than ten days before the date of such meeting, (y) in the
case of clause (a)(ii) above, more than 10 days after the date upon which the
resolution fixing the record date was adopted by the Board and (z) in the case
of clause (a)(iii) or (b) above, more than sixty days prior to such action. If
no such record date is fixed:
2.5.1 the record date for determining
Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the
meeting is held;
2.5.2 the record date for determining
Stockholders entitled to express consent to corporate action in writing
without a meeting (unless otherwise provided in the Certificate of
Incorporation), when no prior action by the Board is required under the
General Corporation Law, shall be the first day on which a signed
written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which
proceedings of meetings of Stockholders are recorded; and when prior
action by the Board is required under the General Corporation Law, the
record date for determining Stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of
business on the date on which the Board adopts the resolution taking
such prior action; and
2.5.3 the record date for determining
Stockholders for any purpose other than those specified in Sections
2.5.1 and 2.5.2 shall be at the
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5
close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by hand or by
certified or registered mail, return receipt requested.
2.6 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise
provided in Sections 2.5 and 2.7 hereof, whenever under the provisions of any
statute, the Certificate of Incorporation or these By-laws, Stockholders are
required or permitted to take any action at a meeting, written notice shall be
given stating the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by any statute, the Certificate of Incorporation or these
By-laws, a copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than sixty days before the date of the meeting,
to each Stockholder entitled to notice of or to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, with postage prepaid, directed to the Stockholder at his or her address as
it appears on the records of the Corporation. An affidavit of the Secretary or
an Assistant Secretary or of the transfer agent of the Corporation that the
notice required by this Section 2.6 has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. When a meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the
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6
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting as
originally called. If, however, the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Stockholder of record
entitled to vote at the meeting.
2.7 WAIVERS OF NOTICE. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof, in writing, signed by the Stockholder or Stockholders entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting
shall constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Stockholders need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
2.8 LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, or cause to be prepared and made, at least ten days before every meeting
of Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, the Stockholder's
agent, or attorney, at the Stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place
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7
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
Stockholder who is present. The Corporation shall maintain the Stockholder list
in written form or in another form capable of conversion into written form
within a reasonable time. The stock ledger shall be the only evidence as to who
are the Stockholders entitled to examine the stock ledger, the list of
Stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of Stockholders.
2.9 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, the
holders of a majority in voting power of all outstanding shares of stock
entitled to vote at any meeting of Stockholders, present in person or
represented by proxy, shall constitute a quorum for the transaction of any
business at such meeting. When a quorum is once present to organize a meeting of
Stockholders, it is not broken by the subsequent withdrawal of any Stockholders.
The holders of a majority of the shares of stock present in person or
represented by proxy at any meeting of Stockholders, including an adjourned
meeting, whether or not a quorum is present, may adjourn such meeting to another
time and place. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; PROVIDED, HOWEVER, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
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8
2.10 VOTING; PROXIES. Unless otherwise provided in the
Certificate of Incorporation or in the Board resolutions authorizing the
issuance of any Series of Preferred Stock, every Stockholder of record shall be
entitled at every meeting of Stockholders to one vote for each share of capital
stock standing in his or her name on the record of Stockholders determined in
accordance with Section 2.5 hereof. If the Certificate of Incorporation provides
for more or less than one vote for any share on any matter, each reference in
the By-laws or the General Corporation Law to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock. The provisions of Sections 212 and 217 of the General Corporation Law
shall apply in determining whether any shares of capital stock may be voted and
the persons, if any, entitled to vote such shares; but the Corporation shall be
protected in assuming that the persons in whose names shares of capital stock
stand on the stock ledger of the Corporation are entitled to vote such shares.
Holders of redeemable shares of stock are not entitled to vote after the notice
of redemption is mailed to such holders and a sum sufficient to redeem the
stocks has been deposited with a bank, trust company, or other financial
institution under an irrevocable obligation to pay the holders the redemption
price on surrender of the shares of stock. At any meeting of Stockholders (at
which a quorum was present to organize the meeting), all matters, except as
otherwise provided by statute or by the Certificate of Incorporation or by these
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of Directors shall be by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
vote by ballot is required by law or is
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9
demanded by any Stockholder entitled to vote, the voting shall be by ballot.
Each ballot shall be signed by the Stockholder voting or the Stockholder's proxy
and shall state the number of shares voted. On all other questions, the voting
may be VIVA VOCE. Each Stockholder entitled to vote at a meeting of Stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such Stockholder by
proxy. The validity and enforceability of any proxy shall be determined in
accordance with Section 212 of the General Corporation Law. A Stockholder may
revoke any proxy that is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary.
2.11 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS
OF STOCKHOLDERS. The Board, in advance of any meeting of Stockholders, may
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Board may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed or is able to act at a meeting, the person presiding at the meeting
may appoint, and on the request of any Stockholder entitled to vote thereat
shall appoint, one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall (a) ascertain
the number of shares outstanding and the voting power of each, (b) determine the
shares represented at the meeting and the validity of proxies and ballots, (c)
count all votes and ballots, (d) determine and retain for a reasonable period a
record of the disposition
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10
of any challenges made to any determination by the inspectors, and (e) certify
their determination of the number of shares represented at the meeting and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of their duties.
Unless otherwise provided by the Board, the date and time of the opening and the
closing of the polls for each matter upon which the Stockholders will vote at a
meeting shall be determined by the person presiding at the meeting and shall be
announced at the meeting. No ballot, proxies or votes, or any revocation thereof
or change thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery of the State of Delaware upon application by
a Stockholder shall determine otherwise.
2.12 ORGANIZATION. At each meeting of Stockholders, the
President, or in the absence of the President, the Chairman, or if there is no
Chairman or if there be one and the Chairman is absent, a Vice President, and in
case more than one Vice President shall be present, that Vice President
designated by the Board (or in the absence of any such designation, the most
senior Vice President, based on age, present), shall act as chairman of the
meeting. The Secretary, or in his or her absence, one of the Assistant
Secretaries, shall act as secretary of the meeting. In case none of the officers
above designated to act as chairman or secretary of the meeting, respectively,
shall be present, a chairman or a secretary of the meeting, as the case may be,
shall be chosen by a majority of the votes cast at such meeting by the holders
of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
2.13 ORDER OF BUSINESS. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting.
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11
2.14 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. At any meeting
of Stockholders, only such business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board or (ii) by
any Stockholder of the Corporation who complies with the notice procedures set
forth in this Section 2.14. For business to be properly brought before any
meeting of the Stockholders by a Stockholder, the Stockholder must have given
notice thereof in writing to the Secretary of the Corporation not less than 60
nor more than 90 days in advance of the anniversary of the previous year's
annual meeting; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the Stockholder to be timely must be so given not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. A Stockholder's notice to the Secretary shall set forth
as to each matter the Stockholder proposes to bring before the meeting (1) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and
address, as they appear on the Corporation's books, of the Stockholder proposing
such business, (3) the class and number of shares of the Corporation that are
beneficially owned by the Stockholder, (4) any material interest of the
Stockholder in such business, and (5) a representation that the Stockholder
intends to appear in person or by proxy at the meeting to present such business.
In addition, the Stockholder making such proposal shall promptly provide any
other information reasonably requested by the Corporation. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at any
meeting of Stockholders except in
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accordance with the procedures set forth in this Section 2.14. The chairman of
any such meeting shall direct that any business not properly brought before the
meeting shall not be considered. The procedures set forth in this Section for
business to be properly brought before an annual meeting by a Stockholder are in
addition to, and not in lieu of, the requirements set forth in Rule 14a-8 under
Section 14 of the Securities Exchange Act of 1934, as amended, or any successor
provision.
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS. Nominations
for the election of Directors may be made by the Board or by any Stockholder
entitled to vote in the election of Directors; PROVIDED, HOWEVER, that a
Stockholder may nominate a person for election as a director at a meeting only
if written notice of such Stockholder's intent to make such nomination has been
given to the Secretary of the Corporation not later than 60 nor more than 90
days in advance of the anniversary of the previous year's annual meeting;
PROVIDED FURTHER, HOWEVER, that in the event that the date of the annual meeting
is more than 30 days earlier or more than 60 days later than such anniversary
date, notice by the Stockholder to be timely must be so given not earlier than
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. Each such notice shall set forth: (i) the name and address of the
Stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the Stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to present the nomination of the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the Stockholder
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and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are made by the Stockholder;
(iv) such other information regarding each nominee proposed by such Stockholder
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the United States Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board; and (v) the
consent of each nominee to serve as a Director of the Corporation if so elected.
In addition, the Stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.15. The chairman of
any meeting of Stockholders shall direct that any nomination not made in
accordance with these procedures be disregarded.
2.16 NOTICE TO CORPORATION. Any written notice required to be
delivered by a Stockholder to the Corporation pursuant to Sections 2.14 or 2.15
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the Corporation's executive offices,
180 Technology Parkway, Norcross, Georgia 30092.
2.17 WRITTEN CONSENT OF STOCKHOLDERS WITHOUT A MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to
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vote thereon were present and voted and shall be delivered (by hand or by
certified or registered mail, return receipt requested) to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated consent
delivered in the manner required by this Section 2.17, written consents signed
by a sufficient number of holders to take action are delivered to the
Corporation as aforesaid. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
Stockholders who have not consented in writing.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. Except as otherwise provided in the
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by or under the direction of the Board. The Board may adopt such
rules and regulations, not inconsistent with the Certificate of Incorporation or
these By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the Board may exercise all powers and
perform all acts that are not required, by these By-laws or the Certificate of
Incorporation or by statute, to be exercised and performed by the Stockholders.
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3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. The Board shall
consist of not fewer than one nor more than fifteen members. The number of
Directors shall be fixed initially at nine and may thereafter be changed from
time to time by the affirmative vote of a majority of the Stockholders or by the
affirmative vote of a majority of the Entire Board, provided that such action
does not remove a Director other than in a manner prescribed in the Certificate
of Incorporation or these By-laws. Directors need not be Stockholders. Each
Director shall hold office until a successor is elected and qualified or until
the Director's death, resignation or removal.
3.3 ELECTION. Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of Stockholders by the holders of shares entitled to
vote in the election.
3.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless
otherwise provided in the Certificate of Incorporation, newly created
Directorships resulting from an increase in the number of Directors and
vacancies occurring in the Board for any other reason, including the removal of
Directors without cause, may be filled by the affirmative votes of a majority of
the Entire Board, although less than a quorum, or by a sole remaining Director,
or may be elected by a plurality of the votes cast by the holders of shares of
capital stock entitled to vote in the election at a special meeting of
Stockholders called for that purpose. A Director elected to fill a vacancy shall
be elected to hold office until a successor is elected and qualified, or until
the Director's earlier death, resignation or removal.
3.5 RESIGNATION. Any Director may resign at any time by
written notice to the Corporation. Such resignation shall take effect at the
time therein
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16
specified, and, unless otherwise specified in such resignation, the acceptance
of such resignation shall not be necessary to make it effective.
3.6 REMOVAL. Subject to the provisions of Section 141(k) of
the General Corporation Law, any or all of the Directors may be removed with or
without cause by vote of the holders of a majority of the shares then entitled
to vote at an election of Directors.
3.7 COMPENSATION. Each Director, in consideration of his or
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at Directors' meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties. Each Director who shall
serve as a member of any committee of Directors in consideration of serving as
such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-pocket
expenses, if any, incurred by such Director in the performance of his or her
duties. Nothing contained in this Section 3.7 shall preclude any Director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.8 TIMES AND PLACES OF MEETINGS. The Board may hold meetings,
both regular and special, either within or without the State of Delaware. The
times and places for holding meetings of the Board may be fixed from time to
time by resolution of the Board or (unless contrary to a resolution of the
Board) in the notice of the meeting.
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3.9 ANNUAL MEETINGS. On the day when and at the place where
the annual meeting of Stockholders for the election of Directors is held, and as
soon as practicable thereafter, the Board may hold its annual meeting, without
notice of such meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual meeting of the Board
may be held at any other time and place specified in a notice given as provided
in Section 3.11 hereof for special meetings of the Board or in a waiver of
notice thereof.
3.10 REGULAR MEETINGS. Regular meetings of the Board may
be held without notice at such times and at such places as shall from time to
time be determined by the Board.
3.11 SPECIAL MEETINGS. Special meetings of the Board may be
called by the Chairman, the President or the Secretary or by any two or more
Directors then serving on at least one day's notice to each Director given by
one of the means specified in Section 3.14 hereof other than by mail, or on at
least three days' notice if given by mail. Special meetings shall be called by
the Chairman, President or Secretary in like manner and on like notice on the
written request of any two or more of the Directors then serving.
3.12 TELEPHONE MEETINGS. Directors or members of any committee
designated by the Board may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
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3.13 ADJOURNED MEETINGS. A majority of the Directors present
at any meeting of the Board, including an adjourned meeting, whether or not a
quorum is present, may adjourn such meeting to another time and place. Any
business may be transacted at an adjourned meeting that might have been
transacted at the meeting as originally called.
3.14 NOTICE PROCEDURE. Subject to Sections 3.11 and 3.17
hereof, whenever, under the provisions of any statute, the Certificate of
Incorporation or these By-laws, notice is required to be given to any Director,
such notice shall be deemed given effectively if given in person or by
telephone, by mail addressed to such Director at such Director's address as it
appears on the records of the Corporation, with postage thereon prepaid, or by
telegram, telex, telecopy, electronic mail or similar means addressed as
aforesaid.
3.15 WAIVER OF NOTICE. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof, in writing, signed by the person or persons entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting has not been
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Directors or a committee of
Directors need be specified in any written waiver of notice unless so required
by statute, the Certificate of Incorporation or these By-laws.
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19
3.16 ORGANIZATION. At each meeting of the Board, the Chairman,
or in the absence of the Chairman, the President, or in the absence of the
President, a chairman chosen by a majority of the Directors present, shall
preside. The Secretary shall act as secretary at each meeting of the Board. In
case the Secretary shall be absent from any meeting of the Board, an Assistant
Secretary shall perform the duties of secretary at such meeting; and in the
absence from any such meeting of the Secretary and all Assistant Secretaries,
the person presiding at the meeting may appoint any person to act as secretary
of the meeting.
3.17 QUORUM OF DIRECTORS. The presence in person of a majority
of the Entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the Board, but a majority of a
smaller number may adjourn any such meeting to a later date.
3.18 ACTION BY MAJORITY VOTE. Except as otherwise expressly
required by statute, the Certificate of Incorporation or these By-laws, the act
of a majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if all Directors or members of such committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
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ARTICLE 4
COMMITTEES OF THE BOARD
4.1 EXECUTIVE COMMITTEE. The Board may, by resolution adopted
by a majority of the Entire Board, designate one or more of its members to
constitute an Executive Committee. The Executive Committee shall have and may
exercise all of the authority of the Board in the management of the business and
affairs of the Corporation within the limits permitted by law, including,
without limitation, the power and authority of the Board: (i) to authorize the
seal of the Corporation to be affixed to all papers; (ii) to declare a dividend;
(iii) to authorize the issuance of stock; (iv) to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law; and
(v) to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board, to fix any of the preference
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of shares for, shares of any other class or classes or any other series
of the same of any other class or classes of stock of the Corporation.
4.2 AUDIT COMMITTEE. The Board, by resolution adopted by a
majority of the Entire Board, may designate not less than three (3) of the
Directors then in office to constitute an Audit Committee. At least a majority
of such Directors must be independent of management and free from any
relationship that, in the opinion of the Board, would interfere with such
Directors' exercise of independent judgment as a committee member. The Audit
Committee, if established, shall (i) consider and make recommendations to the
Board with respect to the employment of a firm of independent public
accountants, (ii) confer with the Corporation's independent public accountants
to
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determine the scope of the audit that such accountants will perform, (iii)
receive reports from the independent public accountants and transmit such
reports to the Board, and after the close of the fiscal year, transmit to the
Board the financial statements certified by such accountants, (iv) inquire into,
examine and make comments on the accounting procedures of the Corporation and
the reports of the independent public accountants, and (v) consider and make
recommendations to the Board upon matters presented to it by the officers of the
Corporation pertaining to the audit practices and procedures adhered to by the
Corporation. The Board may designate one member of the Audit Committee to act as
its chairman.
4.3 COMPENSATION COMMITTEE. The Board, by resolution adopted
by a majority of the Entire Board, may designate not less than two (2) of the
Directors then in office to constitute a Compensation Committee. All of such
Directors shall be independent of management and free from any relationship
that, in the opinion of the Board, would interfere with such Director's exercise
of independent judgment as a committee member. The Compensation Committee may
exercise all of the authority of the Board in administering the Corporation's
executive compensation plans.
4.4 OTHER COMMITTEES. In addition to the Executive Committee,
the Audit Committee and the Compensation Committee, the Board may, by resolution
adopted by a majority of the Entire Board, designate one or more other
committees of the Board, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
shall have and may exercise the powers of the Board in the management of the
business and affairs of the Corporation. Such committee or committees shall have
such name or names as may be determined from time to time by the Board. A
majority of the members of a committee
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shall constitute a quorum. The member or members of any such committee (other
than the Audit Committee or the Executive Committee) present at any meeting and
not disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board to act at the meeting in the
place of any absent or disqualified member. At meetings of such committees, the
act of a majority of the members or alternate members at any meeting at which
there is a quorum shall be the act of the committee. Unless the Board otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules such
committee shall conduct its business in the same manner as the Board conducts
its business pursuant to Article 3 of these By-laws.
4.5 COMMITTEE MINUTES. The committee shall keep regular
minutes of its proceedings and report the same to the Board.
ARTICLE 5
OFFICERS
5.1 POSITIONS. The officers of the Corporation shall consist
of those elected by the Board of Directors and those appointed by the chief
executive officer. The officers of the Corporation to be elected by the Board of
Directors shall be: a Chairman; a President; one or more Executive Vice
Presidents; a Secretary; a Treasurer; a Controller; and a General Counsel. The
officers of the Corporation which may be appointed by the chief executive
officer shall be one or more Vice Presidents and Senior Vice Presidents and such
additional officers and assistant officers as the chief executive officer
determines. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these By-laws otherwise provide.
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5.2 APPOINTMENT. The officers of the Corporation shall be
chosen by the Board at its annual meeting or at such other time or times as the
Board shall determine.
5.3 COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that the officer
is also a Director.
5.4 TERM OF OFFICE. Each officer of the Corporation shall hold
office for the term for which he or she is elected and until such officer's
successor is chosen and qualifies or until such officer's earlier death,
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Such resignation shall take effect at the date of receipt of
such notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any. Any officer elected or appointed by
the Board may be removed at any time, with or without cause, by vote of a
majority of the Entire Board. Any vacancy occurring in any office of the
Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.5 FIDELITY BONDS. The Corporation may secure the fidelity
of any or all of its officers or agents by bond or otherwise.
5.6 CHAIRMAN. The Chairman, if one shall have been appointed,
shall preside at all meetings of the Board and shall exercise such powers and
perform such other duties as shall be determined from time to time by the Board.
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5.7 PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision over the business
of the Corporation, subject, however, to the control of the Board and of any
duly authorized committee of Directors. The President shall preside at all
meetings of the Stockholders and at all meetings of the Board at which the
Chairman (if there be one) is not present. The President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts and other
instruments except in cases in which the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws to some other officer or
agent of the Corporation or shall be required by statute otherwise to be signed
or executed and, in general, the President shall perform all duties incident to
the office of President of a corporation and such other duties as may from time
to time be assigned to the President by the Board.
5.8 CHIEF FINANCIAL OFFICER. The chief financial officer of
the Corporation, if any, shall have general supervision and direction over the
duties and function of the Treasurer; shall render to the Board, whenever the
Board may require, an account of the financial condition of the Corporation;
shall provide for the continuous review of all accounts and reports; and shall
perform such other duties as from time to time may be assigned to the chief
financial officer by the Board, by these By-laws, by the chief executive officer
or by the President.
5.9 VICE PRESIDENTS. Each Vice President and Senior Vice
President shall have such powers and perform such duties as from time to time
may be assigned to such Vice President by the Board, by these By-laws, by the
chief executive officer or by the President. At the request of the President,
or, in the President's absence, at the request of the Board, the Vice Presidents
shall (in such order as may be designated by
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the Board, or, in the absence of any such designation, in order of seniority
based on age first among Senior Vice Presidents and then among Vice Presidents)
perform all of the duties of the President and, in so performing, shall have all
the powers of, and be subject to all restrictions upon, the President. Any Vice
President may sign and execute in the name of the Corporation deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall be expressly delegated by the Board or by these By-laws
to some other officer or agent of the Corporation, or shall be required by
statute otherwise to be signed or executed, and each Vice President shall
perform such other duties as from time to time may be assigned to such Vice
President by the Board or by the President.
5.10 SECRETARY. The Secretary shall attend all meetings of the
Board and of the Stockholders and shall record all the proceedings of the
meetings of the Board and of the stockholders in a book to be kept for that
purpose, and shall perform like duties for committees of the Board, when
required. The Secretary shall give, or cause to be given, notice of all special
meetings of the Board and of the stockholders and shall perform such other
duties as may be prescribed by the Board or by the President, under whose
supervision the Secretary shall be. The Secretary shall have custody of the
corporate seal of the Corporation, and the Secretary, or an Assistant Secretary,
shall have authority to impress the same on any instrument requiring it, and
when so impressed the seal may be attested by the signature of the Secretary or
by the signature of such Assistant Secretary. The Board may give general
authority to any other officer to impress the seal of the Corporation and to
attest the same by such officer's signature. The Secretary or an Assistant
Secretary may also attest all instruments signed by the President or any Vice
President. The Secretary shall have
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charge of all the books, records and papers of the Corporation relating to its
organization and management, shall see that the reports, statements and other
documents required by statute are properly kept and filed and, in general, shall
perform all duties incident to the office of Secretary of a corporation and such
other duties as may from time to time be assigned to the Secretary by the Board
or by the President.
5.11 TREASURER. The Treasurer, subject to the review and
authority of the chief financial officer, if any, shall have charge and custody
of, and be responsible for, all funds, securities and notes of the Corporation;
receive and give receipts for moneys due and payable to the Corporation from any
sources whatsoever; deposit all such moneys and valuable effects in the name and
to the credit of the Corporation in such depositaries as may be designated by
the Board; against proper vouchers, cause such funds to be disbursed by checks
or drafts on the authorized depositaries of the Corporation signed in such
manner as shall be determined by the Board and be responsible for the accuracy
of the amounts of all moneys so disbursed; regularly enter or cause to be
entered in books or other records maintained for the purpose full and adequate
account of all moneys received or paid for the account of the Corporation; have
the right to require from time to time reports or statements giving such
information as the Treasurer may desire with respect to any and all financial
transactions of the Corporation from the officers or agents transacting the
same; make, sign and file financial, tax and similar reports to any state,
federal or municipal government, agency or department, or any self-regulatory
organization; render to the Chairman, the President or the Board, whenever the
Chairman, the President or the Board shall require the Treasurer so to do, an
account of the financial condition of the Corporation and of all financial
transactions of the Corporation; exhibit at all
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reasonable times the records and books of account to any of the Directors upon
application at the office of the Corporation where such records and books are
kept; disburse the funds of the Corporation as ordered by the Board; and, in
general, perform all duties incident to the office of treasurer of a corporation
and such other duties as may from time to time be assigned to the Treasurer by
the Board, by these By-laws, by the chief executive officer, by the President or
by the chief financial officer. In the absence of the Treasurer, an Assistant
Treasurer may perform the duties of the Treasurer.
5.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board, by these By-laws or by the chief executive officer.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in these By-laws, may prospectively or retroactively authorize any
officer or officers, employee or employees or agent or agents, in the name and
on behalf of the Corporation, to enter into any contract or execute and deliver
any instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 LOANS. The Board may prospectively or retroactively
authorize the President or any other officer, employee or agent of the
Corporation to effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances the person so authorized may make,
execute and deliver promissory notes,
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bonds or other certificates or evidences of indebtedness of the Corporation,
and, when authorized by the Board so to do, may pledge and hypothecate or
transfer any securities or other property of the Corporation as security for any
such loans or advances. Such authority conferred by the Board may be general or
confined to specific instances, or otherwise limited.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders
for the payment of money out of the funds of the Corporation and all evidences
of indebtedness of the Corporation shall be signed on behalf of the Corporation
in such manner as shall from time to time be determined by resolution of the
Board.
6.4 DEPOSITS. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the Corporation
with such banks, trust companies, investment banking firms, financial
institutions or other depositaries as the Board may select or as may be selected
by an officer, employee or agent of the Corporation to whom such power to select
may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 CERTIFICATES REPRESENTING SHARES. The shares of capital
stock of the Corporation shall be represented by certificates in such form
(consistent with the provisions of Section 158 of the General Corporation Law)
as shall be approved by the Board. Such certificates shall be signed by the
Chairman, the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with
the seal of the Corporation or a facsimile thereof. The signatures of the
officers upon a certificate may be facsimiles, if
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the certificate is countersigned by a transfer agent or registrar other than the
Corporation itself or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may, unless otherwise
ordered by the Board, be issued by the Corporation with the same effect as if
such person were such officer, transfer agent or registrar at the date of issue.
7.2 TRANSFER OF SHARES. Transfers of shares of capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof or by the holder's duly authorized attorney appointed by a power
of attorney duly executed and filed with the Secretary or a transfer agent of
the Corporation, and on surrender of the certificate or certificates
representing such shares of capital stock properly endorsed for transfer and
upon payment of all necessary transfer taxes. Every certificate exchanged,
returned or surrendered to the Corporation shall be marked "Cancelled," with the
date of cancellation, by the Secretary or an Assistant Secretary or the transfer
agent of the Corporation. A person in whose name shares of capital stock shall
stand on the books of the Corporation shall be deemed the owner thereof to
receive dividends, to vote as such owner and for all other purposes as respects
the Corporation. No transfer of shares of capital stock shall be valid as
against the Corporation, its stockholders and creditors for any purpose, except
to render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
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7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from
time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to time
by the Board.
7.4 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The
holder of any shares of capital stock of the Corporation shall immediately
notify the Corporation of any loss, destruction, theft or mutilation of the
certificate representing such shares, and the Corporation may issue a new
certificate to replace the certificate alleged to have been lost, destroyed,
stolen or mutilated. The Board may, in its discretion, as a condition to the
issue of any such new certificate, require the owner of the lost, destroyed,
stolen or mutilated certificate, or his or her legal representatives, to make
proof satisfactory to the Board of such loss, destruction, theft or mutilation
and to advertise such fact in such manner as the Board may require, and to give
the Corporation and its transfer agents and registrars, or such of them as the
Board may require, a bond in such form, in such sums and with such surety or
sureties as the Board may direct, to indemnify the Corporation and its transfer
agents and registrars against any claim that may be made against any of them on
account of the continued existence of any such certificate so alleged to have
been lost, destroyed, stolen or mutilated and against any expense in connection
with such claim.
7.5 RULES AND REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certificates representing shares of its capital stock.
7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction on
the transfer or registration of transfer of capital stock of the Corporation, if
permitted by
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Section 202 of the General Corporation Law and noted conspicuously on the
certificate representing such capital stock, may be enforced against the holder
of the restricted capital stock or any successor or transferee of the holder,
including an executor, administrator, trustee, guardian or other fiduciary
entrusted with like responsibility for the person or estate of the holder.
Unless noted conspicuously on the certificate representing such capital stock, a
restriction, even though permitted by Section 202 of the General Corporation
Law, shall be ineffective except against a person with actual knowledge of the
restriction. A restriction on the transfer or registration of transfer of
capital stock of the Corporation may be imposed either by the Certificate of
Incorporation or by an agreement among any number of stockholders or among such
stockholders and the Corporation. No restriction so imposed shall be binding
with respect to capital stock issued prior to the adoption of the restriction
unless the holders of such capital stock are parties to an agreement or voted in
favor of the restriction.
7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make
other distributions on the outstanding shares of capital stock in such
amounts and at such time or times as it, in its discretion, shall deem
advisable giving due consideration to the condition of the affairs of
the Corporation;
7.7.2 may use and apply, in its discretion,
any of the surplus of the Corporation in purchasing or acquiring any
shares of capital stock of the Corporation, or purchase warrants
therefor, in accordance with law, or any of its bonds, debentures,
notes, scrip or other securities or evidences of indebtedness; and
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7.7.3 may set aside from time to time out of
such surplus or net profits such sum or sums as, in its discretion, it
may think proper, as a reserve fund to meet contingencies, or for
equalizing dividends or for the purpose of maintaining or increasing
the property or business of the Corporation, or for any purpose it may
think conducive to the best interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNITY UNDERTAKING. To the extent not prohibited by
law, the Corporation shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a Director or officer of the Corporation, or, at the request of the
Corporation, is or was serving as a director or officer of any other corporation
or in a capacity with comparable authority or responsibilities for any
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees,
disbursements and other charges). Persons who are not directors or officers of
the Corporation (or otherwise entitled to indemnification pursuant to the
preceding sentence) may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request
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of the Corporation to the extent the Board at any time specifies that such
persons are entitled to the benefits of this Article 8.
8.2 ADVANCEMENT OF EXPENSES. The Corporation shall, from time
to time, reimburse or advance to any Director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with any Proceeding, in advance of the final disposition of such Proceeding;
PROVIDED, HOWEVER, that, if required by the General Corporation Law, such
expenses incurred by or on behalf of any Director or officer or other person may
be paid in advance of the final disposition of a Proceeding only upon receipt by
the Corporation of an undertaking, by or on behalf of such Director or officer
(or other person indemnified hereunder), to repay any such amount so advanced if
it shall ultimately be determined by final judicial decision from which there is
no further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, the Certificate of
Incorporation, these By-laws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
8.4 CONTINUATION OF BENEFITS. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this
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Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who 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 an Other
Entity, against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article 8, the Certificate
of Incorporation or under Section 145 of the General Corporation Law or any
other provision of law.
8.6 BINDING EFFECT. The provisions of this Article 8 shall be
a contract between the Corporation, on the one hand, and each Director and
officer who serves in such capacity at any time while this Article 8 is in
effect and any other person entitled to indemnification hereunder, on the other
hand, pursuant to which the Corporation and each such Director, officer or other
person intend to be, and shall be legally bound. No repeal or modification of
this Article 8 shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
8.7 PROCEDURAL RIGHTS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall be enforceable by any person entitled to such
indemnification or
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reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 SERVICE DEEMED AT CORPORATION'S REQUEST. Any Director or
officer of the Corporation serving in any capacity (a) another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 ELECTION OF APPLICABLE LAW. Any person entitled to be
indemnified or to reimbursement or advancement of expenses as a matter of right
pursuant to this Article 8 may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the
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time of the occurrence of the event or events giving rise to the applicable
Proceeding, to the extent permitted by law, or on the basis of the applicable
law in effect at the time such indemnification or reimbursement or advancement
of expenses is sought. Such election shall be made, by a notice in writing to
the Corporation, at the time indemnification or reimbursement or advancement of
expenses is sought; PROVIDED, HOWEVER, that if no such notice is given, the
right to indemnification or reimbursement or advancement of expenses shall be
determined by the law in effect at the time indemnification or reimbursement or
advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 BOOKS AND RECORDS. There shall be kept at the principal
office of the Corporation correct and complete records and books of account
recording the financial transactions of the Corporation and minutes of the
proceedings of the stockholders, the Board and any committee of the Board. The
Corporation shall keep at its principal office, or at the office of the transfer
agent or registrar of the Corporation, a record containing the names and
addresses of all stockholders, the number and class of shares held by each and
the dates when they respectively became the owners of record thereof.
9.2 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, discs, CD-ROM or any other
information storage device, provided that the records so kept can be converted
into clearly legible written
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form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise
provided by law, the Board shall determine from time to time whether, and, if
allowed, when and under what conditions and regulations, the accounts, books,
minutes and other records of the Corporation, or any of them, shall be open to
the stockholders for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be
changed, by resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the
President, any Vice President, the Secretary or the Treasurer, or any one of
them, may execute and deliver on behalf of the Corporation proxies respecting
any and all shares or other ownership interests of any Other Entity owned by the
Corporation appointing such
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person or persons as the officer executing the same shall deem proper to
represent and vote the shares or other ownership interests so owned at any and
all meetings of holders of shares or other ownership interests, whether general
or special, and/or to execute and deliver consents respecting such shares or
other ownership interests; or any of the aforesaid officers may attend any
meeting of the holders of shares or other ownership interests of such Other
Entity and thereat vote or exercise any or all other powers of the Corporation
as the holder of such shares or other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as when a quorum of the Corporation's Directors cannot be
readily assembled because of some catastrophic event. During such emergency:
13.1 NOTICE TO BOARD MEMBERS. Any one member of the Board or
any one of the following officers: Chairman, President, any Vice President,
Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting
need be given only to those Directors whom it is practicable to reach, and may
be given in any practical manner, including by publication and radio. Such
notice shall be given at least six hours prior to commencement of the meeting.
13.2 TEMPORARY DIRECTORS AND QUORUM. One or more officers of
the Corporation present at the emergency Board meeting, as is necessary to
achieve a quorum, shall be considered to be Directors for the meeting, and shall
so serve in order of rank, and within the same rank, in order of seniority. In
the event that less than a quorum of the Directors are present (including any
officers who are to serve as
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Directors for the meeting), those Directors present (including the officers
serving as Directors) shall constitute a quorum.
13.3 ACTIONS PERMITTED TO BE TAKEN. The Board as constituted
in Section 13.2, and after notice as set forth in Section 13.1 may:
13.3.1 prescribe emergency powers to any officer of
the Corporation;
13.3.2 delegate to any officer or Director, any of
the powers of the Board;
13.3.3 designate lines of succession of officers and
agents, in the event that any of them are unable to discharge their
duties;
13.3.4 relocate the principal place of business, or
designate successive or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or
necessary action to carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may
be adopted by a majority vote of the holders of shares entitled to vote in the
election of Directors or by the Board. Any By-laws adopted or amended by the
Board may be amended or repealed by the Stockholders entitled to vote thereon.
PARAGON TRADE BRANDS, INC.
STOCK OPTION PLAN
(EFFECTIVE AS OF JANUARY 28, 2000)
1. PURPOSE
The purpose of the Plan is to provide a means through which
the Company and its Affiliates may attract able persons to enter and remain in
the employ of the Company and Affiliates and to provide a means whereby
employees, directors and consultants of the Company and its Affiliates can
acquire and maintain Common Stock ownership, thereby strengthening their
commitment to the welfare of the Company and Affiliates and promoting an
identity of interest between stockholders and these employees.
The Plan provides for granting Incentive Stock Options and
Nonqualified Stock Options.
2. DEFINITIONS
The following definitions shall be applicable throughout the
Plan.
(a) "Affiliate" means (i) any entity that
directly or indirectly is controlled by, or is under common control with the
Company and (ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Committee.
(b) "Board" means the Board of Directors of the
Company.
(c) "Cause" means the Company or an Affiliate
having "cause" to terminate a Participant's employment or service, as defined in
any existing employment, consulting or any other agreement between the
Participant and the Company or an Affiliate or, in the absence of such an
employment, consulting or other agreement, upon (i) the determination by the
Committee that the Participant has ceased to perform his duties to the Company,
an Affiliate (other than as a result of his incapacity due to physical or mental
illness or injury), which failure amounts to an intentional and extended neglect
of his duties to such party, (ii) the Committee's determination that the
Participant has engaged or is about to engage in conduct materially injurious to
the Company or and Affiliate, (iii) the Participant having been convicted of, or
pleaded guilty or no contest to, a felony or (iv) the failure of the Participant
to follow instructions of the Board or his direct superiors.
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(d) "Code" means the Internal Revenue Code of
1986, as amended. Reference in the Plan to any section of the Code shall be
deemed to include any amendments or successor provisions to such section and any
regulations under such section.
(e) "Committee" means a committee of at least
two people as the Board may appoint to administer the Plan or, if no such
committee has been appointed by the Board, the Board. Unless the Board is acting
as the Committee or the Board specifically determines otherwise, each member of
the Committee shall, at the time he takes any action with respect to a Option
under the Plan, be an Eligible Director, however the mere fact that a Committee
member shall fail to qualify as an Eligible Director shall not invalidate any
Option granted by the Committee which Option is otherwise validly made under the
Plan.
(f) "Common Stock" means the common stock of the
Company.
(g) "Company" means Paragon Trade Brands, Inc.
(h) "Date of Grant" means the date on which the
granting of an Option is authorized, or such other date as may be specified in
such authorization or, if there is no such date, the date indicated on the
applicable Stock Option Agreement.
(i) "Disability" means, unless in the case of a
particular Option, the applicable Option Agreement states otherwise, entitled to
receive benefits under the long-term disability plan of the Company or an
Affiliate, as may be applicable to the Participant in question, or, in the
absence of such a plan, the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, as
determined by the Committee based upon medical evidence acceptable to it.
(j) "Effective Date" means January 28, 2000.
(k) "Eligible Director" means a person who is
(i) a "non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act, or a person meeting any similar requirement under any successor
rule or regulation and (ii) an "outside director" within the meaning of Section
162(m) of the Code, and the Treasury Regulations promulgated thereunder;
PROVIDED, HOWEVER, that clause (ii) shall apply only with respect to grants of
Options with respect to which the Company's tax deduction could be limited by
Section 162(m) of the Code if such clause did not apply.
(l) "Eligible Person" means any (i) individual
regularly employed by the Company or an Affiliate who satisfies all of the
requirements of Section 6; PROVIDED, HOWEVER, that no such employee covered by a
collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) director of
the Company, or Affiliate or (iii) consultant or advisor to the Company, or an
Affiliate who is
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entitled to participate in an "employee benefit plan" within the meaning of 17
CFR ss. 230.405 (which, as of the Effective Date, includes those who (A) are
natural persons and (B) provide BONA FIDE services to the Company other than in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the Company's securities).
(m) "Exchange Act" means the Securities Exchange
Act of 1934.
(n) "Fair Market Value", on a given date means
(i) if the Stock is listed on a national securities exchange, the mean between
the highest and lowest sale prices reported as having occurred on the primary
exchange with which the Stock is listed and traded on the date prior to such
date, or, if there is no such sale on that date, then on the last preceding date
on which such a sale was reported; (ii) if the Stock is not listed on any
national securities exchange but is quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on a last sale basis, the average between the high bid price and low ask price
reported on the date prior to such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (iii) if
the Stock is not listed on a national securities exchange nor quoted in the
NASDAQ on a last sale basis, the amount determined by the Committee to be the
fair market value based upon a good faith attempt to value the Stock accurately
and computed in accordance with applicable regulations of the Internal Revenue
Service.
(o) "Incentive Stock Option" means an Option
granted by the Committee to a Participant under the Plan which is designated by
the Committee as an incentive stock option as described in Section 422 of the
Code.
(p) "Nonqualified Stock Option" means an Option
granted by the Committee to a Participant under the Plan which is not designated
by the Committee as an Incentive Stock Option.
(q) "Normal Termination" means termination of
employment or service with the Company and Affiliates:
(i) upon retirement as approved by the
Committee;
(ii) on account of death or Disability;
(iii) by the Company, or an Affiliate
without Cause.
(r) "Option" means an award granted under
Section 5.
(s) "Option Period" means the period described
in Section 7.
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(t) "Option Price" means the exercise price for
an Option as described in Section 7.
(u) "Participant" means an Eligible Person who
has been selected by the Committee to participate in the Plan and to receive an
Option pursuant to Section 6.
(v) "Plan" means this Paragon Trade Brands, Inc.
Stock Option Plan.
(w) "Securities Act" means the Securities Act of
1933, as amended.
(aa) "Stock" means the Common Stock or such other
authorized shares of stock of the Company as the Committee may from time to time
authorize for use under the Plan.
(bb) "Stock Option Agreement" means the agreement
between the Company and a Participant who has been granted an Option pursuant
to Section 7 which defines the rights and obligations of the parties as required
therein.
(cc) "Subsidiary" means any subsidiary of the
Company as defined in Section 424(f) of the Code.
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL
The Plan is effective as of the Effective Date. The
effectiveness of the Plan and the validity and exercisability of any and all
Options granted pursuant to the Plan is contingent upon approval of the Plan by
the shareholders of the Company in a manner intended to comply with the
shareholder approval requirements of Section 162(m) and 422(b)(i) of the Code.
The expiration date of the Plan, on and after which no Options
may be granted hereunder, shall be the tenth anniversary of the Effective Date;
PROVIDED, HOWEVER, that the administration of the Plan shall continue in effect
until all matters relating to the payment of Options previously granted have
been settled.
4. ADMINISTRATION
The Committee shall administer the Plan. The majority of the
members of the Committee shall constitute a quorum. The acts of a majority of
the members present at any meeting at which a quorum is present or acts approved
in writing by a majority of the Committee shall be deemed the acts of the
Committee.
Subject to the provisions of the Plan and applicable law, the
Committee shall have the power, and in addition to other express powers and
authorizations conferred on the Committee by the Plan to: (i) designate
Participants; (ii) determine the type or types of Options to be granted to a
Participant; (iii) determine the number of Shares to be covered by,
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or with respect to which payments, rights, or other matters are to be calculated
in connection with, Options; (iv) determine the terms and conditions of any
Options; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options, or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option
granted under, the Plan; (viii) establish, amend, suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; (ix) impose conditions, such as entering into
a shareholders' agreement (including without limitation the Shareholders'
Agreement, dated as of January 28, 2000, among Paragon Trade Brands, Inc., PTB
Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension
Plan Board, and certain Other Shareholders party thereto), upon an optionee's
ability to exercise an Option; and (x) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Option or any documents evidencing Options shall be
within the sole discretion of the Committee, may be made at any time granted
pursuant to the Plan and shall be final, conclusive, and binding upon all
parties, including, without limitation, the Company, Affiliate, any Participant,
any holder or beneficiary of any Option, and any shareholder.
(c) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
hereunder.
5. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Options to one or
more Eligible Persons; PROVIDED, HOWEVER, that:
(a) Subject to Section 9, the aggregate number
of shares of Stock in respect of which Options may be granted under the Plan is
1,321,222 shares;
(b) Such shares shall be deemed to have been
used in payment of Awards whether they are actually delivered. In the event any
Option shall be surrendered, terminate, expire, or be forfeited, the number
of shares of Stock no longer subject thereto shall thereupon be released and
shall thereafter be available for new grants under the Plan;
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(c) Stock delivered by the Company in settlement
of Options granted under the Plan may be authorized and unissued Stock or Stock
held in the treasury of the Company or may be purchased on the open market or by
private purchase; and
(d) Subject to Section 9, no person may be
granted Options under the Plan during any calendar year with respect to more
than 750,000 shares of Stock; provided that such number shall be adjusted
pursuant to Section 9, and shares otherwise counted against such number, only in
a manner which will not cause the Options granted under the Plan to fail to
qualify as "performance-based compensation" Section 162(m) of the Code.
(e) Without limiting the generality of the
preceding provisions of this Section 5, the Committee may, but solely with the
Participants consent, agree to cancel any Option under the Plan and issue a new
Option in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted Option satisfies all
applicable Plan requirements as of the date such new Award is made.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons who have
received written notification from the Committee, or from a person designated by
the Committee, that they have been selected to participate in the Plan.
7. TERMS OF OPTIONS
The Committee is authorized to grant one or more Incentive
Stock Options or Nonqualified Stock Options to any Eligible Person; PROVIDED,
HOWEVER, that no Incentive Stock Options shall be granted to any Eligible Person
who is not an employee of the Company. Each Option so granted shall be subject
to the following conditions, or to such other conditions as may be reflected in
the applicable Stock Option Agreement.
(a) OPTION PRICE. The exercise price ("Option
Price") per share of Stock for each Option shall be set by the Committee at the
time of grant but shall not be less than (i) in the case of an Incentive Stock
Option, and subject to Section 7, the Fair Market Value of a share of Stock at
the Date of Grant, and (ii) in the case of a Non-Qualified Stock Option, the par
value of a share of Stock; PROVIDED, HOWEVER, that all Options intended to
qualify as "performance-based compensation" under Section 162(m) of the Code
shall have an Option Price per share of Stock no less than the Fair Market Value
of a share of Stock on the Date of Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. No
shares of Stock shall be delivered pursuant to any exercise of an Option until
payment in full of the aggregate exercise price therefor is received by the
Company. Options which have become exercisable may be exercised by delivery of
written notice of exercise to the Committee accompanied by payment of the Option
Price. The Option Price shall be payable in cash and/or, in the
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discretion of the Committee, in shares of Stock valued at the Fair Market Value
at the time the Option is exercised (including by means of attestation of
ownership of a sufficient number of shares of Stock in lieu of actual delivery
of such shares to the Company); PROVIDED, HOWEVER, that such shares are not
subject to any pledge or other security interest and have either been held by
the Participant for six months, previously acquired by the Participant on the
open market or meet such other requirements as the Committee may determine
necessary in order to avoid an accounting earnings charge in respect of the
Option) or, in the discretion of the Committee, either (i) in other property
having a fair market value on the date of exercise equal to the Option Price,
(ii) by delivering to the Committee a copy of irrevocable instructions to a
stockbroker to deliver promptly to the Company an amount of loan proceeds, or
proceeds of the sale of the Stock subject to the Option, sufficient to pay the
Option Price or (iii) by such other method as the Committee may allow.
(c) VESTING. Option may vest based on continued
employment ("Time Options") or upon the attainment of stated performance
criteria ("Performance Options"). Unless otherwise set forth in the applicable
Stock Option Agreement, Time Options shall vest ratably at 20% per year on each
of the first five anniversaries of the date of grant. Unless otherwise set forth
in the applicable Stock Option Agreement, Performance Options shall vest ratably
on at 20% per year cased on the attainment of performance targets as set by the
Board. In the event the performnace targets for a given year are not attained,
the Board may, in its discretion allocate the Option shares that did not vest in
such year to subsequent years. Notwithstanding any provision herein to the
contrary all Options shall become fully vested and exercisable on the seventh
anniversary of the date of grant.
(d) OPTION PERIOD AND EXPIRATION. Unless
otherwise set forth in the applicable Stock Option Agreement, an Option shall
expire ten years from the date of grant (the "Option Period"). If an Option is
exercisable in installments, such installments or portions thereof which become
exercisable shall remain exercisable until the Option expires. Unless otherwise
stated in the applicable Stock Option Agreement, the Option shall expire earlier
than the end of the Option Period in the following circumstances:
(i) If prior to the end of the Option
Period, the Participant shall undergo a Normal Termination, the Option
shall expire on the earlier of the last day of the Option Period or the
date that is three months after the date of such Normal Termination. In
such event, the Option shall remain exercisable by the Participant
until its expiration, only to the extent the Option was exercisable at
the time of such Normal Termination.
(ii) If the Participant dies or becomes
disabled (as determined by the Committee) prior to the end of the
Option Period and while still in the employ or service of the Company,
or an Affiliate, the Option shall expire on the earlier of the last day
of the Option Period or the date that is twelve months after the date
of death of the Participant. In such event, the Option shall remain
exercisable by the person or persons to whom the Participant's rights
under the Option pass by will or the applicable
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laws of descent and distribution until its expiration, only to the
extent the Option was exercisable by the Participant at the time of
death.
(iii) If the Participant ceases employment
or service with the Company and Affiliates for reasons other than
Normal Termination or death, the Option shall expire immediately upon
such cessation of employment or service.
(e) STOCK OPTION AGREEMENT - OTHER TERMS AND
CONDITIONS. Each Option granted under the Plan shall be evidenced by a Stock
Option Agreement, which shall contain such provisions as may be determined by
the Committee and, except as may be specifically stated otherwise in such Stock
Option Agreement, which shall be subject to the following terms and conditions:
(i) Each Option or portion thereof that
is exercisable shall be exercisable for the full amount or for any part
thereof.
(ii) Each share of Stock purchased
through the exercise of an Option shall be paid for in full at the time
of the exercise. Each Option shall cease to be exercisable, as to any
share of Stock, when the Participant purchases the share or when the
Option expires.
(iii) Subject to Section 8(h), Options
shall not be transferable by the Participant except by will or the laws
of descent and distribution and shall be exercisable during the
Participant's lifetime only by him.
(iv) Each Option shall vest and become
exercisable by the Participant in accordance with the vesting schedule
established by the Committee and set forth in the Stock Option
Agreement.
(v) Each Stock Option Agreement may
contain a provision that, upon demand by the Committee for such a
representation, the Participant shall deliver to the Committee at the
time of any exercise of an Option a written representation that the
shares to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an Option shall be a
condition precedent to the right of the Participant or such other
person to purchase any shares. In the event certificates for Stock are
delivered under the Plan with respect to which such investment
representation has been obtained, the Committee may cause a legend or
legends to be placed on such certificates to make appropriate reference
to such representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.
(vi) Each Incentive Stock Option
Agreement shall contain a provision requiring the Participant to notify
the Company in writing immediately after
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the Participant makes a disqualifying disposition of any Stock acquired
pursuant to the exercise of such Incentive Stock Option. A
disqualifying disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the Date of Grant of
the Incentive Stock Option or (b) one year after the date the
Participant acquired the Stock by exercising the Incentive Stock
Option.
(f) INCENTIVE STOCK OPTION GRANTS TO 10%
STOCKHOLDERS. Notwithstanding anything to the contrary in this Section 7, if an
Incentive Stock Option is granted to a Participant who owns stock representing
more than ten percent of the voting power of all classes of stock of the Company
or of a Subsidiary, the Option Period shall not exceed five years from the Date
of Grant of such Option and the Option Price shall be at least 110 percent of
the Fair Market Value (on the Date of Grant) of the Stock subject to the Option.
(g) $100,000 PER YEAR LIMITATION FOR INCENTIVE
STOCK OPTIONS. To the extent the aggregate Fair Market Value (determined as of
the Date of Grant) of Stock for which Incentive Stock Options are exercisable
for the first time by any Participant during any calendar year (under all plans
of the Company) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.
(h) VOLUNTARY SURRENDER. The Committee may
permit the voluntary surrender of all or any portion of any Nonqualified Stock
Option granted under the Plan to be conditioned upon the granting to the
Participant of a new option for the same or a different number of shares as the
option surrendered or require such voluntary surrender as a condition precedent
to a grant of a new Option to such Participant. Such new Option shall be
exercisable at an Option Price, during an Option Period, and in accordance with
any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the Option Price, Option Period, or any other terms and
conditions of the Nonqualified Stock Option surrendered.
8. GENERAL
(a) ADDITIONAL PROVISIONS OF AN OPTION. Options
granted to a Participant under the Plan also may be subject to such other
provisions (whether or not applicable to the benefit awarded to any other
Participant) as the Committee determines appropriate including, without
limitation, provisions to assist the Participant in financing the purchase of
Stock upon the exercise of options, provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Stock acquired under
any Option, provisions giving the Company the right to repurchase shares of
Stock acquired under any Option in the event the Participant elects to dispose
of such shares, provisions allowing the Participant to elect to defer the
receipt of shares of Stock upon the exercise of Options for a specified time or
until a specified event, and provisions to comply with Federal and state
securities laws and Federal and state tax withholding requirements. Any such
provisions shall be reflected in the applicable Stock Option Agreement.
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(b) PRIVILEGES OF STOCK OWNERSHIP. Except as
otherwise specifically provided in the Plan, no person shall be entitled to the
privileges of ownership in respect of shares of Stock which are subject to
Options hereunder until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The
obligation of the Company to make payment of Options in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by governmental agencies as may be required. Notwithstanding any terms or
conditions of any Option to the contrary, the Company shall be under no
obligation to offer to sell or to sell and shall be prohibited from offering to
sell or selling any shares of Stock pursuant to an Option unless such shares
have been properly registered for sale pursuant to the Securities Act with the
Securities and Exchange Commission or unless the Company has received an opinion
of counsel, satisfactory to the Company, that such shares may be offered or sold
without such registration pursuant to an available exemption therefrom and the
terms and conditions of such exemption have been fully complied with. The
Company shall be under no obligation to register for sale under the Securities
Act any of the shares of Stock to be offered or sold under the Plan. If the
shares of Stock offered for sale or sold under the Plan are offered or sold
pursuant to an exemption from registration under the Securities Act, the Company
may restrict the transfer of such shares and may legend the Stock certificates
representing such shares in such manner as it deems advisable to ensure the
availability of any such exemption.
(d) TAX WITHHOLDING.
(i) A Participant may be required to pay to
the Company or any Affiliate and the Company or any Affiliate shall have the
right and is hereby authorized to withhold from any Shares or other property
deliverable under any Option or from any compensation or other amounts owing to
a Participant the amount (in cash, Stock or other property) of any required tax
withholding and payroll taxes in respect of an Option, its exercise, or any
payment or transfer under an Option or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(ii) Without limiting the generality of
clause (i) above, if so provided in a Stock Option Agreement, a Participant may
satisfy, in whole or in part, the foregoing withholding liability (but no more
than the minimum required withholding liability) by delivery of shares of Stock
owned by the Participant (which are not subject to any pledge or other security
interest and which have been owned by the Participant for at least 6 months or
purchased on the open market) with a Fair Market Value equal to such withholding
liability or by having the Company withhold from the number of shares of Stock
otherwise issuable pursuant to the exercise of the Option a number of shares
with a Fair Market Value equal to such withholding liability.
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(e) CLAIM TO OPTIONS AND EMPLOYMENT RIGHTS. No
employee of the Company, or an Affiliate, or other person, shall have any claim
or right to be granted an Option under the Plan or, having been selected for the
grant of an Option, to be selected for a grant of any other Award. Neither the
Plan nor any action taken hereunder shall be construed as giving any Participant
any right to be retained in the employ or service of the Company or an
Affiliate.
(f) NO LIABILITY OF COMMITTEE MEMBERS. No
member of the Committee shall be personally liable by reason of any contract or
other instrument executed by such member or on his behalf in his capacity as a
member of the Committee nor for any mistake of judgment made in good faith, and
the Company shall indemnify and hold harmless each member of the Committee and
each other employee, officer or director of the Company to whom any duty or
power relating to the administration or interpretation of the Plan may be
allocated or delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim) arising out of any
act or omission to act in connection with the Plan unless arising out of such
person's own fraud or willful bad faith; PROVIDED, HOWEVER, that approval of the
Board shall be required for the payment of any amount in settlement of a claim
against any such person. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or By-Laws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
(g) GOVERNING LAW. The Plan shall be governed by
and construed in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of law thereof, or principals of
conflicts of laws of any other jurisdiction which could cause the application of
the laws of any jurisdiction other than the State of Delaware.
(h) NONTRANSFERABILITY.
(i) Each Option shall be exercisable only
by the Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's legal guardian or representative. No Option
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or an Affiliate; provided that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the
Committee may in the applicable Stock Option Agreement or at any time after the
Date of Grant in an amendment to a Stock Option Agreement provide that Options
which are not intended to qualify as Incentive Stock Options may be transferred
by a Participant without consideration, subject to such rules as the Committee
may adopt consistent with any applicable Option agreement to preserve the
purposes of the Plan, to:
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(A) any person who is a "family member" of the
Participant, as such term is used in the
instructions to Form S-8 (collectively, the
"Immediate Family Members");
(B) a trust solely for the benefit of the
Participant and his or her Immediate Family
Members;
(C) a partnership or limited liability company
whose only partners or shareholders are the
Participant and his or her Immediate Family
Members; or
(D) any other transferee as may be approved
either (a) by the Board or the Committee in
its sole discretion, or (b) as provided in
the applicable Stock Option Agreement;
(each transferee described in clauses (A), (B), (C) and (D) above is hereinafter
referred to as a "Permitted Transferee"); PROVIDED that the Participant gives
the Committee advance written notice describing the terms and conditions of the
proposed transfer and the Committee notifies the Participant in writing that
such a transfer would comply with the requirements of the Plan and any
applicable Stock Option Agreement.
(iii) The terms of any Option transferred
in accordance with the immediately preceding sentence shall apply to the
Permitted Transferee and any reference in the Plan or in a Stock Option
Agreement to a Participant shall be deemed to refer to the Permitted Transferee,
except that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred Options
unless there shall be in effect a registration statement on an appropriate form
covering the shares to be acquired pursuant to the exercise of such Option if
the Committee determines, consistent with any applicable Stock Option Agreement,
that such a registration statement is necessary or appropriate, (c) the
Committee or the Company shall not be required to provide any notice to a
Permitted Transferee, whether or not such notice is or would otherwise have been
required to be given to the Participant under the Plan or otherwise, and (d) the
consequences of termination of the Participant's employment by, or services to,
the Company or an Affiliate under the terms of the Plan and the applicable Stock
Option Agreement shall continue to be applied with respect to the Participant,
following which the Options shall be exercisable by the Permitted Transferee
only to the extent, and for the periods, specified in the Plan and the
applicable Stock Option Agreement.
(i) RELIANCE ON REPORTS. Each member of the
Committee and each member of the Board shall be fully justified in relying,
acting or failing to act, and shall not be liable for having so relied, acted or
failed to act in good faith, upon any report made by the
12
<PAGE>
independent public accountant of the Company and Affiliates and upon
any other information furnished in connection with the Plan by any
person or persons other than himself.
(j) RELATIONSHIP TO OTHER BENEFITS. No payment
under the Plan shall be taken into account in determining any benefits under any
pension, retirement, profit sharing, group insurance or other benefit plan of
the Company or any Affiliate except as otherwise specifically provided in such
other plan.
(k) EXPENSES. The expenses of administering the
Plan shall be borne by the Company and Affiliates.
(l) PRONOUNS. Masculine pronouns and other
words of masculine gender shall refer to both men and women.
(m) TITLES AND HEADINGS. The titles and
headings of the sections in the Plan are for convenience of reference only, and
in the event of any conflict, the text of the Plan, rather than such titles or
headings shall control.
(n) TERMINATION OF EMPLOYMENT. For all purposes
herein, a person who transfers from employment or service with the Company to
employment or service with an Affiliate or vice versa shall not be deemed to
have terminated employment or service with the Company or an Affiliate.
(o) SEVERABILITY. If any provision of the Plan
or any Stock Option Agreement is or becomes or is deemed to be invalid, illegal,
or unenforceable in any jurisdiction or as to any person or Option, or would
disqualify the Plan or any Option under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Option, such provision shall be stricken as to such jurisdiction, person or
Option and the remainder of the Plan and any such Option shall remain in full
force and effect.
9. CHANGES IN CAPITAL STRUCTURE
Options granted under the Plan and any Stock Option
Agreements, the maximum number of shares of Stock subject to all Awards stated
in Section 5(a) and the maximum number of shares of Stock with respect to which
any one person may be granted Options during any period stated in Section 5(d)
shall be subject to adjustment or substitution, as determined by the Committee
in its sole discretion, as to the number, price or kind of a share of Stock or
other consideration subject to such Options or as otherwise determined by the
Committee to be equitable (i) in the event of changes in the outstanding Stock
or in the capital structure of the Company by reason of stock or extraordinary
cash dividends, stock splits, reverse stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any
13
<PAGE>
such Option or (ii) in the event of any change in applicable laws or any change
in circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, Participants, or which
otherwise warrants equitable adjustment because it interferes with the intended
operation of the Plan. Any adjustment in Incentive Stock Options under this
Section 9 shall be made only to the extent not constituting a "modification"
within the meaning of Section 424(h)(3) of the Code, and any adjustments under
this Section 9 shall be made in a manner which does not adversely affect the
exemption provided pursuant to Rule 16b-3 under the Exchange Act. Further, with
respect to Options intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, such adjustments or substitutions shall be made only
to the extent that the Committee determines that such adjustments or
substitutions may be made without causing Options granted under the Plan to fail
to qualify as "performance-based compensation" for purposes of Section 162(m) of
the Code. The Company shall give each Participant notice of an adjustment
hereunder and, upon notice, such adjustment shall be conclusive and binding for
all purposes.
Notwithstanding the above, in the event of any of the
following:
A. The Company is merged or consolidated with another
corporation or entity and, in connection therewith, consideration is received by
shareholders of the Company in a form other than stock or other equity interests
of the surviving entity;
B. All or substantially all of the assets of the Company
are acquired by another person;
C. The reorganization or liquidation of the Company; or
D. The Company shall enter into a written agreement to
undergo an event described in clauses A, B or C above,
then the Committee may, in its discretion and upon at least 10 days advance
notice to the affected persons, cancel any outstanding Options and pay to the
holders thereof, in cash or stock, or any combination thereof, the value of such
Options based upon the price per share of Stock received or to be received by
other shareholders of the Company in the event. The terms of this Section 9 may
be varied by the Committee in any particular Stock Option Agreement.
10. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of this Plan by the Board nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under this Plan, and
such arrangements may be either applicable generally or only in specific cases.
14
<PAGE>
11. AMENDMENTS AND TERMINATION
(a) AMENDMENT AND TERMINATION OF THE PLAN. The Board may
amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof
at any time; PROVIDED that no such amendment, alteration, suspension,
discontinuation or termination shall be made without shareholder approval if
such approval is necessary to comply with any tax or regulatory requirement
applicable to the Plan (including as necessary to prevent Options granted under
the Plan from failing to qualify as "performance-based compensation" for
purposes of Section 162(m) of the Code); and PROVIDED FURTHER that any such
amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any Participant or any holder or beneficiary of any Option
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(b) AMENDMENT OF STOCK OPTION AGREEMENTS. The Committee may,
to the extent consistent with the terms of any applicable Stock Option
Agreement, waive any conditions or rights under, amend any terms of, or alter,
suspend, discontinue, cancel or terminate, any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any Participant in respect of any Option theretofore
granted shall not to that extent be effective without the consent of the
affected Participant.
* * *
As adopted by the Plan Implementation Committee
of the Board of Directors of
Paragon Trade Brands, Inc. as of January 28, 2000
$95,000,000
CREDIT AGREEMENT
DATED AS OF JANUARY 28, 2000
AMONG
PARAGON TRADE BRANDS, INC.
AS BORROWER
AND
THE LENDERS AND ISSUERS PARTY HERETO
AND
CITICORP USA, INC.
AS ADMINISTRATIVE AGENT
AND
SALOMON SMITH BARNEY
AS ARRANGER
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS
<S> <C> <C>
Section 1.1. Defined Terms................................................................1
Section 1.2. Computation of Time Periods.................................................30
Section 1.3. Accounting Terms and Principles.............................................30
Section 1.4. Certain Terms...............................................................30
ARTICLE II
THE FACILITY
Section 2.1. The Revolving Credit Commitments............................................31
Section 2.2. Borrowing Procedures........................................................31
Section 2.3. Swing Loans.................................................................32
Section 2.4. Letters of Credit...........................................................34
Section 2.5. Reduction and Termination of the Revolving Credit
Commitments...............................................................38
Section 2.6. Repayment of Loans..........................................................39
Section 2.7. Evidence of Debt............................................................39
Section 2.8. Optional Prepayments........................................................39
Section 2.9. Mandatory Prepayments.......................................................40
Section 2.10. Interest....................................................................41
Section 2.11. Conversion/Continuation Option..............................................42
Section 2.12. Fees........................................................................42
Section 2.13. Payments and Computations; Protective Advances..............................43
Section 2.14. Special Provisions Governing Eurodollar Rate Loans..........................46
Section 2.15. Capital Adequacy............................................................47
Section 2.16. Taxes.......................................................................47
Section 2.17. Substitution of Lenders.....................................................49
ARTICLE III
CONDITIONS TO LOANS AND LETTERS OF CREDIT
Section 3.1. Conditions Precedent to Initial Loans and Letters of Credit.................50
Section 3.2. Conditions Precedent to Each Loan and Letter of Credit......................53
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Section 3.3. Conditions to Increased Fixed Asset Amount Availability.....................56
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Corporate Existence; Compliance with Law....................................55
Section 4.2. Corporate Power; Authorization; Enforceable Obligations.....................56
Section 4.3. Ownership of Borrower; Subsidiaries.........................................56
Section 4.4. Financial Statements........................................................57
Section 4.5. Material Adverse Change.....................................................57
Section 4.6. Solvency....................................................................58
Section 4.7. Litigation..................................................................58
Section 4.8. Taxes.......................................................................58
Section 4.9. Full Disclosure.............................................................59
Section 4.10. Margin Regulations..........................................................59
Section 4.11. No Burdensome Restrictions; No Defaults.....................................59
Section 4.12. Investment Company Act; Public Utility Holding Company Act..................59
Section 4.13. Use of Proceeds.............................................................59
Section 4.14. Insurance...................................................................60
Section 4.15. Labor Matters...............................................................60
Section 4.16. ERISA.......................................................................60
Section 4.17. Environmental Matters.......................................................61
Section 4.18. Intellectual Property.......................................................61
Section 4.19. Title; Real Property........................................................62
Section 4.20. Related Documents...........................................................63
Section 4.21. Year 2000 Compliance........................................................64
ARTICLE V
FINANCIAL COVENANTS
Section 5.1. Maximum Leverage Ratio......................................................64
Section 5.2. Minimum Fixed Charge Coverage Ratio.........................................64
Section 5.3. Minimum EBITDA..............................................................65
Section 5.4. Maintenance of Tangible Net Worth...........................................65
Section 5.5. Capital Expenditures........................................................66
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<PAGE>
ARTICLE VI
REPORTING COVENANTS
Section 6.1. Financial Statements........................................................66
Section 6.2. Default Notices.............................................................68
Section 6.3. Litigation..................................................................68
Section 6.4. Notices under Related Documents.............................................68
Section 6.5. SEC Filings; Press Releases.................................................68
Section 6.6. Labor Relations.............................................................68
Section 6.7. Tax Returns.................................................................69
Section 6.8. Insurance...................................................................69
Section 6.9. ERISA Matters...............................................................69
Section 6.10. Environmental Matters.......................................................69
Section 6.11. Borrowing Base Determination................................................70
Section 6.12. Other Information...........................................................71
ARTICLE VII
AFFIRMATIVE COVENANTS
Section 7.1. Preservation of Corporate Existence, Etc....................................71
Section 7.2. Compliance with Laws, Etc...................................................71
Section 7.3. Conduct of Business.........................................................72
Section 7.4. Payment of Taxes, Etc.......................................................72
Section 7.5. Maintenance of Insurance....................................................72
Section 7.6. Access......................................................................72
Section 7.7. Keeping of Books............................................................72
Section 7.8. Maintenance of Properties, Etc..............................................72
Section 7.9. Application of Proceeds.....................................................73
Section 7.10. Environmental...............................................................73
Section 7.11. Additional Collateral and Guaranties........................................73
Section 7.12. Cash Collateral Accounts and Cash Management System.........................73
Section 7.13. Real Property...............................................................74
ARTICLE VIII
NEGATIVE COVENANTS
Section 8.1. Indebtedness................................................................75
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<PAGE>
Section 8.2. Liens, Etc..................................................................76
Section 8.3. Investments.................................................................77
Section 8.4. Sale of Assets..............................................................78
Section 8.5. Restricted Payments.........................................................78
Section 8.6. Restriction on Fundamental Changes..........................................79
Section 8.7. Change in Nature of Business................................................79
Section 8.8. Transactions with Affiliates................................................79
Section 8.9. Restrictions on Subsidiary Distributions; No New Negative
Pledge
Section 8.10. Modification of Constituent Documents.......................................80
Section 8.11. Modification of Related Documents...........................................80
Section 8.12. Modification of Senior Subordinated Notes;..................................80
Section 8.13. Accounting Changes; Fiscal Year.............................................80
Section 8.14. Margin Regulations..........................................................80
Section 8.15. Operating Leases; Sale/Leasebacks...........................................81
Section 8.16. Cancellation of Indebtedness Owed to It.....................................81
Section 8.17. No Speculative Transactions.................................................81
Section 8.18. Compliance with ERISA.......................................................81
Section 8.19. Environmental...............................................................81
ARTICLE IX
EVENTS OF DEFAULT
Section 9.1. Events of Default...........................................................81
Section 9.2. Remedies....................................................................83
Section 9.3. Actions in Respect of Letters of Credit.....................................83
Section 9.4. Rescission..................................................................84
ARTICLE X
THE ADMINISTRATIVE AGENT
Section 10.1. Authorization and Action....................................................84
Section 10.2. Administrative Agent's Reliance, Etc........................................85
Section 10.3. The Administrative Agent Individually.......................................85
Section 10.4. Lender Credit Decision......................................................85
Section 10.5. Indemnification.............................................................86
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<PAGE>
Section 10.6. Successor Administrative Agent..............................................86
Section 10.7. Concerning the Collateral and the Collateral Documents......................87
Section 10.8. Collateral Matters Relating to Related Obligations..........................88
ARTICLE XI
MISCELLANEOUS
Section 11.1. Amendments, Waivers, Etc....................................................88
Section 11.2. Assignments and Participations..............................................90
Section 11.3. Costs and Expenses..........................................................92
Section 11.4. Indemnities.................................................................93
Section 11.5. Limitation of Liability.....................................................94
Section 11.6. Right of Set-off............................................................94
Section 11.7. Sharing of Payments, Etc....................................................95
Section 11.8. Notices, Etc................................................................95
Section 11.9. No Waiver; Remedies.........................................................96
Section 11.10. Binding Effect..............................................................96
Section 11.11. Governing Law...............................................................96
Section 11.12. Submission to Jurisdiction; Service of Process..............................96
Section 11.13. Waiver of Jury Trial........................................................97
Section 11.14. Marshaling; Payments Set Aside..............................................97
Section 11.15. Section Titles..............................................................98
Section 11.16. Execution in Counterparts...................................................98
Section 11.17. Entire Agreement............................................................98
Section 11.18. Confidentiality.............................................................98
</TABLE>
v
<PAGE>
SCHEDULES
Schedule I - Revolving Credit Commitments
Schedule II - Applicable Lending Offices and Addresses for Notices
Schedule 4.2 - Consents
Schedule 4.3 - Ownership of Subsidiaries
Schedule 4.7 - Litigation
Schedule 4.8 - Taxes
Schedule 4.15 - Labor Matters
Schedule 4.16 - List of Plans
Schedule 4.17 - Environmental Matters
Schedule 4.18 - Intellectual Property
Schedule 8.1 - Existing Indebtedness
Schedule 8.2 - Existing Liens
Schedule 8.3 - Existing Guaranty Obligations
Schedule 8.3 - Existing Investments
EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Notice of Borrowing
Exhibit D - Form of Letter of Credit Request
Exhibit E - Form of Borrowing Base Certificate
Exhibit F - Form of Notice of Conversion or Continuation
Exhibit G - Form of Opinion of Counsel for the Loan Parties
Exhibit H - Form of Guaranty
Exhibit I - Form of Pledge and Security Agreement
Exhibit J - Form of Blocked Account Letter
vi
<PAGE>
CREDIT AGREEMENT, dated as of January 28, 2000, among PARAGON
TRADE BRANDS, INC., a Delaware corporation (the "BORROWER"), the Lenders (as
defined below), the Issuers (as defined below) and CITICORP USA, INC.
("CITICORP"), as agent for the Lenders and the Issuers (in such capacity, the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, on January 6, 1998 the Borrower commenced a case
under Chapter 11 of the Bankruptcy Code; and
WHEREAS, on November 15, 1999 the Borrower filed its Second
Amended Plan of Reorganization and Disclosure Statement with the Bankruptcy
Court; and
WHEREAS, on January 13, 2000 the Bankruptcy Court entered the
Confirmation Order; and
WHEREAS, as a condition to the effectiveness of the Plan of
Reorganization, the Borrower is required to obtain working capital financing of
at least $95,000,000, and has requested that the Lenders and Issuers make
available to the Borrower a revolving credit and letter of credit facility in
order to satisfy such condition; and
WHEREAS, the Borrower has requested that the Lenders and
Issuers make available for the purposes specified in this Agreement a revolving
credit and letter of credit facility; and
WHEREAS, the Lenders and Issuers are willing to make available
to the Borrower such revolving credit and letter of credit facility upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACCOUNT" means any "account," as such term is defined in
Section 9-106 of the New York UCC, now owned or hereafter acquired by the
Borrower.
"ACCOUNT DEBTOR" means any "account debtor," as such term is
defined in Section 9-105(1)(a) of the New York UCC.
"ADMINISTRATIVE AGENT" has the meaning specified in the
preamble to this Agreement.
<PAGE>
"ADVANCE RATE" means (a) up to 80% in the case of Eligible
Receivables, (b) up to 65% in the case of Eligible Raw Materials, (c) up to 65%
in the case of Eligible Work-in-Process, (d) up to 65% in the case of Eligible
Finished Goods, (e) up to 15% in the case of Eligible Supplies, and (f) up to
25% in the case of Eligible Parts.
"AFFILIATE" means, with respect to any Person, any other
Person which, directly or indirectly, controls, is controlled by or is under
common control with such Person, each officer, director, general partner or
joint-venturer of such Person, and each Person who is the beneficial owner of
10% or more of any class of Voting Stock of such Person. For the purposes of
this definition, "CONTROL" means the possession of the power to direct or cause
the direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE MARGIN" means (a) during the period commencing on
the Closing Date and ending on March 31, 2001, with respect to the Revolving
Loans maintained as (i) Base Rate Loans, a rate equal to 1.50% per annum and
(ii) Eurodollar Rate Loans, a rate equal to 2.50% per annum and (b) thereafter,
as of any date of determination, a per annum rate equal to the rate set forth
below opposite the applicable type of Loan and the then applicable Leverage
Ratio (determined for the period ending on the last day of the most recent
Fiscal Quarter or Fiscal Year, as applicable, for which Financial Statements
have been delivered pursuant to SECTION 6.1) set forth below:
<TABLE>
<CAPTION>
LEVERAGE RATIO BASE RATE LOANS EURODOLLAR RATE
LOANS
- ------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Greater than or equal to 4.75 to 1 1.75% 2.75%
Less than 4.75 to 1 and equal to or greater
than 4 to 1 1.50% 2.50%
Less than 4 to 1 and equal to or greater than 3 to 1 1.25% 2.25%
Less than 3 to 1 1.00% 2.00%
</TABLE>
Subsequent changes in the Applicable Margin resulting from a change in the
Leverage Ratio shall become effective as to all Loans two Business Days after
delivery by the Borrower to the Administrative Agent of new financial statements
pursuant to SECTION 6.1(B) for each of the first three Fiscal Quarters of each
Fiscal Year and SECTION 6.1(C) for each Fiscal Year. Notwithstanding anything to
the contrary set forth in this Agreement (including the then effective Leverage
Ratio), if the Borrower shall fail to deliver such financial statements within
the time periods specified in SECTION 6.1(B) or (C), as applicable, the
Applicable Margin from and including the 46th day after the end of such Fiscal
Quarter or the 91st day after the end of such Fiscal Year, as the case may be,
to but not including the date the Borrower delivers to the Administrative Agent
such financial statements shall equal the highest Applicable Margin set forth
above.
2
<PAGE>
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender, its Domestic Lending Office in the case of a Base Rate Loan, and its
Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"APPLICABLE UNUSED COMMITMENT FEE RATE" means 0.5% per annum.
"APPROVED FUND" means, with respect to any Lender that is a
fund that invests in bank loans, any other fund that invests in bank loans and
is advised or managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"ASSET SALE" has the meaning specified in SECTION 8.4.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of EXHIBIT A.
"AVAILABILITY RESERVES" means, as of two Business Days after
the date of written notice of any determination thereof to the Borrower by the
Administrative Agent, such amounts as the Administrative Agent, as directed by
the Requisite Lenders, may from time to time establish against the Facility, in
the Requisite Lenders' sole discretion exercised reasonably and in accordance
with customary business practices for comparable asset based transactions of
$50,000,000 or more, in order either (a) to preserve the value of the Collateral
or the Administrative Agent's Lien thereon, or (b) to provide for the payment of
unanticipated liabilities of any of the Loan Parties arising after the Closing
Date.
"AVAILABLE CREDIT" means, at any time, an amount equal to (a)
the lesser of (i) the Revolving Credit Commitments in effect at such time and
(ii) the Borrowing Base at such time, MINUS (b) the sum of (i) the aggregate
Revolving Credit Outstandings at such time and (ii) any Availability Reserves in
effect at such time.
"BAILEE'S LETTER" means a letter in form and substance
reasonably acceptable to the Administrative Agent executed by any Person (other
than the Borrower) who is in possession of Inventory on behalf of the Borrower
pursuant to which such Person acknowledges, among other things, the
Administrative Agent's Lien with respect thereto.
"BANKRUPTCY CODE" means title 11, United States Code, as
amended from time to time.
"BANKRUPTCY COURT" means the United States Bankruptcy Court
for the Northern District of Georgia.
"BASE RATE" means, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time, which rate per annum shall be
equal at all times to the highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 0.25% or, if there is no
nearest 0.25%, to the next higher 0.25%) of (i) 0.5% per annum PLUS
(ii) the rate per annum obtained by dividing (A) the latest three-week
moving average of secondary market morning offering
3
<PAGE>
rates in the United States for three-month certificates of deposit of
major United States money market banks, such three-week moving average
being determined weekly on each Monday (or, if any such day is not a
Business Day, on the next succeeding Business Day) for the three-week
period ending on the previous Friday by Citibank on the basis of such
rates reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Citibank from three New York certificate of deposit dealers
of recognized standing selected by Citibank, by (B) a percentage equal
to 100% MINUS the average of the daily percentages specified during
such three-week period by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or
other marginal reserve requirement) for Citibank in respect of
liabilities consisting of or including (among other liabilities)
three-month U.S. dollar nonpersonal time deposits in the United States,
PLUS (iii) the average during such three-week period of the maximum
annual assessment rates estimated by Citibank for determining the then
current annual assessment payable by Citibank to the Federal Deposit
Insurance Corporation (or any successor) for insuring Dollar deposits
in the United States; and
(c) the sum of (i) 0.5% per annum PLUS (ii) the Federal Funds Rate.
"BASE RATE LOAN" means any Loan during any period in which it
bears interest based on the Base Rate.
"BLOCKED ACCOUNT" has the meaning specified in the Blocked
Account Letter.
"BLOCKED ACCOUNT BANK" means Wachovia Bank or such other
financial institution selected or approved by the Administrative Agent.
"BLOCKED ACCOUNT LETTER" means the agreement between the
Blocked Account Bank and each other financial institution with which the
Borrower shall have established a Blocked Account (or any other account into
which proceeds of Accounts are deposited) and the Administrative Agent,
substantially in the form of EXHIBIT J (with such changes thereto as are
satisfactory to the Administrative Agent), as such agreements may be amended
from time to time in accordance with the terms thereof.
"BORROWING" means a borrowing consisting of Loans made on the
same day by the Lenders ratably according to their respective Revolving Credit
Commitments.
"BORROWING BASE" means (a) the sum of (i) the product of the
Advance Rate then in effect for Eligible Receivables and the face amount of all
Eligible Receivables of the Borrower (calculated net of all finance charges,
late fees and other fees which are unearned, sales, excise or similar taxes, and
credits or allowances granted at such time), (ii) the product of the Advance
Rate then in effect for Eligible Finished Goods, Eligible Raw Materials,
Eligible Work-in-Process, Eligible Supplies and Eligible Parts (valued, in each
case, at the lower of cost and market on a first-in, first-out basis)
constituting each such class at such time of the Borrower, and (iii) the Fixed
Asset Amount then in effect, MINUS (b) any Eligibility Reserve then in effect.
"BORROWING BASE CERTIFICATE" means a certificate of the
Borrower substantially in the form of EXHIBIT E.
4
<PAGE>
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York City and, if the applicable Business
Day relates to notices, determinations, fundings and payments in connection with
the Eurodollar Rate or any Eurodollar Rate Loans, a day on which dealings in
Dollar deposits are also carried on in the London interbank market.
"CAPITAL EXPENDITURES" means, with respect to any Person for
any period, the aggregate of amounts that would be reflected as additions to
property, plant or equipment on a consolidated balance sheet of such Person and
its Subsidiaries prepared in conformity with GAAP, excluding interest
capitalized during construction.
"CAPITAL LEASE" means, with respect to any Person, any lease
of property by such Person as lessee which would be accounted for as a capital
lease on a balance sheet of such Person prepared in conformity with GAAP.
"CAPITAL LEASE OBLIGATIONS" means, with respect to any Person,
the capitalized amount of all obligations of such Person or any of its
Subsidiaries under Capital Leases, as determined on a consolidated basis in
conformity with GAAP.
"CASE" means the case commenced by the Borrower on January 6,
1998 under Chapter 11 of the Bankruptcy Code.
"CASH COLLATERAL ACCOUNT" means the cash collateral account
opened by the Bororwer with the Administrative Agent for the deposit of cash
collateral in accordance with the Loan Documents.
"CASH EQUIVALENTS" means (a) securities issued or fully
guaranteed or insured by the United States government or any agency thereof, (b)
certificates of deposit, eurodollar time deposits, overnight bank deposits and
bankers' acceptances of any commercial bank organized under the laws of the
United States, any state thereof, the District of Columbia, any foreign bank, or
its branches or agencies (fully protected against currency fluctuations) which,
at the time of acquisition, are rated at least "A-1" by Standard & Poor's Rating
Services ("S&P") or "P-1" by Moody's Investors Services, Inc. ("MOODY'S"), (c)
commercial paper of an issuer rated at least "A-1" by S&P or "P-1" by Moody's,
and (d) shares of any money market fund that (i) has at least 95% of its assets
invested continuously in the types of investments referred to in CLAUSES (A)
through (C) above, (ii) has net assets of not less than $500,000,000 and (iii)
is rated at least "A-1" by S&P or "P-1" by Moody's; PROVIDED, HOWEVER, that the
maturities of all obligations of the type specified in clauses (a) through (c)
above shall not exceed 180 days.
"CASH INTEREST EXPENSE" means, with respect to any Person for
any period, the Interest Expense of such Person for such period LESS the
Non-Cash Interest Expense of such Person for such period.
"CASH SWEEP EVENT" has the meaning specified in SECTION
7.12(E).
"CHANGE OF CONTROL" means any event, transaction or occurrence
as a result of which (a) Wellspring shall cease to own and control all of the
economic and voting rights associated with ownership of at least thirty-five
percent (35%) (or such higher percentage as may be necessary to ensure that
Wellspring's ownership of the outstanding Voting Stock of the Borrower exceeds
that of any other holder of Voting Stock of the Borrower (including any
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Affiliate of any such holder) calculated on a fully-diluted basis) of the
outstanding Voting Stock of all classes of the Borrower on a fully diluted
basis; or (b) during any period of twenty-four consecutive calendar months,
individuals who at the beginning of such period constituted the board of
directors of the Borrower (together with any new directors whose election by the
board of directors of the Borrower or whose nomination for election by the
stockholders of the Borrower was approved by a vote of at least a majority of
the directors then still in office who either were directors at the beginning of
such period or whose elections or nomination for election was previously so
approved) cease for any reason other than death or disability to constitute a
majority of the directors then in office.
"CITIBANK" means Citibank, N.A., a national banking
association.
"CITICORP" has the meaning specified in the preamble to this
Agreement.
"CLOSING DATE" means the first date on which any Loan is made
or Letter of Credit is issued.
"CODE" means the Internal Revenue Code of 1986 (or any
successor legislation thereto), as amended from time to time.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by any Loan Party in or upon
which a Lien is granted under any of the Collateral Documents.
"COLLATERAL DOCUMENTS" means the Pledge and Security
Agreement, the Mortgages and any other document executed and delivered by a Loan
Party granting a Lien on any of its property to secure payment of the Secured
Obligations.
"COMPLIANCE CERTIFICATE" has the meaning specified in SECTION
6.1(D).
"CONCENTRATION ACCOUNT" has the meaning specified in Section
7.12.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court
entered pursuant to Section 1129 of the Bankruptcy Code confirming the Plan of
Reorganization.
"CONSOLIDATED CURRENT ASSETS" means, with respect to any
Person at any date, the total consolidated current assets (other than cash and
Cash Equivalents) of such Person and its Subsidiaries at such date, determined
in conformity with GAAP.
"CONSOLIDATED CURRENT LIABILITIES" means, with respect to any
Person at any date, all liabilities of such Person and its Subsidiaries at such
date which should, in accordance with GAAP, be classified as current liabilities
on a consolidated balance sheet of such Person and its Subsidiaries prepared in
conformity with GAAP, but excluding, in the case of the Borrower the sum of (a)
the principal amount of any current portion of long-term Financial Covenant Debt
and (b) (without duplication of clause (a) above) the then outstanding principal
amount of the Loans.
"CONSOLIDATED NET INCOME" means, for any Person for any
period, the net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP PROVIDED,
HOWEVER, that (a) the net income of any other Person in which such Person or one
of its Subsidiaries has a joint interest with a third party (which interest
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does not cause the net income of such other Person to be consolidated into the
net income of such Person in accordance with GAAP) shall be included only to the
extent of the amount of dividends or distributions paid to such Person or
Subsidiary, (b) the net income of any Subsidiary of such Person that is subject
to any restriction or limitation on the payment of dividends or the making of
other distributions shall be excluded to the extent of such restriction or
limitation, (c)(i) the net income (or loss) of any Person acquired in a pooling
of interest transaction for any period prior to the date of such acquisition and
(ii) any net gain (but not loss) resulting from an Asset Sale by such Person or
any of its Subsidiaries other than in the ordinary course of business shall be
excluded, and (d) extraordinary gains and losses and any one-time increase or
decrease to net income which is required to be recorded because of the adoption
of new accounting policies, practices or standards required by GAAP shall be
excluded.
"CONSTITUENT DOCUMENTS" means, with respect to any Person, (a)
the articles/certificate of incorporation (or the equivalent organizational
documents) of such Person, (b) the by-laws (or the equivalent governing
documents) of such Person and (c) any document setting forth the manner of
election and duties of the directors or managing members of such Person (if any)
and the designation, amount and/or relative rights, limitations and preferences
of any class or series of such Person's Stock.
"CONTAMINANT" means any material, substance or waste that is
classified, regulated or otherwise characterized under any Environmental Law as
hazardous, toxic, a contaminant or a pollutant or by other words of similar
meaning or regulatory effect, including any petroleum or petroleum-derived
substance or waste, asbestos and polychlorinated biphenyls.
"CONTRACTUAL OBLIGATION" of any Person means any obligation,
agreement, undertaking or similar provision of any Security issued by such
Person or of any agreement, undertaking, contract, lease, indenture, mortgage,
deed of trust or other instrument (excluding a Loan Document) to which such
Person is a party or by which it or any of its property is bound or to which any
of its properties is subject.
"CONTROL ACCOUNT LETTER" has the meaning specified in the
Pledge and Security Agreement.
"CREDITORS' COMMITTEE" means the Official Committee of
Unsecured Creditors of the Borrower appointed in the Case.
"CUSTOMARY PERMITTED LIENS" means, with respect to any Person,
any of the following Liens:
(a) Liens with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or which are
being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are
being maintained to the extent required by GAAP;
(b) Liens of landlords arising by statute and liens of
suppliers, mechanics, carriers, materialmen, warehousemen or workmen
and other liens imposed by law created in the ordinary course of
business for amounts not yet due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained to the
extent required by GAAP;
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(c) deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
types of social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment of borrowed
money) and surety, appeal, customs or performance bonds;
(d) encumbrances arising by reason of zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way, utility
easements, building restrictions and other similar encumbrances on the
use of real property which do not materially detract from the value of
such real property or interfere with the ordinary conduct of the
business conducted and proposed to be conducted at such real property;
(e) encumbrances arising under leases or subleases of real
property which do not in the aggregate materially detract from the
value of such real property or interfere with the ordinary conduct of
the business conducted and proposed to be conducted at such real
property; and
(f) financing statements of a lessor's rights in and to personal
property leased to such Person in the ordinary course of such Person's
business.
"DEBT ISSUANCE" means the incurrence of Indebtedness of the
type specified in CLAUSE (A) and (B) of the definition of "INDEBTEDNESS" by the
Borrower or any of its Subsidiaries.
"DEFAULT" means any event which with the passing of time or
the giving of notice or both would become an Event of Default.
"DISCLOSURE STATEMENT" means the disclosure statement of the
Borrower dated November 15, 1999, as amended, modified or supplemented from time
to time, describing the Second Amended Plan of Reorganization (and the
transactions and events contemplated thereby) filed on November 15, 1999.
"DISQUALIFIED STOCK" means with respect to any Person, any
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness of such Person, or
is redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Scheduled Termination Date.
"DOCUMENTARY LETTER OF CREDIT" means any letter of credit
issued by an Issuer pursuant to SECTION 2.4 for the account of the Borrower,
which is drawable upon presentation of documents evidencing the sale or shipment
of goods purchased by the Borrower or any of its Subsidiaries in the ordinary
course of its business.
"DOLLARS" and the sign "$" each mean the lawful money of the
United States of America.
"DOMESTIC LENDING OFFICE" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on SCHEDULE II or on the Assignment and Acceptance by which it became a
Lender or such other office of such Lender as such Lender may from time to time
specify to the Borrower and the Administrative Agent.
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"DOMESTIC SUBSIDIARY" means any Subsidiary of the Borrower
organized under the laws of any state of the United States of America or the
District of Columbia.
"EBITDA" means, with respect to any Person for any period, an
amount equal to (a) Consolidated Net Income of such Person for such period PLUS
(b) the sum of, in each case to the extent included in the calculation of such
Consolidated Net Income but without duplication, (i) any provision for income
taxes, (ii) Interest Expense, (iii) loss from extraordinary items and (iv)
depreciation, depletion and amortization of intangibles or financing or
acquisition costs, (v) all other non-cash charges and non-cash losses for such
period, including the amount of any compensation deduction as the result of any
grant of Stock or Stock Equivalents to employees, officers, directors or
consultants and (vi) to the extent not included under clause (iii) above, all
non-recurring restructuring charges (including severance payments) associated
with the closing or downsizing of a plant or other facility MINUS (c) the sum
of, in each case to the extent included in the calculation of such Consolidated
Net Income but without duplication, (i) any credit for income tax, (ii) interest
income, (iii) gains from extraordinary items for such period, (iv) any aggregate
net gain (but not any aggregate net loss) from the sale, exchange or other
disposition of capital assets by such Person, and (v) any other non-cash gains
or other items which have been added in determining Consolidated Net Income,
including any reversal of a change referred to in CLAUSE (B)(V) above by reason
of a decrease in the value of any Stock or Stock Equivalent.
"EFFECTIVE DATE OF REORGANIZATION" means the first date on
which the Plan of Reorganization shall have become effective in accordance with
its terms.
"ELIGIBILITY RESERVES" means, effective as of two Business
Days after the date of written notice of any determination thereof to the
Borrower by the Administrative Agent, such amounts as the Administrative Agent,
in its sole discretion, may from time to time establish against the gross
amounts of Eligible Receivables, Eligible Finished Goods, Eligible Raw
Materials, Eligible Supplies, Eligible Work-in-Process and Eligible Parts to
reflect risks or contingencies which may affect any one or class of such items
and which have not already been taken into account in the calculation of the
Borrowing Base.
"ELIGIBLE ASSIGNEE" means (a) a Lender or any Affiliate or
Approved Fund of such Lender; (b) a commercial bank having total assets in
excess of $5,000,000,000; (c) a finance company, insurance company, other
financial institution or fund reasonably acceptable to the Administrative Agent,
which is regularly engaged in making, purchasing or investing in loans, and
having total assets in excess of $250,000,000 or, to the extent assets are less
than such amount, a finance company, insurance company, other financial
institution or fund, reasonably acceptable to the Administrative Agent and the
Borrower; or (d) a savings and loan association or savings bank organized under
the laws of the United States or any State thereof which has a net worth,
determined in accordance with GAAP, in excess of $250,000,000.
"ELIGIBLE EQUIPMENT" means the Equipment of the Borrower (a)
which is owned solely by the Borrower, (b) with respect to which the
Administrative Agent has a valid and perfected first priority Lien (subject to
Customary Permitted Liens), (c) with respect to which no representation or
warranty contained in any of the Loan Documents has been breached, (d) which is
not, in the Administrative Agent's sole discretion, obsolete or unmerchantable
and (e) which the Administrative Agent deems to be Eligible Equipment, based on
such credit and collateral considerations as the Administrative Agent may, in
its sole discretion, deem appropriate.
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"ELIGIBLE FINISHED GOODS" means Inventory comprised of
finished goods (which are classified, consistent with past practice, as Eligible
Finished Goods in the Borrower's accounting system) and which is otherwise
Eligible Inventory.
"ELIGIBLE INVENTORY" means the Inventory of the Borrower
(other than any Inventory which has been consigned by the Borrower) including
raw materials, work-in-process, finished goods, parts and supplies (a) which is
owned solely by the Borrower, (b) with respect to which the Administrative Agent
has a valid and perfected first priority Lien, (c) with respect to which no
representation or warranty contained in any of the Loan Documents has been
breached, (d) which is not, in the Administrative Agent's sole discretion,
obsolete or unmerchantable, (e) with respect to which (in respect of any
Inventory labeled with a brand name or trademark and sold by the Borrower
pursuant to a trademark owned by the Borrower or a license granted to the
Borrower) the Administrative Agent would have rights under such trademark or
license pursuant to the Pledge and Security Agreement or other agreement
satisfactory to the Administrative Agent to sell such Inventory in connection
with a liquidation thereof, and (f) which the Administrative Agent deems to be
Eligible Inventory based on such credit and collateral considerations as the
Administrative Agent may, in its sole discretion, deem appropriate. No Inventory
of the Borrower shall be Eligible Inventory if such Inventory consists of (i)
goods returned or rejected by customers other than goods that are undamaged or
are resaleable in the normal course of business, (ii) goods to be returned to
its suppliers, (iii) goods located, stored, used or held at any of the
Borrower's current sales offices located in Washington, Arizona, New York, Utah
or Ohio, (iv) goods in transit to third parties, or (v) goods located at the
premises of a third party, unless in the case of (v) (i)(A) the Administrative
Agent shall have received a Landlord Waiver or Bailee's Letter or (B) in the
case of Inventory located at a leased premises, an Eligibility Reserve
satisfactory to the Administrative Agent shall have been established with
respect thereto and (ii) an appropriate UCC-1 financing statement shall have
been executed and properly filed.
"ELIGIBLE PARTS" means Inventory comprised of parts (which are
classified, consistent with past practice, as Eligible Parts in the Borrower's
accounting system) and which is otherwise Eligible Inventory but which do not
constitute Eligible Supplies.
"ELIGIBLE RAW MATERIALS" means Inventory comprised of raw
materials (which are classified, consistent with past practice, as Eligible Raw
Materials in the Borrower's accounting system) and which is otherwise Eligible
Inventory but which do not constitute Eligible Supplies or Eligible Parts.
"ELIGIBLE REAL PROPERTY" means any parcel of owned Real
Property in the United States of the Borrower and the Subsidiary Guarantors as
to which each of the following conditions has been satisfied at such time:
(a) (i) a first priority perfected Lien on such parcel of Real
Property (subject to Customary Permitted Liens) shall have been granted
by the Borrower in favor of the Administrative Agent pursuant to a
Mortgage and (ii) such Lien shall be in full force and effect in favor
of the Administrative Agent at such time;
(b) except as otherwise permitted by the Administrative Agent,
the Administrative Agent and the title insurance company issuing the
policy referred to in CLAUSE (C) of this definition shall have received
maps or plats of an as-built survey of such parcel of Real Property
certified to the Administrative Agent and such title insurance
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company in a manner reasonably satisfactory to them, dated a date
reasonably satisfactory to the Administrative Agent and such title
insurance company, by an independent professional licensed land
surveyor reasonably satisfactory to the Administrative Agent and such
title insurance company, which maps or plats and the surveys on which
they are based shall be made in form and substance satisfactory to the
Administrative Agent;
(c) the Administrative Agent shall have received in respect of
such parcel of Real Property (i) a mortgagee's title policy (or
policies) ("MORTGAGEE'S TITLE INSURANCE POLICY") dated a date
reasonably satisfactory to the Administrative Agent, and such policy
shall (A) be in an amount not less than the Mortgage Value (as of the
Closing Date) of such parcel of Real Property, (B) be issued at
ordinary rates, (C) insure that the Lien granted pursuant to the
Mortgage insured thereby creates a valid first Lien on such parcel of
Real Property free and clear of all defects and encumbrances, except
such as may be approved by the Administrative Agent and Customary
Permitted Liens, (D) name the Administrative Agent for the benefit of
the Secured Parties as the insured thereunder, (E) be in the form of
ALTA Loan Policy - 1992 (or such local equivalent thereof as is
reasonably satisfactory to the Administrative Agent), (F) contain a
comprehensive lender's endorsement and any other endorsements
reasonably required by the Administrative Agent (including, but not
limited to, a revolving credit endorsement and a floating rate
endorsement, if reasonably available) and (G) be issued by Chicago
Title Insurance Company, First American Title Insurance Company,
Lawyers Title Insurance Corporation or any other title company
reasonably satisfactory to the Administrative Agent (including any such
title companies acting as co-insurers or reinsurers), (ii) evidence
satisfactory to it that all premiums in respect of each such policy,
all recording fees and stamp, documentary, intangible or mortgage
taxes, if any, in connection with the Mortgage have been paid and (iii)
a copy of all documents referred to, or listed as exceptions to title,
in such title policy (or policies);
(d) the Administrative Agent shall have received an appraisal (in
the case of any appraisals received after the Closing Date, dated as of
a date reasonably acceptable to the Administrative Agent) with respect
to such parcel of Real Property that is satisfactory in form and
substance to the Administrative Agent and performed by an appraiser
that is satisfactory to the Administrative Agent;
(e) a Phase I environmental report with respect to such parcel
of Real Property, dated a date not more than one year prior to the
Closing Date, showing no material condition of environmental concern
shall have been delivered to the Administrative Agent and in form
reasonably satisfactory to the Administrative Agent;
(f) no casualty shall have occurred materially affecting the
value or affecting the use or operation of such parcel of Real Property
if such casualty has not been restored or repaired by the mortgagor
under the Mortgage encumbering such parcel of Real Property;
(g) no condemnation or taking by eminent domain shall have
occurred nor shall any notice of any pending or threatened condemnation
or other proceeding against such parcel of Real Property been delivered
to the owner or lessee of such parcel of Real Property which would
materially affect the use, operation or value of such; and
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(h) the mortgagor under the relevant Mortgage encumbering such
parcel of Real Property shall (i) make such representations and
warranties and covenants as are reasonably required by the
Administrative Agent, (ii) in all material respects comply with all
Requirements of Law of any Governmental Authority applicable to such
parcel of Real Property or to the use or occupancy thereof, and (iii)
pay and discharge all taxes of every kind and nature, all assessments,
all water and sewer rents and charges and all other charges which may
become a lien on the Real Property on or before the date the same
becomes delinquent.
"ELIGIBLE RECEIVABLE" means the gross outstanding balance of
those Accounts of the Borrower arising out of sales of merchandise, goods or
services in the ordinary course of business, which are made by the Borrower to a
Person that is not an Affiliate of the Borrower, which are not in dispute, and
that constitute Collateral in which the Administrative Agent has a fully
perfected first priority Lien (subject to Customary Permitted Liens); PROVIDED,
HOWEVER, that an Account shall in no event be an Eligible Receivable if:
(a) (i) such Account is more than 60 days past due according
to the original terms of sale, or (ii) 90 days past the original
invoice date thereof; or
(b) any warranty contained in this Agreement or any other Loan
Document with respect to such specific Account is not true and correct
with respect to such Account; or
(c) the Account Debtor on such Account has disputed liability
or made any claim with respect to any other Account due from such
Account Debtor to the Borrower but only to the extent of such dispute
or claim; or
(d) the Account Debtor on such Account has: (i) filed a petition
for bankruptcy or any other relief under the Bankruptcy Code or any
other law relating to bankruptcy, insolvency, reorganization or relief
of debtors; (ii) made an assignment for the benefit of creditors; (iii)
had filed against it any petition or other application for relief under
the Bankruptcy Code or any such other law; (iv) has failed, suspended
business operations, become insolvent, called a meeting of its
creditors for the purpose of obtaining any financial concession or
accommodation; or (v) had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs,
unless such Account Debtor (A) is a debtor-in-possession in a case then
pending under chapter 11 of the Bankruptcy Code, (B) has established
debtor-in-possession financing which is satisfactory to the
Administrative Agent in its sole discretion and (C) otherwise satisfies
each of the requirements set forth in this definition of Eligible
Receivables; or
(e) the Account Debtor on such Account or any of its Affiliates
is also a supplier to or creditor of the Borrower unless such supplier
or creditor has executed a no-offset letter satisfactory to the
Administrative Agent, in its sole discretion; or
(f) the sale represented by such Account is to an Account Debtor
located outside the United States or Canada, unless the sale is on
letter of credit or acceptance terms acceptable to the Administrative
Agent, in its sole discretion; or
(g) the sale to such Account Debtor on such Account is on a bill-
on-hold, guaranteed sale, sale-and-return, sale-on-approval or
consignment basis; or
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(h) such Account is subject to a Lien in favor of any Person other
than the Administrative Agent for the benefit of the Secured Parties;
or
(i) such Account is subject to any deduction, offset,
counterclaim, return privilege or other conditions other than volume
sales discounts given in the ordinary course of the Borrower's
business; or
(j) the Account Debtor on such Account is located in New
Jersey or Minnesota, unless the Borrower (i) has received a certificate
of authority to do business and is in good standing in such state or
(ii) has filed a Notice of Business Activities Report with the
appropriate office or agency of such state for the current year; or
(k) the Account Debtor on such Account is a Governmental
Authority, unless the Borrower has assigned its rights to payment of
such Account to the Administrative Agent pursuant to the Assignment of
Claims Act of 1940, as amended, in the case of a federal Governmental
Authority, and pursuant to applicable law, if any, in the case of any
other Governmental Authority, and such assignment has been accepted and
acknowledged by the appropriate government officers; or
(l) 50% or more of the outstanding Accounts of the Account Debtor
have become, or have been determined by the Administrative Agent, in
accordance with the provisions hereof, to be, ineligible; or
(m) the sale represented by such Account is denominated in a
currency other than Dollars or Canadian Dollars; or
(n) such Account is not evidenced by an invoice or other writing
in form acceptable to the Administrative Agent, in its sole discretion;
or
(o) the Borrower, in order to be entitled to collect such
Account, is required to perform any additional service for, or perform
or incur any additional obligation to, the Person to whom or to which
it was made; or
(p) the total Accounts of such Account Debtor to the Borrower
represent more than 20%, (or, in the case of Wal-Mart and its
Affiliates, 50%) of the Eligible Receivables individually or in the
aggregate as to the Borrower at such time, but only to the extent of
such excess; or
(q) the total Accounts of all Account Debtors located in Canada
to the Borrower represent more than 20% of the Eligible Receivables
individually or in the aggregate as to the Borrower at such time, but
only to the extent of such excess.
"ELIGIBLE SUPPLIES" means Inventory comprised of materials
used or consumed or to be used or consumed in the manufacture, processing,
packaging, delivery or shipping of Eligible Finished Goods (which are
classified, consistent with past practice, as Eligible Supplies in the
Borrower's consolidated accounting system) and which is otherwise Eligible
Inventory but which do not constitute Eligible Parts.
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"ELIGIBLE WORK-IN-PROCESS" means Inventory comprised of
work-in-process which is classified, consistent with past practice, as Eligible
Work-in-Process in the Borrower's consolidated accounting system) and which is
otherwise Eligible Inventory.
"ENVIRONMENTAL LAWS" means all applicable Requirements of Law
now or hereafter in effect, as amended or supplemented from time to time,
relating to pollution or the regulation and protection of human health, safety,
the environment or natural resources, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section
9601 ET SEQ.); the Hazardous Material Transportation Act, as amended (49 U.S.C.
Section 180 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act,
as amended (7 U.S.C. Section 136 ET SEQ.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section 6901 ET SEQ.); the Toxic Substance
Control Act, as amended (42 U.S.C. Section 7401 ET SEQ.); the Clean Air Act, as
amended (42 U.S.C. Section 740 ET SEQ.); the Federal Water Pollution Control
Act, as amended (33 U.S.C.Section 1251 ET SEQ.); the Occupational Safety and
Health Act, as amended (29 U.S.C. Section 651 ET SEQ.); the Safe Drinking Water
Act, as amended (42 U.S.C. Section 300f ET SEQ.); and their state and local
counterparts or equivalents and any transfer of ownership notification or
approval statute, including the Industrial Site Recovery Act (N.J. Stat. Ann.
Section 13:1K-6 ET SEQ.).
"ENVIRONMENTAL LIABILITIES AND COSTS" means, with respect to
any Person, all liabilities, obligations, responsibilities, Remedial Actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any thereof arising under
any Environmental Law, Permit, order or agreement with any Governmental
Authority or other Person, which relate to any environmental, health or safety
condition or a Release or threatened Release, and result from the past, present
or future operations of, or ownership of property by, such Person or any of its
Subsidiaries.
"ENVIRONMENTAL LIEN" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"EQUIPMENT" means any "equipment," as such term is defined in
Section 9-109(2) of the New York UCC, now owned or hereafter acquired by the
Borrower.
"EQUITY ISSUANCE" means the issue or sale of any Stock of the
Borrower or any of the Subsidiaries of the Borrower by the Borrower or any of
the Subsidiaries of the Borrower to any Person other than the Borrower or any of
such Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Borrower or any of its Subsidiaries within the meaning of Section 414 (b), (c),
(m) or (o) of the Code.
"ERISA EVENT" means (a) a reportable event described in
Section 4043(b) or 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with
respect to a Title IV Plan or a Multiemployer Plan; (b) the withdrawal of the
Borrower, any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan
subject to Section 4063 of ERISA during a plan year in which it
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was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of the Borrower, any of its Subsidiaries or any
ERISA Affiliate from any Multiemployer Plan; (d) notice of reorganization or
insolvency of a Multiemployer Plan; (e) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (f) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (g) the failure to make any
required contribution to a Title IV Plan or Multiemployer Plan; (h) the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA on
the Borrower or any of its Subsidiaries or any ERISA Affiliate; or (i) any other
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition
of any liability under Title IV of ERISA, other than for PBGC premiums due but
not delinquent under Section 4007 of ERISA.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that
term in Regulation D of the Federal Reserve Board, as in effect from time to
time.
"EURODOLLAR BASE RATE" means the rate determined by the
Administrative Agent to be the offered rate for deposits in Dollars for the
applicable Interest Period which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on the second full Business Day before the first day of each
Interest Period. In the event that such rate does not appear on Telerate Page
3750 (or otherwise on the Dow Jones Markets screen), the Eurodollar Base Rate
for the purposes of this definition shall be determined by reference to such
other comparable publicly available service for displaying eurodollar rates as
may be selected by the Administrative Agent, or, in the absence of such
availability, the Eurodollar Base Rate shall be the rate of interest determined
by the Administrative Agent to be the average (rounded upward to the nearest
whole multiple of 1/16 of one percent per annum, if such average is not such a
multiple) of the rates per annum at which deposits in Dollars are offered by the
principal office of Citibank in London to major banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day of
such Interest Period in an amount substantially equal to the Eurodollar Rate
Loan of Citibank for a period equal to such Interest Period.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on SCHEDULE II or on the Assignment and Acceptance by which it became a
Lender (or, if no such office is specified, its Domestic Lending Office) or such
other office of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"EURODOLLAR RATE" means, with respect to any Interest Period
for any Eurodollar Rate Loan, an interest rate per annum equal to the rate per
annum obtained by dividing (a) the Eurodollar Base Rate by (b) a percentage
equal to 100% MINUS the reserve percentage applicable two Business Days before
the first day of such Interest Period under regulations issued from time to time
by the Federal Reserve Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
for a member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities (or
with respect to any other category of liabilities which includes deposits by
reference to which the Eurodollar Rate is determined) having a term equal to
such Interest Period.
"EURODOLLAR RATE LOAN" means any Loan that, for an Interest
Period, bears interest based on the Eurodollar Rate.
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"EVENT OF DEFAULT" has the meaning specified in SECTION 10.1.
"EXCLUDED PROPERTY" has the meaning set forth in Section
8.4(f).
"EXISTING FOREIGN JOINT VENTURE AGREEMENTS" means (a) that
certain Pledge Agreement dated as of January 26, 1996 by and among PTB
International, Inc., International Disposable Products Investments, Ltd. and
Danielson Trust Company; (b) that certain Investment Agreement dated January 26,
1996 by and among Mr. Gilberto Marin Quintero, Grupo P.I. Mabe, S.A. de C.V.,
the Company, and PTB International, Inc.; (c) that certain Put and Call Option
Agreement for Grupo Mabe Shares dated as of January 26, 1996 between Mr.
Gilberto Marin Quintero, the Company, PTB International, Inc. and Grupo P.I.
Mabe, S.A. de C.V.; (d) that certain Joint Venture Agreement dated January 26,
1996 by and between Mr. Gilberto Marin Quintero, the Company and PTB
International, Inc. and Paragon Mabesa International de C.V.; (e) that certain
Shareholder Agreement dated August 26, 1997 by and between PTB International,
Inc. and Euro America 2000 Trust; (f) that certain Shareholders Agreement of
Serenity S.A. dated August 26, 1997 by and among Stronger Corporation S.A.,
Cerro Moteado S.A., PTB International, Inc., Euro American 2000 Trust, Mr. Mario
Walter Garcia and Mr. Juan Carlos Marshall; (g) that certain Irrevocable Call
Option Agreement dated as of November 6, 1996 by and between International
Disposable Products Investments, Ltd. (now, Hortela Investiments, S.A. by reason
of merger), PTB International, Inc., Juliette Research S.A. and the Company; (h)
that certain Facility Financing Side Letter dated January 26, 1996 by and among
Mr. Gilberto Marin Quintero, PTB International, Inc. and the Company; (i)
Articles of Association of Goodbaby Paragon Hygienic Products Co. Ltd.; (j) that
certain Joint Venture Contract dated September 30, 1997 among Goodbaby Group
Co., the Company and First Shanghai Investments Ltd.; (k) that certain
Technology License Agreement dated January 26, 1996 by and between Grupo P.I.
Mabe, S.A. de C.V. and the Company; (l) that certain Technology License
Agreement dated January 26, 1996 by and between Paragon Mabesa International,
S.A. de C.V. and the Company; (m) that certain Transfer of Technology and
Licensing Contract dated as of September 30, 1997 by and between the Company and
Goodbaby Paragon Hygienic Products Co. Ltd.; (n) that certain Product Supply and
Services Agreement dated January 26, 1996 by and between Paragon-Mabesa
International, S.A. de C.V. and the Company, as amended by First Amendment to
the Product Supply and Services Agreement dated March 14, 1997; (o) those
certain Purchase Loan and Security Agreements by and between Paragon-Mabesa
International, S.A. de C.V. and the Company; and (p) that certain Agreement as
to Contingent Labor Liability regarding the facility in Tijuana, and any other
document, instrument or agreement relating to any of the foregoing in each case
as the same may be amended, restated, replaced, supplemented or otherwise
modified from time to time.
"FACILITY" means the Revolving Credit Commitments and the
provisions herein related to the Revolving Loans, Swing Loans and Letters of
Credit.
"FAIR MARKET VALUE" means (a) with respect to any asset or
group of assets (other than a marketable Security) at any date, the value of the
consideration obtainable in a sale of such asset at such date assuming a sale by
a willing seller to a willing purchaser dealing at arm's length and arranged in
an orderly manner over a reasonable period of time having regard to the nature
and characteristics of such asset, as reasonably determined by the Board of
Directors of the Borrower, or, if such asset shall have been the subject of a
relatively contemporaneous appraisal by an independent third party appraiser,
the basic assumptions underlying which have not materially changed since its
date, the value set forth in such appraisal, and (b) with respect to any
marketable Security at any date, the closing sale price of such Security on the
Business Day next
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preceding such date, as appearing in any published list of any national
securities exchange or the Nasdaq Stock Market or, if there is no such closing
sale price of such Security, the final price for the purchase of such Security
at face value quoted on such business day by a financial institution of
recognized standing which regularly deals in securities of such type selected by
the Administrative Agent.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"FEDERAL RESERVE BOARD" means the Board of Governors of the
Federal Reserve System, or any successor thereto.
"FEE LETTER" shall mean the letter dated as of October 13,
1999, addressed to the Borrower from Citicorp and accepted by the Borrower on
October 15, 1999, with respect to certain fees to be paid from time to time to
Citicorp and the Arranger.
"FINANCIAL COVENANT DEBT" of any Person means Indebtedness of
the type specified in CLAUSES (A), (B), (D), (E), (F) and (H) of the definition
of "INDEBTEDNESS".
"FINANCIAL STATEMENTS" means the financial statements of the
Borrower and its Subsidiaries delivered in accordance with SECTIONS 4.4 and 6.1.
"FINAL ORDER" means an order of the Bankruptcy Court that is
in effect and is not stayed, and as to which the time to appeal, petition for
certiorari, or move for reargument or rehearing has expired and as to which no
appeal, petition for certiorari, or other proceedings for reargument or
rehearing shall then be pending or as to which any right to appeal, petition for
certiorari, reargue or rehear shall have been waived in writing in form and
substance reasonably satisfactory to the Borrower, or in the event that an
appeal, writ of certiorari or reargument or rehearing thereof has been sought,
such order of the Bankruptcy Court shall have been affirmed by the highest court
to which such order was appealed, or certiorari, reargument or rehearing has
been denied, and the time to take any further appeal, petition for certiorari or
move for reargument or rehearing shall have expired.
"FISCAL MONTH" means (a) for the Fiscal Year ending on
December 31, 2000, each of the monthly periods ending on January 28, February
27, March 26, April 30, May 28, June 25, July 30, August 27, September 24,
October 29, November 26 and December 31; (b) for the Fiscal Year ending on
December 30, 2001, each of the monthly periods ending on February 4, March 4,
April 1, May 6, June 3, July 1, August 5, September 2, September 30, November 4,
December 2 and December 30; and (c) for the Fiscal Year ending on December 29,
2002, each of the monthly periods ending on February 3, March 3, March 31, May
5, June 2, June 30, August 4, September 1, September 29, November 3, December 1
and December 29.
"FISCAL QUARTER" means (a) for the Fiscal Year ending on
December 31, 2000, each of the three month periods ending on March 26, June 25,
September 24 and December 31,
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and, in the case of the first Fiscal Quarter ending after the Closing Date, the
period from the Closing Date through March 26, 2000, PROVIDED, HOWEVER, that the
Fiscal Quarter ending March 26, 2000 shall commence on January 28, 2000; (b) for
the Fiscal Year ending on December 30, 2001, each of the three month periods
ending on April 1, July 1, September 30 and December 30; and (c) for the Fiscal
Year ending on December 29, 2002, each of the three month periods ending on
March 31, June 30, September 29 and December 29.
"FISCAL YEAR" means the twelve month periods ending on
December 31, 2000, December 30, 2001 and December 29, 2002; PROVIDED that the
Fiscal Year ending December 31, 2000 shall be deemed to begin on the Closing
Date.
"FIXED ASSET AMOUNT" means (A) prior to the satisfaction of
the conditions set forth in SECTION 3.3, $15,000,000; and (B) thereafter, the
lesser of (a) $30,000,000 and (b) the sum of (i) 75% of the orderly liquidation
value of the Borrower's Eligible Equipment and (ii) 50% of the Fair Market Value
of the Borrower's Eligible Real Property, as determined by the Administrative
Agent on the basis of the most recent appraisal provided to the Administrative
Agent in accordance with SECTION 6.11; PROVIDED, HOWEVER, that the Fixed Asset
Amount shall be further adjusted as required by SECTIONS 6.11(D) AND 8.4.
"FIXED CHARGES" means, for any Person for any period, the sum
of (a) the Cash Interest Expense of such Person for such period, (b) the
principal amount of Financial Covenant Debt of such Person and each of its
Subsidiaries determined on a consolidated basis in conformity with GAAP having a
scheduled due date during such period, and (c) all cash dividends payable by
such Person and its Subsidiaries on Stock in respect of such period to Persons
other than such Person and its Subsidiaries.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person for any period, the ratio of (a) EBITDA less Capital Expenditures of such
Person for such period less the total federal income tax liability actually
payable by such Person for such period to (b) the Fixed Charges of such Person
for such period.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTY" means the guaranty, in substantially the form of
EXHIBIT H, executed by each Subsidiary Guarantor.
"GUARANTY OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of such Person with
respect to any Indebtedness of another Person, if the purpose or intent of such
Person in incurring the Guaranty Obligation is to provide assurance to the
obligee of such Indebtedness that such Indebtedness will be paid or discharged,
or that any agreement relating thereto will be complied with, or that any holder
of such
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Indebtedness will be protected (in whole or in part) against loss in respect
thereof including, (a) the direct or indirect guaranty, endorsement (other than
for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of Indebtedness
of another Person and (b) any liability of such Person for Indebtedness of
another Person through any agreement (contingent or otherwise) (i) to purchase,
repurchase or otherwise acquire such Indebtedness or any security therefor, or
to provide funds for the payment or discharge of such Indebtedness (whether in
the form of a loan, advance, stock purchase, capital contribution or otherwise),
(ii) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person, (iii) to make take-or-pay or similar
payments, if required, regardless of non-performance by any other party or
parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, or (v) to supply funds to or in any other manner
invest in such other Person (including to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii), (iv) or (v) of CLAUSE (B) of this sentence the primary purpose or intent
thereof is as described in the preceding sentence. The amount of any Guaranty
Obligation shall be equal to the amount of the Indebtedness so guaranteed or
otherwise supported.
"HEDGING CONTRACTS" means all Interest Rate Contracts, foreign
exchange contracts, currency swap or option agreements, forward contracts,
commodity swap, purchase or option agreements, other commodity price hedging
arrangements, and all other similar agreements or arrangements designed to alter
the risks of any Person arising from fluctuations in interest rates, currency
values or commodity prices.
"INDEBTEDNESS" of any Person means without duplication (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments or which
bear interest, (c) all reimbursement and all obligations with respect to letters
of credit, bankers' acceptances, surety bonds and performance bonds, whether or
not matured, (d) all indebtedness for the deferred purchase price of property or
services, other than trade payables incurred in the ordinary course of business
which are not overdue, (e) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (f) all Capital Lease Obligations of
such Person, (g) all Guaranty Obligations of such Person, (h) all obligations of
such Person to purchase, redeem, retire, defease or otherwise acquire for value
any Stock or Stock Equivalents of such Person, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (i) all payments that such Person
would have to make in the event of an early termination on the date Indebtedness
of such Person is being determined in respect of Hedging Contracts of such
Person and (j) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including Accounts and general
intangibles) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness.
"INDEMNITEES" has the meaning specified in SECTION 12.5.
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"INTEREST COVERAGE RATIO" means, with respect to any Person
for any period, the ratio of EBITDA of such Person for such period to Interest
Expense of such Person for such period.
"INTEREST EXPENSE" means, for any Person for any period, (a)
total interest expense of such Person and its Subsidiaries for such period
determined on a consolidated basis in conformity with GAAP that is reflected in
Consolidated Net Income and including, in any event, interest capitalized during
construction for such period and net costs under Interest Rate Contracts for
such period MINUS (b) the sum of (i) net gains of such Person and its
Subsidiaries under Interest Rate Contracts for such period determined on a
consolidated basis in conformity with GAAP PLUS (ii) any interest income of such
Person and its Subsidiaries for such period determined on a consolidated basis
in conformity with GAAP.
"INTEREST PERIOD" means, in the case of any Eurodollar Rate
Loan, (a) initially, the period commencing on the date such Eurodollar Rate Loan
is made or on the date of conversion of a Base Rate Loan to such Eurodollar Rate
Loan and ending one, two, three or six months thereafter, as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion or Continuation
given to the Administrative Agent pursuant to SECTION 2.2 or 2.11, and (b)
thereafter, if such Loan is continued, in whole or in part, as a Eurodollar Rate
Loan pursuant to SECTION 2.11, a period commencing on the last day of the
immediately preceding Interest Period therefor and ending one, two, three or six
months thereafter, as selected by the Borrower in its Notice of Conversion or
Continuation given to the Administrative Agent pursuant to SECTION 2.11;
PROVIDED, HOWEVER, that all of the foregoing provisions relating to Interest
Periods in respect of Eurodollar Rate Loans are subject to the following:
(ii) if any Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day, unless the result of such
extension would be to extend such Interest Period into another calendar
month, in which event such Interest Period shall end on the immediately
preceding Business Day;
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month;
(iv) the Borrower may not select any Interest Period
that ends after the date of a scheduled principal payment on the Loans
as set forth in ARTICLE II unless, after giving effect to such
selection, the aggregate unpaid principal amount of the Loans for which
Interest Periods end after such scheduled principal payment shall be
equal to or less than the principal amount to which the Loans are
required to be reduced after such scheduled principal payment is made;
(v) the Borrower may not select any Interest Period in
respect of Loans having an aggregate principal amount of less than
$2,000,000; and
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(vi) there shall be outstanding at any one time no more
than five Interest Periods in the aggregate.
"INTEREST RATE CONTRACTS" means all interest rate swap
agreements, interest rate cap agreements, interest rate collar agreements and
interest rate insurance.
"INVESTMENT" means, with respect to any Person, (a) any
purchase or other acquisition by that Person of (i) any Security issued by, (ii)
a beneficial interest in any Security issued by, or (iii) any other equity
ownership interest in, any other Person, (b) any purchase by that Person of all
or a significant part of the assets of a business conducted by another Person,
and (c) any loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, accounts receivable and
similar items made or incurred in the ordinary course of business as presently
conducted), or capital contribution by that Person to any other Person,
including all Indebtedness to such Person arising from a sale of property by
such Person other than in the ordinary course of its business.
"INVENTORY" means any "inventory," as such term is defined in
Section 9-109(4) of the New York UCC, now owned or hereafter acquired by the
Borrower, and wherever located.
"IRS" means the Internal Revenue Service of the United States
or any successor thereto.
"ISSUER" means each Lender or Affiliate of a Lender that (a)
is listed on the signature pages hereof as an "Issuer" or (b) hereafter becomes
an Issuer with the approval of the Administrative Agent and the Borrower by
agreeing pursuant to an agreement with and in form and substance reasonably
satisfactory to the Administrative Agent and the Borrower to be bound by the
terms hereof applicable to Issuers.
"LANDLORD WAIVER" means a letter in form and substance
reasonably acceptable to the Administrative Agent, executed by a landlord in
respect of Inventory of the Borrower located at any leased premises of the
Borrower pursuant to which such landlord, among other things, waives or
subordinates any Lien such landlord may have in respect of such Inventory.
"LEASES" means, with respect to any Person, all of those
leasehold estates in real property of such Person, as lessee, as such may be
amended, supplemented or otherwise modified from time to time.
"LENDER" means each financial institution or other entity that
(a) is listed on the signature pages hereof as a "Lender" or (b) from time to
time becomes a party hereto by execution of an Assignment and Acceptance.
"LETTER OF CREDIT" means any letter of credit issued pursuant
to SECTION 2.4.
"LETTER OF CREDIT OBLIGATIONS" means, at any time, the
aggregate of all liabilities at such time of the Borrower to all Issuers with
respect to Letters of Credit, whether or not any such liability is contingent,
and includes the sum of (a) the Reimbursement Obligations at such time and (b)
the Letter of Credit Undrawn Amounts at such time.
"LETTER OF CREDIT REIMBURSEMENT AGREEMENT" has the meaning
specified in SECTION 2.4(E).
"LETTER OF CREDIT REQUEST" has the meaning specified in
SECTION 2.4(C).
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"LETTER OF CREDIT SUBLIMIT" has the meaning specified in
SECTION 2.4(A)(IV).
"LETTER OF CREDIT UNDRAWN AMOUNTS" means, at any time, the
aggregate undrawn face amount of all Letters of Credit outstanding at such time.
"LEVERAGE RATIO" means, with respect to any Person for any
period, the ratio of (a) Financial Covenant Debt of such Person as of the last
day of such period to (b) EBITDA for such Person for such period.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, charge, deposit arrangement, encumbrance, lien
(statutory or other), conveyance of security title, security interest or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever intended to assure payment of any Indebtedness or
other obligation, including any conditional sale or other title retention
agreement, the interest of a lessor under a Capital Lease, any financing lease
having substantially the same economic effect as any of the foregoing.
"LOAN" means any loan made by any Lender pursuant to this
Agreement.
"LOAN DOCUMENTS" means, collectively, this Agreement, the
Revolving Credit Notes (if any), the Guaranty, the Fee Letter, each Letter of
Credit Reimbursement Agreement, the Collateral Documents and each certificate,
agreement or document executed by a Loan Party and delivered to the
Administrative Agent or any Lender in connection with or pursuant to any of the
foregoing.
"LOAN PARTY" means each of the Borrower, each Subsidiary
Guarantor and each other Subsidiary of the Borrower that executes and delivers a
Loan Document.
"MABESA OPTION" means the Borrower's call option to acquire up
to an additional 36% interest in the Stock of Grupo Mabesa, S.A. de C.V., a
Mexican corporation ("Mabesa"), pursuant to the Irrevocable Call Option
Agreement dated as of November 6, 1996 among the Borrower, Hortela
Investimentos, S.A (successor by merger to International Disposable Products
Investments, Ltd.), PTB International, Inc. and Juliette S.A..
"MATERIAL ADVERSE CHANGE" means a material adverse change in
any of (a) the condition (financial or otherwise), business, performance,
prospects, operations or properties of the Borrower individually or the Borrower
and its Subsidiaries taken as a whole, (b) the legality, validity or
enforceability of any Loan Document, (c) the perfection or priority of the Liens
granted pursuant to the Collateral Documents (subject to Liens permitted under
Section 8.2), (d) the ability of the Borrower to repay the Obligations or of the
Loan Parties to perform their obligations under the Loan Documents, or (e) the
rights and remedies of the Administrative Agent or the Lenders under the Loan
Documents.
"MATERIAL ADVERSE EFFECT" means an effect that results in or
causes, or could reasonably be expected to result in or cause, a Material
Adverse Change.
"MATERIAL SUBSIDIARY" means any wholly-owned Subsidiary of the
Borrower owning at least 10% of Total Assets generating at least 10% of
Consolidated Net Income of the Borrower and its Subsidiaries on a consolidated
basis.
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"MAXIMUM CREDIT" means, at any time, (a) the lesser of (i) the
Revolving Credit Commitments in effect at such time and (ii) the Borrowing Base
at such time MINUS (b) the aggregate amount of any Availability Reserve in
effect at such time.
"MORTGAGE VALUE" means, with respect to any parcel of
Eligible Real Property, the value of such parcel of Eligible Real Property at
the time the applicable Mortgage was recorded as set forth in the appraisal
delivered to and approved by the Administrative Agent with respect thereto.
"MORTGAGEE'S TITLE INSURANCE POLICY" has the meaning specified
in the definition of Eligible Real Property.
"MORTGAGES" means the mortgages, deeds of trust or other real
estate security documents made or required herein to be made by the Borrower or
any other Loan Party.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined
in Section 4001(a)(3) of ERISA, to which the Borrower, any of its Subsidiaries
or any ERISA Affiliate has any obligation or liability, contingent or otherwise.
"NET CASH PROCEEDS" means (a) proceeds received by the
Borrower or any of its Subsidiaries after the Closing Date in cash or Cash
Equivalents from any Asset Sale, other than Asset Sales permitted under CLAUSES
(A) through (E) and CLAUSE (G) and (H) of SECTION 8.4, net of (i) the reasonable
cash costs of sale, assignment or other disposition, (ii) taxes paid or payable
as a result thereof and (iii) any amount required to be paid or prepaid on
Indebtedness (other than the Obligations) secured by the assets subject to such
Asset Sale; PROVIDED, HOWEVER, that the evidence of each of (I), (II) and (III)
are provided to the Administrative Agent in form reasonably satisfactory to it;
(b) proceeds of insurance on account of the loss of or damage to any assets or
property, and payments of compensation for any such assets or property taken by
condemnation or eminent domain; and (c) proceeds received after the Closing Date
by any Loan Party in cash or Cash Equivalents from (i) any Equity Issuance
(other than any such issuance of common Stock of the Borrower occurring in the
ordinary course of business to any director, member of the management or
employee of the Borrower or its Subsidiaries or pursuant to the Option
Agreement, the Warrant Agreement or Plan of Reorganization (as each such
agreement is in effect on the Closing Date)), or (ii) any Debt Issuance (except
for Indebtedness permitted under SECTION 8.1), in each case net of brokers' and
advisors' fees and other costs incurred in connection with such transaction;
PROVIDED, HOWEVER, that evidence of such costs is provided to the Administrative
Agent.
"NET WORTH" of any Person means, at any date, the
stockholders' equity that would be reflected on a consolidated balance sheet of
such Person and its Subsidiaries at such date prepared in conformity with GAAP.
"NEW YORK UCC" means the Uniform Commercial Code in effect in
the State of New York.
"NON-CASH INTEREST EXPENSE" means, with respect to any Person
for any period, the sum of the following amounts to the extent included in the
calculation of Interest Expense of such Person for such period: (a) the amount
of debt discount and debt issuances costs amortized, (b) charges relating to
write-ups or write-downs in the book or carrying value of existing
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Financial Covenant Debt and (c) interest payable in evidences of Indebtedness or
by addition to the principal of the related Indebtedness.
"NON-FUNDING LENDER" has the meaning specified in SECTION
2.2(D).
"NON-U.S. LENDER" means each Lender or Administrative Agent
that is not a United States person as defined in Section 7701(a)(30) of the
Code.
"NOTICE OF BORROWING" has the meaning specified in SECTION
2.2(A).
"NOTICE OF CONVERSION OR CONTINUATION" has the meaning
specified in SECTION 2.11.
"OBLIGATIONS" means the Loans, the Letter of Credit
Obligations and all other advances, debts, liabilities, obligations, covenants
and duties owing by the Borrower to the Administrative Agent, any Lender, any
Issuer, any Affiliate of any of them or any Indemnitee, of every type and
description, present or future, arising under this Agreement or under any other
Loan Document, by reason of an extension of credit, opening or amendment of a
Letter of Credit or payment of any draft drawn thereunder, loan, guaranty,
indemnification, foreign exchange transaction, Hedging Contract or otherwise,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired and whether or not evidenced by any note, guaranty or other instrument
or for the payment of money. The term "OBLIGATIONS" includes all letter of
credit, cash management and other fees and all interest, charges, expenses,
fees, attorneys' fees and disbursements and other sums chargeable to the
Borrower under this Agreement or any other Loan Document and all obligations of
the Borrower to cash collateralize Letter of Credit Obligations.
"Option Agreement" means the option agreement dated as of
January 28, 2000 between the Borrower, as grantor, and PTB Acquisition Company,
LLC, as grantee, relating to the sale of Stock of the Borrower to provide funds
for the exercise of the Mabesa Option.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"PERMIT" means any permit, approval, authorization, license,
variance or permission required from a Governmental Authority under an
applicable Requirement of Law.
"PERSON" means an individual, partnership, corporation
(including a business trust), joint stock company, estate, trust, limited
liability company, unincorporated association, joint venture or other entity, or
a Governmental Authority.
"PLAN OF REORGANIZATION" means the Modified Second Amended
Plan of Reorganization of the Borrower under Chapter 11 of the Bankruptcy Code,
filed in the Case by the Borrower and the Creditors' Committee on January 13,
2000.
"PLEDGE AND SECURITY AGREEMENT" means an agreement, in
substantially the form of EXHIBIT I, executed by the Borrower and each
Subsidiary Guarantor.
"PRO FORMA BALANCE SHEET" has the meaning specified in SECTION
4.4(D).
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"PROJECTIONS" means those financial projections dated
September 7, 1999 covering the fiscal years ending in 2000 through 2003,
inclusive, to be delivered to the Lenders by the Borrower.
"RATABLE PORTION" or "RATABLY" means, with respect to any
Lender, the percentage obtained by dividing (a) the Revolving Credit Commitment
of such Lender by (b) the aggregate Revolving Credit Commitments of all Lenders
(or, at any time after the Revolving Credit Termination Date, the percentage
obtained by dividing the aggregate outstanding principal balance of the
Revolving Credit Outstandings owing to such Lender by the aggregate outstanding
principal balance of the Revolving Credit Outstandings owing to all Lenders).
"REAL PROPERTY" means all of those plots, pieces or parcels of
land now owned, leased or hereafter acquired or leased by the Borrower or any of
its Subsidiaries (the "LAND"), together with the right, title and interest of
the Borrower, if any, in and to the streets, the land lying in the bed of any
streets, roads or avenues, opened or proposed, in front of, the air space and
development rights pertaining to the Land and the right to use such air space
and development rights, all rights of way, privileges, liberties, tenements,
hereditaments and appurtenances belonging or in any way appertaining thereto,
all fixtures, all easements now or hereafter benefiting the Land and all
royalties and rights appertaining to the use and enjoyment of the Land,
including all alley, vault, drainage, mineral, water, oil and gas rights,
together with all of the buildings and other improvements now or hereafter
erected on the Land, and any fixtures appurtenant thereto.
"REGISTER" has the meaning specified in SECTION 11.3.
"REIMBURSEMENT OBLIGATIONS" means all matured reimbursement or
repayment obligations of the Borrower to any Issuer with respect to amounts
drawn under Letters of Credit.
"RELATED DOCUMENTS" means the Senior Subordinated Notes, the
Senior Subordinated Note Indenture, the Warrant Agreement, the Warrants and the
Plan of Reorganization.
"RELEASE" means, with respect to any Person, any release,
spill, emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration, in each case, of any Contaminant into the
indoor or outdoor environment or into or out of any property owned by such
Person, including the movement of Contaminants through or in the air, soil,
surface water, ground water or property.
"REMEDIAL ACTION" means all actions required to (a) clean up,
remove, treat or in any other way address any Contaminant in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release so that a Contaminant does not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"REORGANIZATION" means the reorganization of the Borrower
described in the Plan of Reorganization.
"REQUIREMENT OF LAW" means, with respect to any Person, the
common law and all federal, state, local and foreign laws, rules and
regulations, orders, judgments, decrees and
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other determinations of any Governmental Authority or arbitrator, applicable to
or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"REQUISITE LENDERS" means, collectively, Lenders having more
than fifty-one percent (51%) of the aggregate outstanding amount of the
Revolving Credit Commitments or, after the Revolving Credit Termination Date,
fifty-one percent (51%) of the aggregate Revolving Credit Outstandings. A
Non-Funding Lender shall not be included in the calculation of "REQUISITE
LENDERS."
"RESPONSIBLE OFFICER" means, with respect to any Person, any
of the principal executive officers, managing members or general partners of
such Person, but in any event, with respect to financial matters, the chief
financial officer, treasurer or controller of such Person.
"RESTRICTED PAYMENT" means (a) any dividend or other
distribution, direct or indirect, on account of any Stock or Stock Equivalents
of the Borrower or any of its Subsidiaries now or hereafter outstanding, except
a dividend payable solely in Stock or Stock Equivalents or a dividend or
distribution payable solely to the Borrower and/or one or more Subsidiary
Guarantors, (b) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Stock or
Stock Equivalents of the Borrower or any of its Subsidiaries now or hereafter
outstanding other than one payable solely to the Borrower and/or one or more
Subsidiary Guarantors, and (c) any payment or prepayment of principal, premium
(if any), interest, fees (including fees to obtain any waiver or consent in
connection with any Security) or other charges on, or redemption, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, any
Indebtedness of the Borrower or any of its Subsidiaries or any other Loan Party,
other than any required redemptions, retirement, purchases or other payments, in
each case to the extent permitted to be made by the terms of such Indebtedness
after giving effect to any applicable subordination provisions, and any
refinancing of Indebtedness permitted by SECTION 8.1(E). Anything herein to the
contrary notwithstanding, the making of any investment in compliance with
SECTION 8.3 of this Agreement shall not constitute a Restricted Payment.
"REVOLVING CREDIT BORROWING" means Revolving Loans made on the
same day by the Lenders ratably according to their respective Revolving Credit
Commitments.
"REVOLVING CREDIT COMMITMENT" means, with respect to each
Lender, the commitment of such Lender to make Revolving Loans and acquire
interests in other Revolving Credit Outstandings in the aggregate principal
amount outstanding not to exceed the amount set forth opposite such Lender's
name on SCHEDULE I under the caption "REVOLVING CREDIT COMMITMENT," as amended
to reflect each Assignment and Acceptance executed by such Lender and as such
amount may be reduced or modified pursuant to this Agreement.
"REVOLVING CREDIT NOTE" means a promissory note of the
Borrower payable to the order of any Lender in a principal amount equal to the
amount of such Lender's Revolving Credit Commitment evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from the Revolving Loans
owing to such Lender.
"REVOLVING CREDIT OUTSTANDINGS" means, at any particular time,
the sum of (a) the principal amount of the Revolving Loans outstanding at such
time PLUS (b) the Letter of Credit Obligations outstanding at such time PLUS (c)
the principal amount of the Swing Loans outstanding at such time.
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"REVOLVING CREDIT TERMINATION DATE" shall mean the earliest of
(a) the Scheduled Termination Date, (b) the date of termination of the Revolving
Credit Commitments pursuant to SECTION 2.5 and (c) the date on which the
Obligations become due and payable pursuant to SECTION 9.2.
"REVOLVING LOAN" has the meaning specified in SECTION 2.1.
"RIGHTS OFFERING" means the rights offering of up to 35% of
Stock in the Borrower, as more fully described in the Plan of Reorganization.
"SCHEDULED TERMINATION DATE" means January 27, 2003.
"SECONDARY SECURITIES" has the meaning specified in the Senior
Subordinated Note Indenture.
"SECURED OBLIGATIONS" means, in the case of the Borrower, the
Obligations, and, in the case of any other Loan Party, the obligations of such
Loan Party under the Guaranty and the other Loan Documents to which it is a
party.
"SECURED PARTIES" means the Lenders, the Issuers, the
Administrative Agent and any other holder of any of the Obligations.
"SECURITY" means any Stock, Stock Equivalent, voting trust
certificate, bond, debenture, note or other evidence of Indebtedness, whether
secured, unsecured, convertible or subordinated, or any certificate of interest,
share or participation in, or any temporary or interim certificate for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire,
any of the foregoing, but shall not include any evidence of the Obligations.
"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture,
dated as of January 28, 2000, between Norwest Bank Minnesota, National
Association, as Trustee, and the Borrower, pursuant to which the Senior
Subordinated Notes were issued.
"SENIOR SUBORDINATED NOTES" means the 11.25% Senior
Subordinated Notes due 2005 of the Borrower.
"SOLVENT" means, with respect to any Person, that the value of
the assets of such Person (both at fair value and present fair saleable value)
is, on the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and does not have unreasonably small
capital. In computing the amount of contingent or unliquidated liabilities at
any time, such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"STANDBY LETTER OF CREDIT" means any letter of credit issued
pursuant to SECTION 2.4 which is not a Documentary Letter of Credit.
"STOCK" means shares of capital stock (whether denominated as
common stock or preferred stock), beneficial, partnership or membership
interests, participations or other
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equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity, whether voting or non-voting.
"STOCK EQUIVALENTS" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any Stock, whether or not presently convertible, exchangeable or
exercisable.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, limited liability company or other business entity of
which more than 50% of the outstanding Voting Stock is, at the time, directly or
indirectly, owned or controlled by such Person and/or one or more Subsidiaries
of such Person.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Borrower
party to the Guaranty.
"SWING LOAN" has the meaning specified in SECTION 2.3.
"SWING LOAN BORROWING" means a borrowing consisting of a Swing
Loan.
"SWING LOAN LENDER" means Citicorp and each other Lender who
becomes the Administrative Agent or who agrees with the approval of the
Administrative Agent and the Borrower to act as a Swing Loan Lender hereunder.
"SWING LOAN REQUEST" has the meaning specified in SECTION
2.3(B).
"TANGIBLE NET WORTH" of any Person means, at any date, the Net
Worth of such Person at such date, EXCLUDING, HOWEVER, from the determination of
the Total Assets of such Person at such date, (a) all goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (b) all prepaid expenses, deferred charges or
unamortized debt discount and expense, (c) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement, defeasance
or prepayment of any Stock or Indebtedness, (d) any write-up in the book value
of any asset resulting from a revaluation thereof, other than, in the case of
the Borrower and its Subsidiaries, as a result of "fresh start" accounting
utilized by the Borrower in connection with the Reorganization, and (e) any
items not included in clauses (a) through (d) above which are treated as
intangibles in conformity with GAAP.
"TAX AFFILIATE" means, with respect to any Person, (a) any
Subsidiary of such Person, and (b) any Affiliate of such Person with which such
Person files or is eligible to file consolidated, combined or unitary tax
returns.
"TAX RETURN" has the meaning specified in SECTION 5.3.
"TAXES" has the meaning specified in SECTION 2.16(A).
"TITLE IV PLAN" means a pension plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA to which the Borrower
any of its Subsidiaries or any ERISA Affiliate has any obligation or liability
(contingent or otherwise).
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"TOTAL ASSETS" of any Person means, at any date, the total
assets of such Person and its Subsidiaries at such date determined on a
consolidated basis in conformity with GAAP MINUS (a) any minority interest in
non-wholly-owned Subsidiaries that would be reflected on a consolidated balance
sheet of such person and its Subsidiaries at such date prepared in conformity
with GAAP and (b) any Securities issued by such Person held as treasury
securities (to the extent reflected on such Person's balance sheet as assets).
"UNFUNDED PENSION LIABILITY" means, with respect to the
Borrower at any time, the sum of (a) the amount, if any, by which the present
value of all accrued benefits under each Title IV Plan (other than any Title IV
Plan subject to Section 4063 of ERISA) exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, as determined as of the most recent valuation date for such Title
IV Plan using the actuarial assumptions in effect under such Title IV Plan, and
(b) the aggregate amount of withdrawal liability that could be assessed under
Section 4063 with respect to each Title IV Plan subject to such Section,
separately calculated for each such Title IV Plan as of its most recent
valuation date and (c) for a period of five years following a transaction
reasonably likely to be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by the Borrower, any of its
Subsidiaries or any ERISA Affiliate as a result of such transaction.
"UNUSED COMMITMENT FEE" has the meaning specified in SECTION
2.12(A).
"VOTING STOCK" means Stock of any Person having ordinary power
to vote in the election of members of the board of directors, managers, trustees
or other controlling Persons, of such Person (irrespective of whether, at the
time, Stock of any other class or classes of such entity shall have or might
have voting power by reason of the happening of any contingency).
"WARRANT AGREEMENT" means the agreement dated January 28, 2000
between the Borrower and ChaseMellon Shareholder Services, L.L.C., pursuant to
which the Warrants were issued.
"WARRANTS" mean the warrants to acquire up to 5% of the
Borrower, as more fully described in the Plan of Reorganization and the Warrant
Agreement.
"WELLSPRING" means collectively, Wellspring Capital Management
L.L.C., Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and
any Affiliate of the foregoing, (including, without limitation, PTB Acquisition
Company, LLC) and shall also mean the direct and indirect general partners,
shareholders or managing members of the foregoing or any Affiliate that is a
partnership or a limited liability company.
"WITHDRAWAL LIABILITY" means, with respect to the Borrower at
any time, the aggregate liability incurred (whether or not assessed) with
respect to all Multiemployer Plans pursuant to Section 4201 of ERISA or for
increases in contributions required to be made pursuant to Section 4243 of
ERISA.
"WORKING CAPITAL" means, for any Person at any date, the
amount by which the Consolidated Current Assets of such Person at such date
exceeds the Consolidated Current Liabilities of such Person at such date.
"YEAR 2000 COMPLIANT" means the ability of hardware, firmware
or software systems associated with information processing and delivery,
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operations or services, operated by, provided to or otherwise necessary to the
business or operations of the Borrower or its Subsidiaries to recognize and
properly perform date-sensitive functions involving certain dates prior to, and
at any date after, December 31, 1999.
SECTION 1.2. COMPUTATION OF TIME PERIODS. In this Agreement, in
the computation of periods of time from a specified date to a later specified
date, the word "FROM" means "from and including" and the words "TO" and "UNTIL"
each mean "to but excluding" and the word "THROUGH" means "to and including."
SECTION 1.3. ACCOUNTING TERMS AND PRINCIPLES.
(a) Except as set forth below, all accounting terms not specifically
defined herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
(b) If any change in the accounting principles used in the preparation
of the most recent Financial Statements referred to in SECTION 6.1 is hereafter
required or permitted by the rules, regulations, pronouncements and opinions of
the Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or any successors thereto) and such change is adopted by the
Borrower with the agreement of its independent public accountants and results in
a change in any of the calculations required by ARTICLE V or ARTICLE VIII had
such accounting change not occurred, the parties hereto agree to enter into
negotiations in order to amend such provisions so as to equitably reflect such
change with the desired result that the criteria for evaluating compliance with
such covenants by the Borrower shall be the same after such change as if such
change had not been made; PROVIDED, HOWEVER, that for purposes of this Agreement
only, no change in GAAP that would affect a calculation that measures compliance
with any covenant contained in ARTICLE V or ARTICLE VIII shall be given effect
until such provisions are amended to reflect such changes in GAAP.
SECTION 1.4. CERTAIN TERMS.
(a) The words "HEREIN," "HEREOF" and "HEREUNDER" and similar words
refer to this Agreement as a whole, and not to any particular Article, Section,
subsection or clause in, this Agreement.
(b) References in this Agreement to an Exhibit, Schedule, Article,
Section, subsection or clause refer to the appropriate Exhibit or Schedule to,
or Article, Section, subsection or clause in this Agreement.
(c) Each agreement defined in this ARTICLE I shall include
all appendices, exhibits and schedules thereto. Unless the prior written consent
of the Requisite Lenders is required hereunder for an amendment, restatement,
supplement or other modification to any such agreement and such consent is not
obtained, references in this Agreement to such agreement shall be to such
agreement as so amended, restated, supplemented or modified.
(d) References in this Agreement to any statute shall be to such
statute as amended or modified and in effect at the time any such reference is
operative.
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(e) Except as expressly stated to the contrary, the term "INCLUDING"
when used in any Loan Document means "including without limitation" except when
used in the computation of time periods.
(f) The terms "LENDER," "ISSUER" and "ADMINISTRATIVE AGENT" include
their respective successors.
(g) Upon the appointment of any successor Administrative Agent
pursuant to SECTION 10.6, references to Citicorp in SECTION 10.3 and to Citibank
in the definitions of Base Rate and Eurodollar Rate shall be deemed to refer to
the financial institution then acting as the Administrative Agent or one of its
Affiliates if it so designates.
ARTICLE II
THE FACILITY
SECTION 2.1. THE REVOLVING CREDIT COMMITMENTS. On the terms
and subject to the conditions contained in this Agreement, each Lender severally
agrees to make loans (each a "REVOLVING LOAN") to the Borrower from time to time
on any Business Day during the period from the date hereof until the Revolving
Credit Termination Date in an aggregate amount not to exceed at any time
outstanding for all such loans by such Lender such Lender's Revolving Credit
Commitment; PROVIDED, HOWEVER, that at no time shall any Lender be obligated to
make a Revolving Loan (i) in excess of such Lender's Ratable Portion of the
Available Credit and (ii) to the extent that the aggregate Revolving Credit
Outstandings, after giving effect to such Revolving Loan, would exceed the
Maximum Credit in effect at such time. Within the limits of each Lender's
Revolving Credit Commitment, amounts of Revolving Loans repaid may be reborrowed
under this SECTION 2.1.
SECTION 2.2. BORROWING PROCEDURES.
(a) Each Revolving Credit BorrowinG shall be made on notice
given by the Borrower to the Administrative Agent not later than 11:00 A.M. (New
York City time) (i) on the date of the proposed Borrowing, in the case of a
Borrowing of Base Rate Loans and (ii) three Business Days, in the case of a
Borrowing of Eurodollar Rate Loans, prior to the date of the proposed Revolving
Credit Borrowing. Each such notice shall be in substantially the form of EXHIBIT
C (a "NOTICE OF BORROWING"), specifying (A) the date of such proposed Revolving
Credit Borrowing, (B) the aggregate amount of such proposed Revolving Credit
Borrowing, (C) whether any portion of the proposed Revolving Credit Borrowing
will be of Base Rate Loans or Eurodollar Rate Loans and (D) the initial Interest
Period or Periods for any such Eurodollar Rate Loans. The Revolving Loans shall
be made as Base Rate Loans unless (subject to SECTION 2.14) the Notice of
Borrowing specifies that all or a portion thereof shall be Eurodollar Rate
Loans. Each Revolving Credit Borrowing shall be in an aggregate amount of not
less than $2,000,000 or an integral multiple of $1,000,000 in excess thereof.
(b) The Administrative Agent shall give to each Lender prompt notice
of the Administrative Agent's receipt of a Notice of Borrowing and, if
Eurodollar Rate Loans are properly requested in such Notice of Borrowing, the
applicable interest rate determined pursuant to SECTION 2.14(A). Each Lender
shall, before 11:00 A.M. (New York City time) on the date of the proposed
Borrowing or, in the case of Base Rate Loans in respect of which the
Administrative
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Agent has
received the Notice of Borrowing on the date of the proposed Borrowing, 1:00
P.M., make available to the Administrative Agent at its address referred to in
SECTION 11.8, in immediately available funds, such Lender's Ratable Portion of
such proposed Borrowing. After the Administrative Agent's receipt of such funds
and upon fulfillment of the applicable conditions set forth in SECTIONS 3.1 and
3.2, the Administrative Agent will make such funds available to the Borrower.
(c) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any proposed Borrowing that such Lender will not
make available to the Administrative Agent such Lender's Ratable Portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Ratable Portion available to the Administrative Agent on the date of such
Borrowing in accordance with this SECTION 2.2 and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such Ratable Portion available to the Administrative Agent, such Lender and
the Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for the
first Business Day and thereafter at the interest rate applicable at the time to
the Loans comprising such Borrowing. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement. If the Borrower shall repay to the Administrative Agent such
corresponding amount, such payment shall not relieve such Lender of any
obligation it may have hereunder to the Borrower.
(d) The failure of any Lender to make the Loan or any payment required
by it on the date specified (a "NON-FUNDING LENDER"), including any payment in
respect of its participation in Swing Loans and Letter of Credit Obligations,
shall not relieve any other Lender of its obligations to make such Loan or
payment on such date but no such other Lender shall be responsible for the
failure of any Non-Funding Lender to make a Loan or payment required under this
Agreement.
SECTION 2.3. SWING LOANS.
(a) On the terms and subject to the conditions contained in this
Agreement, the Swing Loan Lender may in its sole discretion make loans (each a
"SWING LOAN") otherwise available to the Borrower under the Facility from time
to time on any Business Day during the period from the date hereof until the
Revolving Credit Termination Date in an aggregate amount at any time outstanding
at any time not to exceed the lesser of $10,000,000 and the Swing Loan Lender's
Ratable Portion of the Available Credit; PROVIDED, HOWEVER, that the Swing Loan
Lender shall not make any Swing Loan to the extent that, after giving effect to
such Swing Loan, the aggregate Revolving Credit Outstandings would exceed the
Maximum Credit. The Swing Loan Lender shall be entitled to rely on the most
recent Borrowing Base Certificate delivered to the Administrative Agent. Each
Swing Loan shall be a Base Rate Loan and must be repaid in full within seven
days of its making or, if sooner, upon any Revolving Credit Borrowing hereunder
and shall in any event mature no later than the Revolving Credit Termination
Date. Within the
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limits
set forth in the first sentence of this SECTION 2.3(A), amounts of Swing Loans
repaid may be reborrowed under this SECTION 2.3(A).
(b) In order to request a Swing Loan, the Borrower shall telecopy
to the Administrative Agent a duly completed request setting forth the date, the
requested amount and date of the Swing Loan (a "SWING LOAN REQUEST"), to be
received by the Administrative Agent not later than 1:00 p.m. (New York City
time) on the day of the proposed borrowing. The Administrative Agent shall
promptly notify the Swing Loan Lender of the details of the requested Swing
Loan. Subject to the terms of this Agreement, the Swing Loan Lender shall make a
Swing Loan available to the Administrative Agent which will make such amounts
available to the Borrower on the date of the relevant Swing Loan Request. The
Swing Loan Lender shall not make any Swing Loan in the period commencing on the
first Business Day after it receives written notice from any Lender that one or
more of the conditions precedent contained in SECTION 3.2 shall not on such date
be satisfied, and ending when such conditions are satisfied. The Swing Loan
Lender shall not otherwise be required to determine that, or take notice
whether, the conditions precedent set forth in SECTION 3.2 hereof have been
satisfied in connection with the making of any Swing Loan.
(c) The Swing Loan Lender shall notify the Administrative Agent in
writing (which may be by telecopy) weekly, by no later than 10:00 a.m. (New York
City time) on the first Business Day of each week, of the aggregate principal
amount of its Swing Loans then outstanding.
(d) The Swing Loan Lender may demand at any time that each Lender pay
to the Administrative Agent, for the account of the Swing Loan Lender, in the
manner provided in subsection (e) below, such Lender's Ratable Portion of all or
a portion of the outstanding Swing Loans, which demand shall be made through the
Administrative Agent, shall be in writing and shall specify the outstanding
principal amount of Swing Loans demanded to be paid.
(e) The Administrative Agent shall forward each notice referred to in
CLAUSE (C) above and each demand referred to in CLAUSE (D) above to each Lender
on the day such notice or such demand is received by the Administrative Agent
(except that any such notice or demand received by the Administrative Agent
after 2:00 p.m. (New York City time) on any Business Day or any such demand
received on a day that is not a Business Day shall not be required to be
forwarded to the Lenders by the Administrative Agent until the next succeeding
Business Day), together with a statement prepared by the Administrative Agent
specifying the amount of each Lender's Ratable Portion of the aggregate
principal amount of the Swing Loans stated to be outstanding in such notice or
demanded to be paid pursuant to such demand, and, notwithstanding whether or not
the conditions precedent set forth in SECTION 3.2 shall have been satisfied
(which conditions precedent the Lenders hereby irrevocably waive), each Lender
shall, before 11:00 a.m. (New York City time) on the Business Day next
succeeding the date of such Lender's receipt of such written statement, make
available to the Administrative Agent, in immediately available funds, for the
account of the Swing Loan Lender, the amount specified in such statement. Upon
such payment by a Lender, such Lender shall, except as provided in CLAUSE (F)
below, be deemed to have made a Revolving Loan to the Borrower. The
Administrative Agent shall use such funds to repay the Swing Loans to the Swing
Loan Lender. To the extent that any Lender fails to make such payment available
to the Administrative Agent for the account of the Swing Loan Lender, the
Borrower shall repay such Swing Loan on demand.
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(f) Upon the occurrence of a Default under SECTION 9.1(F), each
Lender shall acquire, without recourse or warranty, an undivided participation
in each Swing Loan otherwise required to be repaid by such Lender pursuant to
CLAUSE (E) above, which participation shall be in a principal amount equal to
such Lender's Ratable Portion of such Swing Loan, by paying to the Swing Loan
Lender on the date on which such Lender would otherwise have been required to
make a payment in respect of such Swing Loan pursuant to CLAUSE (E) above, in
immediately available funds, an amount equal to such Lender's Ratable Portion of
such Swing Loan. If such amount is not in fact made available by such Lender to
the Swing Loan Lender on such date, the Swing Loan Lender shall be entitled to
recover such amount on demand from such Lender together with interest accrued
from such date at the Federal Funds Rate for the first Business Day after such
payment was due and thereafter at the rate of interest then applicable to Base
Rate Loans.
(g) From and after the date on which any Lender is deemed to have
made a Revolving Credit Loan pursuant to CLAUSE (E) above with respect to any
Swing Loan or purchases an undivided participation interest in a Swing Loan
pursuant to CLAUSE (F) above, a Swing Loan Lender shall promptly distribute to
such Lender such Lender's Ratable Portion of all payments of principal of and
interest received by the Swing Loan Lender on account of such Swing Loan other
than those received from a Lender pursuant to CLAUSE (E) or (F) above.
SECTION 2.4. LETTERS OF CREDIT.
(a) On the terms and subject to the conditions contained in this
Agreement, each Issuer agrees to issue one or more Letters of Credit at the
request of the Borrower for the account of the Borrower from time to time during
the period commencing on the Closing Date and ending on the earlier of the
Revolving Credit Termination Date and 30 days prior to the Scheduled Termination
Date; PROVIDED, HOWEVER, that no Issuer shall be under any obligation to issue
any Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall purport by its terms to enjoin
or restrain such Issuer from issuing such Letter of Credit or
any Requirement of Law applicable to such Issuer or any
request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over such
Issuer shall prohibit, or request that such Issuer refrain
from, the issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon such
Issuer with respect to such Letter of Credit any restriction
or reserve or capital requirement (for which such Issuer is
not otherwise compensated) not in effect on the date of this
Agreement or result in any unreimbursed loss, cost or expense
which was not applicable, in effect or known to such Issuer as
of the date of this Agreement and which such Issuer in good
faith deems material to it;
(ii) such Issuer shall have received written notice
from the Administrative Agent, any Lender or the Borrower, on
or prior to the requested date of issuance of such Letter of
Credit, that one or more of the applicable conditions
contained in SECTIONS 3.1 and 3.2 is not then satisfied;
(iii) after giving effect to the issuance of such Letter
of Credit, the aggregate Revolving Credit Outstandings would
exceed the Maximum Credit at such time;
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(iv) after giving effect to the issuance of such Letter
of Credit, the sum of (i) the Letter of Credit Undrawn Amounts
at such time and (ii) the Reimbursement Obligations at such
time exceeds $15,000,000 (the "LETTER OF CREDIT SUBLIMIT"); or
(v) any fees due in connection with a requested
issuance have not been paid;
None of the Lenders (other than the Issuers in their capacity as such) shall
have any obligation to issue any Letter of Credit. No Letter of Credit may be
issued without the consent of the Administrative Agent.
(b) In no event shall the expiration date of any Letter of Credit (i)
be more than one year after the date of issuance thereof, or (ii) be less than
thirty days prior to the Scheduled Termination Date; PROVIDED, HOWEVER, that any
Letter of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the expiry
date referred to in CLAUSE (II) above).
(c) In connection with the issuance of each Letter of Credit, the
Borrower shall give the relevant Issuer and the Administrative Agent at least
two Business Days' prior written notice, in substantially the form of EXHIBIT D
(or in such other written or electronic form as is acceptable to the Issuer) (a
"LETTER OF CREDIT REQUEST"), of the requested issuance of such Letter of Credit.
Such notice shall be irrevocable and shall specify the Issuer of such Letter of
Credit, the stated amount of the Letter of Credit requested, which stated amount
shall not be less than $100,000, the date of issuance of such requested Letter
of Credit (which day shall be a Business Day), the date on which such Letter of
Credit is to expire (which date shall be a Business Day), and the Person for
whose benefit the requested Letter of Credit is to be issued. Such notice, to be
effective, must be received by the relevant Issuer and the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the requested issuance of such Letter of Credit.
(d) Subject to the satisfaction of the conditions set forth in this
SECTION 2.4, the relevant Issuer shall, on the requested date, issue a Letter of
Credit on behalf of the Borrower in accordance with such Issuer's usual and
customary business practices. No Issuer shall issue any Letter of Credit in the
period commencing on the first Business Day after it receives written notice
from any Lender that one or more of the conditions precedent contained in
SECTION 3.2 shall not on such date be satisfied, and ending when such conditions
are satisfied. The relevant Issuer shall not otherwise be required to determine
that, or take notice whether, the conditions precedent set forth in SECTION 3.2
have been satisfied in connection with the issuance of any Letter of Credit.
(e) If requested by the relevant Issuer, prior to the issuance of each
Letter of Credit by such Issuer, and as a condition of such issuance and of the
participation of each Lender in the Letter of Credit Obligations arising with
respect thereto, the Borrower shall have delivered to such Issuer a letter of
credit reimbursement agreement, in such form as the Issuer may employ in its
ordinary course of business for its own account (a "LETTER OF CREDIT
REIMBURSEMENT AGREEMENT"), signed by the Borrower, and such other documents or
items as may be required pursuant to the terms thereof. In the event of any
conflict between the terms of any Letter of Credit Reimbursement Agreement and
this Agreement, the terms of this Agreement shall govern.
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(f) Each Issuer shall:
(i) give the Administrative Agent written notice (or
telephonic notice confirmed promptly thereafter in writing,
which may be by telecopier) of the issuance or renewal of a
Letter of Credit issued by it, of all drawings under a Letter
of Credit issued by it and the payment (or the failure to pay
when due) by the Borrower of any Reimbursement Obligation when
due (which notice the Administrative Agent shall promptly
transmit by telecopy or similar transmission to each Lender).
(ii) upon the request of any Lender, furnish to such
Lender copies of any Letter of Credit Reimbursement Agreement
to which such Issuer is a party and such other documentation
as may reasonably be requested by such Lender; and
(iii) no later than the tenth (10th) Business Day
following the last day of each Fiscal Month, provide to the
Administrative Agent (and the Administrative Agent shall
provide a copy to each Lender requesting the same) and the
Borrower separate schedules for Documentary and Standby
Letters of Credit issued by it, in form and substance
reasonably satisfactory to the Administrative Agent, setting
forth the aggregate Letter of Credit Obligations outstanding
at the end of each month and any information requested by the
Borrower or the Administrative Agent relating thereto.
(g) Immediately upon the issuance by an Issuer of a Letter of Credit
in accordance with the terms and conditions of this Agreement, such Issuer shall
be deemed to have sold and transferred to each Lender, and each Lender shall be
deemed irrevocably and unconditionally to have purchased and received from such
Issuer, without recourse or warranty, an undivided interest and participation,
to the extent of such Lender's Ratable Portion, in such Letter of Credit and the
obligations of the Borrower with respect thereto (including all Letter of Credit
Obligations with respect thereto) and any security therefor and guaranty
pertaining thereto.
(h) The Borrower agrees to pay to the Issuer of any Letter of Credit
the amount of all Reimbursement Obligations owing to such Issuer under any
Letter of Credit issued for its account when such amounts are due and payable,
irrespective of any claim, set-off, defense or other right which the Borrower
may have at any time against such Issuer or any other Person. In the event that
any Issuer makes any payment under any Letter of Credit and the Borrower shall
not have repaid such amount to such Issuer pursuant to this CLAUSE (H) or such
payment is rescinded or set aside for any reason, such Reimbursement Obligation
shall be payable on demand with interest thereon computed from the date on which
such Reimbursement Obligation arose to the date of repayment in full at the rate
of interest applicable to past due Revolving Credit Loans bearing interest at a
rate based on the Base Rate during such period, and such Issuer shall promptly
notify the Administrative Agent, which shall promptly notify each Lender of such
failure, and each Lender shall promptly and unconditionally pay to the
Administrative Agent for the account of such Issuer the amount of such Lender's
Ratable Portion of such payment in Dollars and in immediately available funds.
If the Administrative Agent so notifies such Lender prior to 11:00 A.M. (New
York City time) on any Business Day, such Lender shall make available to the
Administrative Agent for the account of such Issuer its Ratable Portion of the
amount of such payment on such Business Day in immediately available funds. Upon
such payment by a Lender, such Lender shall, except during the continuance of a
Default or Event of
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Default under SECTION 9.1(F) and notwithstanding whether or not the conditions
precedent set forth in SECTION 3.2 shall have been satisfied (which conditions
precedent the Lenders hereby irrevocably waive) be deemed to have made a
Revolving Loan to the Borrower in the principal amount of such payment. Whenever
any Issuer receives from the Borrower a payment of a Reimbursement Obligation as
to which the Administrative Agent has received for the account of such Issuer
any payment from a Lender pursuant to this CLAUSE (H), such Issuer shall pay to
the Administrative Agent and the Administrative Agent shall promptly pay to each
Lender, in immediately available funds, an amount equal to such Lender's Ratable
Portion of the amount of such payment adjusted, if necessary, to reflect the
respective amounts the Lenders have paid in respect of such Reimbursement
Obligation.
(i) The Borrower's obligation to pay each Reimbursement Obligation
and the obligations of the Lenders to make payments to the Administrative Agent
for the account of the Issuers with respect to Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, under any and all circumstances
whatsoever, including the occurrence of any Default or Event of Default, and
irrespective of:
(i) any lack of validity or enforceability of any
Letter of Credit or any Loan Document, or any term or
provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any Letter of
Credit or any Loan Document;
(iii) the existence of any claim, set off, defense or
other right that the Borrower, any other party guaranteeing,
or otherwise obligated with, the Borrower, any Subsidiary or
other Affiliate thereof or any other Person may at any time
have against the beneficiary under any Letter of Credit,
Issuer, the Administrative Agent or any Lender or any other
Person, whether in connection with this Agreement, any other
Loan Document or any other related or unrelated agreement or
transaction;
(iv) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(v) payment by the Issuer under a Letter of Credit
against presentation of a draft or other document that does
not comply with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any
kind of the Issuer, the Lenders, the Administrative Agent or
any other Person or any other event or circumstance
whatsoever, whether or not similar to any of the foregoing,
that might, but for the provisions of this Section, constitute
a legal or equitable discharge of the Borrower's obligations
hereunder.
Any action taken or omitted to be taken by the relevant Issuer under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall not put such Issuer under any
resulting liability to the Borrower or any Lender. In determining whether drafts
and other documents presented under a Letter of Credit comply with
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the terms thereof, the Issuer may accept documents that appear on their face to
be in order, without responsibility for further investigation, regardless of any
notice or information to the contrary and, in making any payment under any
Letter of Credit the Issuer may rely exclusively on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute willful misconduct or gross negligence of
the Issuer.
(j) If and to the extent such Lender shall not have so made its
Ratable Portion of the amount of the payment required by CLAUSE (I) above
available to the Administrative Agent for the account of such Issuer, such
Lender agrees to pay to the Administrative Agent for the account of such Issuer
forthwith on demand such amount together with interest thereon, for the first
Business Day after payment was first due at the Federal Funds Rate, and
thereafter until such amount is repaid to the Administrative Agent for the
account of such Issuer, at the rate per annum applicable to Base Rate Loans
under the Facility. The failure of any Lender to make available to the
Administrative Agent for the account of such Issuer its Ratable Portion of any
such payment shall not relieve any other Lender of its obligation hereunder to
make available to the Administrative Agent for the account of such Issuer its
Ratable Portion of any payment on the date such payment is to be made, but no
Lender shall be responsible for the failure of any other Lender to make
available to the Administrative Agent for the account of the Issuer such other
Lender's Ratable Portion of any such payment.
SECTION 2.5. REDUCTION AND TERMINATION OF THE REVOLVING CREDIT
COMMITMENTS.
(a) The Borrower may, upon at least three Business Days' prior notice
to the Administrative Agent, terminate in whole or reduce in part ratably the
unused portions of the respective Revolving Credit Commitments of the Lenders;
PROVIDED, HOWEVER, that each partial reduction shall be in the aggregate amount
of not less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof.
(b) The then current Revolving Credit Commitments shall be reduced on
each date on which a prepayment of Revolving Loans or Swing Loans is made
pursuant to SECTIONS 2.9(A) or 2.9(E)(I) or would be required to be made had the
outstanding Revolving Loans and Swing Loans equaled the Revolving Credit
Commitments then in effect, in each case in the amount of such prepayment (or
deemed prepayment) (and the Revolving Credit Commitment of each Lender shall be
reduced by its Ratable Portion of such amount).
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SECTION 2.6. REPAYMENT OF LOANS. The Borrower shall repay the
entire unpaid principal amount of the Revolving Loans and all other Obligations
on the Scheduled Termination Date.
SECTION 2.7. EVIDENCE OF DEBT.
(a) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing Indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(b) The Administrative Agent shall maintain accounts in accordance
with its usual practice in which it will record (i) the amount of each Loan made
and, if a Eurodollar Rate Loan, the Interest Period applicable thereto, (ii) the
amount of any principal or interest due and payable by the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each Lender's share thereof, if
applicable.
(c) The entries made in the accounts maintained pursuant to CLAUSES
(A) and (B) of this SECTION 2.7 shall, to the extent permitted by applicable
law, be PRIMA FACIE evidence of the existence and amounts of the obligations
recorded therein; PROVIDED, HOWEVER, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
(d) Notwithstanding any other provision of the Agreement, in the event
that any Lender requests that the Borrower execute and deliver a promissory note
or notes payable to such Lender in order to evidence the Indebtedness owing to
such Lender by the Borrower hereunder, the Borrower will promptly execute and
deliver a Revolving Credit Note or Revolving Credit Notes to such Lender
evidencing any Revolving Credit Loans of such Lender, substantially in the form
of EXHIBIT B, and the interests evidenced by such note or notes shall at all
times (including after assignment of all or part of such interests) be evidenced
by one or more Revolving Credit Notes payable to the order of the payee named
therein.
SECTION 2.8. OPTIONAL PREPAYMENTS.
(a) The Borrower may, upon at least three Business Days' prior notice
to the Administrative Agent, stating the proposed date and aggregate principal
amount of the prepayment, prepay the outstanding principal amount of the
Revolving Loans in whole or in part; PROVIDED, HOWEVER, that if any prepayment
of any Eurodollar Rate Loan is made by the Borrower other than on the last day
of an Interest Period for such Loan, the Borrower shall also pay any amounts
owing pursuant to SECTION 2.14(E); and, PROVIDED, FURTHER, that each partial
prepayment shall be in an aggregate principal amount not less than $2,000,000 or
integral multiples of $1,000,000 in excess thereof. Upon the giving of such
notice of prepayment, the principal amount of Revolving Credit Loans specified
to be prepaid shall become due and payable on the date specified for such
prepayment.
(b) The Borrower shall have no right to prepay the principal amount
of any Revolving Loan other than as provided in this SECTION 2.8.
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SECTION 2.9. MANDATORY PREPAYMENTS.
(a) Upon receipt by the Borrower or any of its Subsidiaries of Net
Cash Proceeds arising (i) from an Asset Sale or a Debt Issuance, the Borrower
shall immediately prepay the Loans in an amount equal to 100% of such Net Cash
Proceeds, and (ii) from an Equity Issuance, the Borrower shall immediately
prepay the Loans in an amount equal to 50% of such Net Cash Proceeds. Any such
mandatory prepayment shall be applied in accordance with SECTION 2.9(B) below.
(b) Any prepayments made by the Borrower required to be applied in
accordance with this SECTION 2.9(B) shall be applied as follows: FIRST, to repay
the outstanding principal balance of the Swing Loans until such Swing Loans
shall have been repaid in full; SECOND, to repay the outstanding principal
balance of the Revolving Loans until such Revolving Loans shall have been paid
in full; and THEN, to provide cash collateral for any Letter of Credit
Obligations in the manner set forth in SECTION 9.3 until all such Letter of
Credit Obligations have been fully cash collateralized in the manner set forth
therein. All repayments of Revolving Loans and Swing Loans required to be
applied in accordance with this SECTION 2.9(B) or SECTION 2.9(E)(I) shall result
in a permanent reduction of the Revolving Credit Commitments to the extent
provided therein.
(c) If at any time, the aggregate principal amount of Revolving
Credit Outstandings exceed the Maximum Credit at such time, the Borrower shall
forthwith prepay the Swing Loans first and then the Revolving Loans then
outstanding in an amount equal to such excess. If any such excess remains after
repayment in full of the aggregate outstanding Swing Loans and Revolving Loans,
the Borrower shall provide cash collateral for the Letter of Credit Obligations
in the manner set forth in SECTION 9.3 to the extent required to eliminate such
excess.
(d) Upon the occurrence of a Cash Sweep Event, the Borrower agrees
that all available funds in the Concentration Account shall be applied on a
daily basis FIRST to repay the outstanding principal amount of the Swing Loans
until such Swing Loans have been repaid in full; SECOND to repay the outstanding
principal balance of the Revolving Loans until such Revolving Loans shall have
been repaid in full; and THIRD to any other Obligation then due and payable.
(e) (i) Except as provided in CLAUSE (II) below, promptly, and in
any event within 10 days of receipt by the Administrative Agent, the Borrower or
any Subsidiary Guarantor of any Net Cash Proceeds in excess of $500,000 (for
each occurrence) from payments of insurance on account of the loss or damage to
any assets or property, or payments of compensation for any such assets or
property taken by condemnation or eminent domain, the applicable party receiving
such Net Cash Proceeds shall notify the other parties of such receipt in
writing, and not later than 30 days following such receipt of notice, there
shall become due and payable a prepayment of the Loans in an amount equal to
100% of such Net Cash Proceeds.
(ii) The Borrower may elect, by written notice delivered
to the Administrative Agent no later than the date on which prepayment would
otherwise be required under CLAUSE (I) above, to apply all or a portion of such
Net Cash Proceeds to the replacement or repair of such assets or property;
PROVIDED, HOWEVER, that if within 150 days of such election, such replacement or
repair has not commenced, or is abandoned or otherwise discontinued or not
diligently pursued, 100% of the Net Cash Proceeds shall be immediately applied
to the Loans in accordance with SECTION 2.9(B). If the Borrower makes an
election under this CLAUSE (II), then the Borrower shall apply such Net Cash
Proceeds to the repayment of the Loans (but not in
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permanent reduction of the Revolving Credit Commitments) and any remaining
proceeds shall be maintained in the Cash Collateral Account and may not be
withdrawn by the Borrower other than for the replacement or repair specified in
the Borrower's election notice. The Administrative Agent shall be entitled to
require proof that the proceeds of any such withdrawal are being applied for the
purposes specified in the Borrower's election notice.
SECTION 2.10. INTEREST.
(a) RATE OF INTEREST. All Loans and the outstanding amount of
all other Obligations shall bear interest, in the case of Loans, on the unpaid
principal amount thereof from the date such Loans are made and, in the case of
such other Obligations, from the date such other Obligations are due and payable
until, in all cases, paid in full, except as otherwise provided in SECTION
2.10(C), as follows:
(i) if a Base Rate Loan or such other Obligation, at a
rate per annum equal to the sum of (A) the Base Rate as in
effect from time to time, PLUS (B) the Applicable Margin; and
(ii) if a Eurodollar Rate Loan, at a rate per annum
equal to the sum of (A) the Eurodollar Rate determined for the
applicable Interest Period, PLUS (B) the Applicable Margin in
effect from time to time during such Eurodollar Interest
Period.
(b) INTEREST PAYMENTS. (i) Interest accrued on each Base Rate Loan
shall be payable in arrears (A) on the last day of each calendar month,
commencing on the first such day following the making of such Base Rate Loan,
and (B) if not previously paid in full, at maturity (whether by acceleration or
otherwise) of such Base Rate Loan; (ii) interest accrued on Swing Loans shall be
payable in arrears on the first Business Day of the immediately succeeding
calendar month; (iii) interest accrued on each Eurodollar Rate Loan shall be
payable in arrears (A) on the last day of each Interest Period applicable to
such Loan and if such Interest Period has a duration of more than three months,
on each day during such Interest Period which occurs every three months from the
first day of such Interest Period, (B) upon the payment or prepayment thereof in
full or in part, and (C) if not previously paid in full, at maturity (whether by
acceleration or otherwise) of such Eurodollar Rate Loan; and (iv) interest
accrued on the amount of all other Obligations shall be payable on demand from
and after the time such Obligation becomes due and payable (whether by
acceleration or otherwise).
(c) DEFAULT INTEREST. Notwithstanding the rates of interest specified
in SECTION 2.10(A) or elsewhere herein, effective immediately upon the
occurrence of an Event of Default, and for as long thereafter as such Event of
Default shall be continuing, the principal balance of all Loans and the amount
of all other Obligations shall bear interest at a rate which is two percent per
annum in excess of the rate of interest applicable to such Obligations from time
to time.
SECTION 2.11. CONVERSION/CONTINUATION OPTION.
(a) The Borrower may elect (i) at any time to convert Base Rate Loans
(other than Swing Loans) or any portion thereof to Eurodollar Rate Loans, or
(ii) at the end of any applicable Interest Period, to convert Eurodollar Rate
Loans or any portion thereof into Base Rate Loans or to continue such Eurodollar
Rate Loans or any portion thereof for an additional Interest
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Period; PROVIDED, HOWEVER, that the aggregate amount of the Eurodollar Loans for
each Interest Period must be in the amount of $2,000,000 or an integral multiple
of $1,000,000 in excess thereof. Each conversion or continuation shall be
allocated among the Loans of each Lender in accordance with its Ratable Portion.
Each such election shall be in substantially the form of EXHIBIT F hereto (a
"NOTICE OF CONVERSION OR CONTINUATION") and shall be made by giving the
Administrative Agent at least three Business Days' prior written notice
specifying (A) the amount and type of Loan being converted or continued, (B) in
the case of a conversion to or a continuation of Eurodollar Rate Loans, the
applicable Interest Period, and (C) in the case of a conversion, the date of
conversion (which date shall be a Business Day and, if a conversion from
Eurodollar Rate Loans, shall also be the last day of the applicable Interest
Period).
(b) The Administrative Agent shall promptly notify each Lender of its
receipt of a Notice of Conversion or Continuation and of the options selected
therein. Notwithstanding the foregoing, no conversion in whole or in part of
Base Rate Loans to Eurodollar Rate Loans, and no continuation in whole or in
part of Eurodollar Rate Loans upon the expiration of any applicable Interest
Period, shall be permitted at any time at which (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the continuation of, or
conversion into, would violate any of the provisions of SECTION 2.14. If, within
the time period required under the terms of this SECTION 2.11, the
Administrative Agent does not receive a Notice of Conversion or Continuation
from the Borrower containing a permitted election to continue any Eurodollar
Rate Loans for an additional Interest Period or to convert any such Loans, then,
upon the expiration of the applicable Interest Period, such Loans will be
automatically converted to Base Rate Loans. Each Notice of Conversion or
Continuation shall be irrevocable.
SECTION 2.12. FEES.
(a) UNUSED COMMITMENT FEE. The Borrower agrees to pay to each Lender
a commitment fee on the average amount by which the Revolving Credit Commitment
of such Lender exceeds such Lender's Ratable Portion of the Revolving Credit
Outstandings (the "UNUSED COMMITMENT FEE") from the date hereof until the
Revolving Credit Termination Date at the Applicable Unused Commitment Fee Rate,
payable in arrears (i) on the last day of each calendar month, commencing on the
first such day following the Closing Date and (ii) on the Revolving Credit
Termination Date.
(b) LETTER OF CREDIT FEES. The Borrower agrees to pay the following
amounts with respect to Letters of Credit issued by any Issuer:
(i) to the Administrative Agent for the account of
each Issuer of a Letter of Credit, with respect to each Letter
of Credit issued by such Issuer, an issuance fee equal to
0.25% per annum of the maximum amount available from time to
time to be drawn under such Letter of Credit, payable in
arrears (A) on the last day of each calendar month, commencing
on the first such day following the issuance of such Letter of
Credit and (B) on the Revolving Credit Termination Date;
(ii) to the Administrative Agent for the ratable benefit
of the Lenders, with respect to each Letter of Credit, a fee
accruing at a rate per annum equal to the Applicable Margin
for Revolving Loans that are Eurodollar Rate Loans of the
maximum amount available from time to time to be drawn under
such Letter of Credit, payable in arrears (A) on the last day
of each calendar
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month, commencing on the first such day following the issuance
of such Letter of Credit and (B) on the Revolving Credit
Termination Date; PROVIDED, HOWEVER, that during the
continuance of an Event of Default, such fee shall be
increased by two percent per annum and shall be payable on
demand; and
(iii) to the Issuer of any Letter of Credit, with respect
to the issuance, amendment or transfer of each Letter of
Credit and each drawing made thereunder, documentary and
processing charges in accordance with such Issuer's standard
schedule for such charges in effect at the time of issuance,
amendment, transfer or drawing, as the case may be.
(c) ADDITIONAL FEES. The Borrower has agreed to pay to the
Administrative Agent and the Arranger additional fees, the amount and dates of
payment of which are embodied in the Fee Letter.
SECTION 2.13. PAYMENTS AND COMPUTATIONS; PROTECTIVE ADVANCES.
(a) The Borrower shall make each payment hereunder (including fees and
expenses) not later than 11:00 A.M. (New York City time) on the day when due, in
Dollars, to the Administrative Agent at its address referred to in SECTION 11.8
in immediately available funds without set-off or counterclaim. The
Administrative Agent will promptly thereafter cause to be distributed
immediately available funds relating to the payment of principal or interest or
fees to the Lenders, in accordance with the application of payments set forth in
CLAUSES (E) and (F) of this SECTION 2.13, as applicable, for the account of
their respective Applicable Lending Offices; PROVIDED, HOWEVER, that amounts
payable pursuant to SECTION 2.14(C), 2.14(E), 2.15 or 2.16 shall be paid only to
the affected Lender or Lenders and amounts payable with respect to Swing Loans
shall be paid only to the Swing Loan Lender. Payments received by the
Administrative Agent after 11:00 A.M. (New York City time) shall be deemed to be
received on the next Business Day.
(b) All computations of interest and of fees shall be made by the
Administrative Agent on the basis of a year of (i) 365 days (in the case of Base
Rate Loans and fees) and (y) 360 days (in the case of Eurodollar Rate Loans),
and in each case, for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest and fees
are payable. Each determination by the Administrative Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(c) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or fees, as the case may be; PROVIDED,
however, that if such extension would cause payment of interest on or principal
of any Eurodollar Rate Loan to be made in the next calendar month, such payment
shall be made on the immediately preceding Business Day. All repayments of any
Revolving Loans shall be applied first to repay such Loans outstanding as Base
Rate Loans and then to repay such Loans outstanding as Eurodollar Rate Loans
with those Eurodollar Rate Loans which have earlier expiring Eurodollar Interest
Periods being repaid prior to those which have later expiring Eurodollar
Interest Periods.
(d) Unless the Administrative Agent shall have received notice from
the Borrower to the Lenders prior to the date on which any payment is due
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the
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Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrower shall not have made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
together with interest thereon at the Federal Funds Rate, for the first Business
Day, and, thereafter, at the rate applicable to Base Rate Loans, for each day
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent.
(e) Subject to the provisions of CLAUSE (F) of this SECTION 2.13 and
(except as otherwise provided in SECTION 2.9), all payments and any other
amounts received by the Administrative Agent from or for the benefit of the
Borrower shall be applied FIRST, to pay principal of and interest on any portion
of the Loans which the Administrative Agent may have advanced pursuant to the
express provisions of this Agreement on behalf of any Lender, for which the
Administrative Agent has not then been reimbursed by such Lender or the
Borrower; SECOND, to pay all other Obligations then due and payable; and THIRD,
as the Borrower so designates. Payments in respect of Swing Loans received by
the Administrative Agent shall be distributed to the Swing Loan Lender; payments
in respect of Revolving Loans received by the Administrative Agent shall be
distributed to each Lender in accordance with such Lender's Ratable Portion; and
all payments of fees and all other payments in respect of any other Obligation
shall be allocated among such of the Lenders and Issuers as are entitled
thereto, and, if to the Lenders, in proportion to their respective Ratable
Portions.
(f) After the occurrence and during the continuance of an Event of
Default, the Borrower hereby irrevocably waives the right to direct the
application of any and all payments in respect of the Obligations and any
proceeds of Collateral, and agrees that the Administrative Agent may, and shall
upon either (A) the written direction of the Requisite Lenders or (B) the
acceleration of the Obligations pursuant to SECTION 9.1, apply all payments in
respect of any Obligations and all proceeds of Collateral in the following
order:
(i) FIRST, to pay interest on and then principal of any
portion of the Revolving Loans which the Administrative Agent
may have advanced on behalf of any Lender for which the
Administrative Agent has not then been reimbursed by such
Lender or the Borrower;
(ii) SECOND, to pay interest on and then principal of
any Swing Loan;
(iii) THIRD, to pay Obligations in respect of any expense
reimbursements or indemnities then due the Administrative
Agent;
(iv) FOURTH, to pay Obligations in respect of any
expense reimbursements or indemnities then due to the Lenders
and the Issuers;
(v) FIFTH, to pay Obligations in respect of any fees
then due to the Administrative Agent, the Lenders and the
Issuers;
(vi) SIXTH, to pay interest then due and payable in
respect of the Loans and Reimbursement Obligations;
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(vii) SEVENTH, to pay or prepay principal payments on the
Loans and Reimbursement Obligations and to provide cash
collateral for outstanding Letter of Credit Undrawn Amounts in
the manner described in SECTION 9.3, ratably to the aggregate
principal amount of such Loans, Reimbursement Obligations and
Letter of Credit Undrawn Amounts, and Obligations owing with
respect to Hedging Contracts; and
(viii) EIGHTH, to the ratable payment of all other
Obligations;
PROVIDED, HOWEVER, that if sufficient funds are not available to fund all
payments to be made in respect of any of the Obligations described in any of the
foregoing clauses FIRST through EIGHTH, the available funds being applied with
respect to any such Obligation (unless otherwise specified in such clause) shall
be allocated to the payment of such Obligations ratably, based on the proportion
of the Administrative Agent's and each Lender's or Issuer's interest in the
aggregate outstanding Obligations described in such clauses. The order of
priority set forth in clauses FIRST through EIGHTH of this SECTION 2.13(F) may
at any time and from time to time be changed by the agreement of the Requisite
Lenders without necessity of notice to or consent of or approval by the
Borrower, any Secured Party that is not a Lender or Issuing Bank, or any other
Person. The order of priority set forth in clauses FIRST through FIFTH of this
SECTION 2.13(F) may be changed only with the prior written consent of the
Administrative Agent in addition to the Requisite Lenders.
(g) All payments of principal on the Swing Loans, Reimbursement
Obligations, interest, fees, expenses and other sums due and payable in respect
of the Revolving Loans and all expenses, disbursements and advances incurred by
the Administrative Agent pursuant to the Loan Documents after the occurrence and
during the continuance of an Event of Default which the Administrative Agent, in
its sole discretion, deems necessary or desirable to preserve or protect the
Collateral or any portion thereof or to enhance the likelihood or maximize the
amount of repayment of the Obligations may, at the option of the Administrative
Agent, be paid from the proceeds of Swing Loans or Revolving Loans. The Borrower
hereby authorizes the Swing Loan Lender to make Swing Loans pursuant to SECTION
2.3(A), and the Lenders to make Revolving Loans pursuant to SECTION 2.2(A), from
time to time in such Swing Loan Lender's, or such Lender's discretion, which are
in the amounts of any and all principal payable with respect to the Swing Loans
and interest, fees, expenses and other sums payable in respect of the Revolving
Loans, and further authorizes the Administrative Agent to give the Lenders
notice of any Borrowing with respect to such Swing Loans and Revolving Loans and
to distribute the proceeds of such Swing Loans and Revolving Loans to pay such
amounts. The Borrower agrees that all such Swing Loans and Revolving Loans so
made shall be deemed to have been requested by it (irrespective of the
satisfaction of the conditions in SECTION 3.2, which conditions the Lenders
irrevocably waive) and directs that all proceeds thereof shall be used to pay
such amounts.
SECTION 2.14. SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
(a) DETERMINATION OF INTEREST RATE. The Eurodollar Rate for each
Interest Period for Eurodollar Rate Loans shall be determined by the
Administrative Agent pursuant to the procedures set forth in the definition of
"EURODOLLAR RATE." The Administrative Agent's determination shall be presumed to
be correct, absent manifest error, and shall be binding on the Borrower.
(b) INTEREST RATE UNASCERTAINABLE, INADEQUATE OR UNFAIR. In the event
that: (i) the Administrative Agent determines that adequate and fair means do
not exist for ascertaining
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the applicable interest rates by reference to which the Eurodollar Rate then
being determined is to be fixed; or (ii) the Requisite Lenders notify the
Administrative Agent that the Eurodollar Rate for any Interest Period will not
adequately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Lenders, whereupon each Eurodollar Loan will automatically, on
the last day of the current Interest Period for such Loan, convert into a Base
Rate Loan and the obligations of the Lenders to make Eurodollar Rate Loans or to
convert Base Rate Loans into Eurodollar Rate Loans shall be suspended until the
Administrative Agent shall notify the Borrower that the Requisite Lenders have
determined that the circumstances causing such suspension no longer exist.
(c) INCREASED COSTS. If at any time any Lender shall determine
that the introduction of or any change in or in the interpretation of any law,
treaty or governmental rule, regulation or order (other than any change by way
of imposition or increase of reserve requirements included in determining the
Eurodollar Rate Reserve Percentage) or the compliance by such Lender with any
guideline, request or directive from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any Eurodollar Rate Loans, then the Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding for
all purposes, absent manifest error.
(d) ILLEGALITY. Notwithstanding any other provision of this Agreement,
if any Lender determines that the introduction of or any change in or in the
interpretation of any law, treaty or governmental rule, regulation or order
after the date of this Agreement shall make it unlawful, or any central bank or
other Governmental Authority shall assert that it is unlawful, for any Lender or
its Eurodollar Lending Office to make Eurodollar Rate Loans or to continue to
fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand
therefor by such Lender to the Borrower through the Administrative Agent, (i)
the obligation of such Lender to make or to continue Eurodollar Rate Loans and
to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended, and
each such Lender shall make a Base Rate Loan as part of any requested Borrowing
of Eurodollar Rate Loans and (ii) if the affected Eurodollar Rate Loans are then
outstanding, the Borrower shall immediately convert each such Loan into a Base
Rate Loan. If at any time after a Lender gives notice under this SECTION 2.14(D)
such Lender determines that it may lawfully make Eurodollar Rate Loans, such
Lender shall promptly give notice of that determination to the Borrower and the
Administrative Agent, and the Administrative Agent shall promptly transmit the
notice to each other Lender. The Borrower's right to request, and such Lender's
obligation, if any, to make Eurodollar Rate Loans shall thereupon be restored.
(e) BREAKAGE COSTS. In addition to all amounts required to be paid
by the Borrower pursuant to SECTION 2.10, the Borrower shall compensate each
Lender, upon demand, for all losses, expenses and liabilities (including any
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund or maintain such
Lender's Eurodollar Rate Loans to the Borrower but excluding any loss of the
Applicable Margin on the relevant Loans) which that Lender may sustain (i) if
for any reason a proposed Borrowing, conversion into or continuation of
Eurodollar Rate Loans does not occur on
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a date specified therefor in a Notice of Borrowing or a Notice of Conversion or
Continuation given by a Borrower or in a telephonic request by it for borrowing
or conversion or continuation or a successive Interest Period does not commence
after notice therefor is given pursuant to SECTION 2.11, (ii) if for any reason
any Eurodollar Rate Loan is prepaid (including mandatorily pursuant to SECTION
2.9) on a date which is not the last day of the applicable Interest Period,
(iii) as a consequence of a required conversion of a Eurodollar Rate Loan to a
Base Rate Loan as a result of any of the events indicated in SECTION 2.14(B), or
(iv) as a consequence of any failure by a Borrower to repay Eurodollar Rate
Loans when required by the terms hereof. The Lender making demand for such
compensation shall deliver to the Borrower concurrently with such demand a
written statement as to such losses, expenses and liabilities (which statement
shall show in reasonable detail the factual basis for and the computation of
such losses, expenses and liabilities), and this statement shall be conclusive
as to the amount of compensation due to that Lender, absent manifest error.
SECTION 2.15. CAPITAL ADEQUACY. If at any time any Lender
determines that (a) the adoption of or any change in or in the interpretation of
any law, treaty or governmental rule, regulation or order after the date of this
Agreement regarding capital adequacy, (b) compliance with any such law, treaty,
rule, regulation, or order, or (c) compliance with any guideline or request or
directive from any central bank or other Governmental Authority (whether or not
having the force of law) shall have the effect of reducing the rate of return on
such Lender's (or any corporation controlling such Lender's) capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change, compliance or interpretation, then, upon
demand from time to time by such Lender (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender for such reduction. A
certificate as to such amounts submitted to the Borrower and the Administrative
Agent by such Lender shall be conclusive and binding for all purposes absent
manifest error.
SECTION 2.16. TAXES.
(a) Any and all payments by the Borrower under each Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding (i) in the case of each Lender and
the Administrative Agent (A) franchise taxes imposed on it, by the jurisdiction
(or any political subdivision thereof) under the laws of which such Lender or
the Administrative Agent (as the case may be) is organized and taxes measured by
its net income and (B) any United States withholding taxes payable with respect
to payments under the Loan Documents under laws (including any statute, treaty
or regulation) in effect on the Closing Date (or, in the case of an Eligible
Assignee, the date of the Assignment and Acceptance) applicable to such Lender
or the Administrative Agent, as the case may be, but not excluding any United
States withholding payable as a result of any change in such laws occurring
after the Closing Date (or the date of such Assignment and Acceptance) and (ii)
in the case of each Lender, franchise taxes imposed on it, by the jurisdiction
in which such Lender's Applicable Lending Office is located and taxes measured
by its net income (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
If any Taxes shall be required by law to be deducted from or in respect of any
sum payable under any Loan Document to any Lender or the Administrative Agent
(i) the sum payable shall be increased as
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may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this SECTION 2.16) such
Lender or the Administrative Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxing authority or other authority in
accordance with applicable law, and (iv) the Borrower shall deliver to the
Administrative Agent evidence of such payment.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction, and all liabilities with respect thereto, which
arise from any payment made under any Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, any Loan Document
(collectively, "OTHER TAXES").
(c) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes and Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this SECTION 2.16)
paid by such Lender or the Administrative Agent (as the case may be) and any
liability (including for penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Lender or the Administrative Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Administrative Agent, at its address
referred to in SECTION 11.8, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.16 shall survive the payment in full of the Obligations.
(f) Prior to the Closing Date in the case of each Non-U.S. Lender
that is a signatory hereto, and on the date of the Assignment and Acceptance
pursuant to which it becomes a Lender in the case of each other Non-U.S. Lender
and from time to time thereafter if requested by the Borrower or the
Administrative Agent, each Non-U.S. Lender that is entitled at such time to an
exemption from United States withholding tax, or that is subject to such tax at
a reduced rate under an applicable tax treaty, shall provide the Administrative
Agent and the Borrower with two completed copies of either IRS Form 4224 or Form
1001, or in the case of a Non-U.S. Lender claiming exemption under Section
871(h) or 881(c) of the Code with respect to "portfolio interest," a Form W-8 or
Form W-9, or other applicable form, certificate or document prescribed by the
IRS certifying as to such Non-U.S. Lender's entitlement to such exemption from
United States withholding tax or reduced rate with respect to all payments to be
made to such Non-U.S. Lender under the Loan Documents. Unless the Borrower and
the Administrative Agent have received forms or other documents satisfactory to
them indicating that payments under any Loan Document to or for a Non-U.S.
Lender are not subject to United States withholding tax or are subject to such
tax at a rate reduced by an applicable tax treaty, the Borrower or the
Administrative Agent shall withhold taxes from such payments at the applicable
statutory rate.
(g) Any Lender claiming any additional amounts payable pursuant to
this SECTION 2.16 shall use its reasonable efforts (consistent with its internal
policy and legal and
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regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such additional amounts which would be payable or may thereafter
accrue and would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.17. SUBSTITUTION OF LENDERS. In the event that (a)
(i) any Lender makes a claim under SECTION 2.14 (C) or SECTION 2.15, or (ii) it
becomes illegal for any Lender to continue to fund or make any Eurodollar Rate
Loan and such Lender notifies the Borrower pursuant to SECTION 2.14(D), or (iii)
the Borrower is required to make any payment pursuant to SECTION 2.16 that is
attributable to any Lender, or (iv) any Lender is a Non-Funding Lender, (b) in
the case of clause (a)(i) above, as a consequence of increased costs in respect
of which such claim is made, the effective rate of interest payable to such
Lender under this Agreement with respect to its Loans materially exceeds the
effective average annual rate of interest payable to the Requisite Lenders under
this Agreement and (c) Lenders holding at least 75% of the Revolving Credit
Commitments are not subject to such increased costs or illegality, payment or
proceedings (any such Lender, an "AFFECTED LENDER"), the Borrower may substitute
another financial institution for such Affected Lender hereunder, upon
reasonable prior written notice (which written notice must be given within 90
days following the occurrence of any of the events described in CLAUSES (A)(I),
(II), (III) or (IV)) by the Borrower to the Administrative Agent and the
Affected Lender that the Borrower intends to make such substitution, which
substitute financial institution must be an Eligible Assignee and, if not a
Lender, reasonably acceptable to the Administrative Agent; PROVIDED, HOWEVER,
that if more than one Lender claims increased costs, illegality or right to
payment arising from the same act or condition and such claims are received by
the Borrower within 30 days of each other then the Borrower may substitute all,
but not (except to the extent the Borrower has already substituted one of such
Affected Lenders before the Borrower's receipt of the other Affected Lenders'
claim) less than all, Lenders making such claims. In the event that the proposed
substitute financial institution or other entity is reasonably acceptable to the
Administrative Agent and the written notice was properly issued under this
SECTION 2.17, the Affected Lender shall sell and the substitute financial
institution or other entity shall purchase, pursuant to an Assignment and
Acceptance, all rights and claims of such Affected Lender under the Loan
Documents and the substitute financial institution or other entity shall assume
and the Affected Lender shall be relieved of its Revolving Credit Commitments
and all other prior unperformed obligations of the Affected Lender under the
Loan Documents (other than in respect of any damages (other than exemplary or
punitive damages, to the extent permitted by applicable law) in respect of any
such unperformed obligations). Upon the effectiveness of such sale, purchase and
assumption (which, in any event shall be conditioned upon the payment in full by
the Borrower to the Affected Lender in cash of all fees, unreimbursed costs and
expenses and indemnities accrued and unpaid through such effective date), the
substitute financial institution or other entity shall become a "LENDER"
hereunder for all purposes of this Agreement having a Revolving Credit
Commitment in the amount of such Affected Lender's Revolving Credit Commitment
assumed by it and such Revolving Credit Commitment of the Affected Lender shall
be terminated, provided that all indemnities under the Loan Documents shall
continue in favor of such Affected Lender.
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ARTICLE III
CONDITIONS TO LOANS AND LETTERS OF CREDIT
SECTION 3.1. CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTERS
OF CREDIT. The obligation of each Lender to make the Loans requested to be made
by it on the Closing Date and the obligation of each Issuer to issue Letters of
Credit on the Closing Date is subject to the satisfaction of all of the
following conditions precedent:
(a) CERTAIN DOCUMENTS. The Administrative Agent shall have received
on the Closing Date each of the following, each dated the Closing Date unless
otherwise indicated or agreed to by the Administrative Agent, in form and
substance satisfactory to the Administrative Agent and in sufficient copies for
each Lender:
(i) this Agreement, duly executed and delivered by the
Borrower and, for the account of each Lender requesting the
same, a Revolving Credit Note or Revolving Credit Notes of the
Borrower conforming to the requirements set forth herein;
(ii) the Guaranty, duly executed by each Subsidiary
Guarantor;
(iii) the Pledge and Security Agreement, duly executed
by the Borrower and each Subsidiary Guarantor, together with:
(A) evidence satisfactory to the Administrative
Agent that the Administrative Agent (for the benefit of the
Secured Parties) has a valid and perfected first priority
security interest in the Collateral (subject to Customary
Permitted Liens), including (x) such documents duly executed
by each Loan Party as the Administrative Agent may request
with respect to the perfection of its security interests in
the Collateral (including financing statements under the UCC,
patent, trademark and copyright security agreements suitable
for filing with the Patent and Trademark Office or the
Copyright Office and other applicable documents under the laws
of any jurisdiction with respect to the perfection of Liens
created by the Pledge and Security Agreement) and (y) copies
of UCC search reports as of a recent date listing all
effective financing statements that name any Loan Party as
debtor, together with copies of such financing statements,
none of which shall cover the Collateral except for those
which shall be terminated on the Closing Date);
(B) share certificates representing all of
certificated Pledged Stock being pledged pursuant to such
Pledge and Security Agreement and stock powers for such share
certificates executed in blank;
(C) all instruments representing Pledged Notes
being pledged pursuant to such Pledge and Security Agreement
duly endorsed in favor of the Administrative Agent or in
blank; and
(D) Control Account Letters from all securities
intermediaries with respect to all securities accounts and
securities entitlements of the Borrower and such Subsidiary
Guarantor.
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(iv) a favorable opinion of (A) Alston & Bird LLP,
counsel to the Loan Parties, in substantially the form of
EXHIBIT G, (B) Catherine O. Hasbrouck, general counsel to the
Loan Parties, (C) counsel to the Loan Parties in New York,
Georgia, Pennsylvania, Texas, South Carolina and California,
in each case addressed to the Administrative Agent and the
Lenders and addressing such other matters as any Lender
through the Administrative Agent may reasonably request and
(C) counsel to the Administrative Agent as to the
enforceability of the Credit Agreement and the other Loan
Documents to be executed on the Closing Date;
(v) a copy of each Related Document certified as being
complete and correct by a Responsible Officer of the Borrower;
(vi) a copy of the Disclosure Statement, certified by
the Secretary or an Assistant Secretary of the Borrower (A) to
be a true, complete and correct copy of such document, (B) to
have been duly authorized by the Borrower's Board of Directors
and to have been duly executed by the Borrower and filed with
the Bankruptcy Court and (C) not to have been amended from the
form so certified, or rescinded;
(vii) a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) that attached thereto
is a true, correct and complete copy of the Confirmation Order
(including the Plan of Reorganization attached to the
Confirmation Order) and (B) that no appeal or motion for
rehearing has been filed in connection with such Confirmation
Order;
(viii) a copy of the articles or certificate of
incorporation (or equivalent organizational documents) of each
Loan Party, certified as of a recent date by the Secretary of
State of the state of incorporation of such Loan Party,
together with certificates of such official attesting to the
good standing of each such Loan Party;
(ix) a certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying (A) the names and true
signatures of each officer of such Loan Party who has been
authorized to execute and deliver any Loan Document or other
document required hereunder to be executed and delivered by or
on behalf of such Loan Party, (B) the by-laws (or equivalent
Constituent Document) of such Loan Party as in effect on the
date of such certification, (C) the resolutions of such Loan
Party's Board of Directors (or equivalent governing body)
approving and authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents to
which it is a party and (D) that there have been no changes in
the certificate of incorporation (or equivalent Constituent
Document) of such Loan Party from the certificate of
incorporation (or equivalent Constituent Document) delivered
pursuant to the immediately preceding clause;
(x) a certificate of the Chief Financial Officer of the
Borrower, stating that the Borrower is Solvent after giving
effect to the initial Loans and Letters of Credit, the
application of the proceeds thereof in accordance with SECTION
7.9 and the payment of all estimated legal, accounting and
other fees related hereto and thereto;
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(xi) a certificate of a Responsible Officer to the
effect that (A) the condition set forth in SECTION 3.2(B) has
been satisfied and (ii) no litigation not listed on SCHEDULE
4.7 shall have been commenced against any Loan Party or any of
its Subsidiaries which, if adversely determined, would have a
Material Adverse Effect;
(xii) (A) monthly Projections through December 31, 2000
prepared by the Chief Financial Officer of the Borrower and
(B) financial models prepared by the Chief Financial Officer
of the Borrower for the period commencing on the Closing Date
and ending on the last day of the Borrower's Fiscal Year end
in 2003, in the form approved by the Board of Directors of the
Borrower, reflecting the financial effects of the
Reorganization on the Borrower and its Subsidiaries;
(xiii) evidence satisfactory to the Administrative Agent
that the insurance policies required by SECTION 7.5 and any
Collateral Document are in full force and effect, together
with endorsements naming the Administrative Agent, on behalf
of the Secured Parties, as an additional insured and/or loss
payee under all insurance policies to be maintained with
respect to the properties of the Borrower and its
Subsidiaries; and
(xiv) such other certificates, documents, agreements and
information respecting any Loan Party as any Lender through
the Administrative Agent may reasonably request.
(b) CASH MANAGEMENT. The Administrative Agent shall be satisfied that,
as of the Closing Date, the procedures with respect to cash management required
by SECTION 7.12 and the Collateral Documents have been established and are
currently being maintained by each Loan Party, together with copies of all
executed Blocked Account Letters executed by such Loan Party in connection
therewith.
(c) FEES AND EXPENSES PAID. There shall have been paid to the
Administrative Agent, for the account of the Administrative Agent and the
Lenders, as applicable, all fees due and payable on or before the Closing Date
(including all such fees described in the Fee Letter), and all expenses due and
payable on or before the Closing Date.
(d) RELATED DOCUMENTS. The Administrative Agent shall be satisfied
that: (i) the terms and conditions of the Related Documents shall not have been
amended, waived or modified without the approval of the Administrative Agent
(other than non-material amendments, waivers and modifications to such terms
that do not in the aggregate materially adversely affect the interests of the
Administrative Agent and the Lenders), and (ii) the Related Documents shall have
been approved by all corporate action of the Borrower and each of the other
parties thereto, shall be in full force and effect and there shall not have
occurred and be continuing any material breach or default thereunder.
(e) CONSENTS, ETC. Each of the Borrower and its Subsidiaries shall
have received all consents and authorizations required pursuant to any material
Contractual Obligation with any other Person and shall have obtained all
consents and authorizations of, and effected all notices to and filings with,
any Governmental Authority, in each case, as may be necessary to allow each of
the Borrower and its Subsidiaries lawfully (A) to execute, deliver and perform,
in all material respects, their respective obligations hereunder, the Loan
Documents and the Related Documents
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to which each of them, respectively, is, or shall be, a party and each other
agreement or instrument to be executed and delivered by each of them,
respectively, pursuant thereto or in connection therewith, and (B) to create and
perfect the Liens on the Collateral to be owned by each of them in the manner
and for the purpose contemplated by the Loan Documents.
(f) PLAN OF REORGANIZATION. (i) The terms and conditions of the
Plan of Reorganization shall not have been amended or modified from the form of
the Plan of Reorganization attached to the Confirmation Order without the
approval of the Requisite Lenders; (ii) all conditions precedent to the
effectiveness of the Plan of Reorganization shall have been satisfied (or waived
with the consent of the Requisite Lenders); (iii) the Confirmation Order shall
have become a Final Order; (iv) the Administrative Agent shall be satisfied that
the Bankruptcy Court's retention of jurisdiction under the Confirmation Order
will not govern the enforcement of the Loan Documents; and (v) the Effective
Date of Reorganization shall have occurred.
(g) FIELD EXAMINATION. The Administrative Agent shall be satisfied
with the results of a field examination of the Borrower and its Subsidiaries
conducted by Citicorp's internal auditors no more than two weeks prior to the
Closing Date.
(h) ENVIRONMENTAL ASSESSMENTS. For each material piece of real
property owned by the Borrower or any of its Subsidiaries, the Administrative
Agent shall have received an environmental site assessment report prepared by a
consultant acceptable to the Administrative Agent and in a form and scope
satisfactory to the Administrative Agent, that demonstrates, to the sole
satisfaction of the Lenders, the absence of Environmental Liabilities and Costs
in excess of $1,000,000 in the aggregate and no significant risk thereof.
SECTION 3.2. CONDITIONS PRECEDENT TO EACH LOAN AND LETTER OF
CREDIT. The obligation of each Lender on any date (including the Closing Date)
to make any Loan and of each Issuer on any date (including the Closing Date) to
issue any Letter of Credit is subject to the satisfaction of all of the
following conditions precedent:
(a) REQUEST FOR BORROWING OR ISSUANCE OF LETTER OF CREDIT. With
respect to any Loan, the Administrative Agent shall have received a duly
executed Notice of Borrowing or, in the case of Swing Loans, a duly executed
Swing Loan Request, and with respect to any Letter of Credit, the Administrative
Agent and the Issuer shall have received a duly executed Letter of Credit
Request.
(b) REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The following
statements shall be true on the date of such Loan or issuance, both before and
after giving effect thereto and, in the case of such Loan, to the application of
the proceeds therefrom:
(i) The representations and warranties set forth in
ARTICLE IV and in the other Loan Documents shall be true and
correct on and as of the Closing Date and shall be true and
correct in all material respects on and as of any such date
after the Closing Date with the same effect as though made on
and as of such date, except to the extent such representations
and warranties expressly relate to an earlier date;
(ii) no Default or Event of Default has occurred and is
continuing; and
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(iii) the Borrower shall have delivered the Borrowing
Base Certificate required by SECTION 6.1(H).
(c) BORROWING BASE. After giving effect to the Loans or Letters
of Credit requested to be made or issued on any such date and the use of
proceeds thereof, the Revolving Credit Obligations shall not exceed the Maximum
Credit at such time.
(d) NO LEGAL IMPEDIMENTS. The making of the Loans or the issuance
of such Letter of Credit on such date does not violate any Requirement of Law on
the date of or immediately following such Loan or issuance and is not enjoined,
temporarily, preliminarily or permanently.
(e) TITLE/LIEN PRIORITY. In jurisdictions where a revolving credit
endorsement is not available, the Administrative Agent shall have received such
endorsements to Mortgagee's Title Insurance Policies for each parcel of Eligible
Real Property, in form and substance satisfactory to the Administrative Agent in
its sole discretion, as the Administrative Agent shall require, including "bring
down endorsements" to insure that, after giving effect to such advance of the
Loan or Letter of Credit, the Liens created by the applicable Mortgages and
insured by such Mortgagee's Title Insurance Policies constitute valid first
priority Liens on such parcels of Real Property, free and clear of all defects
and encumbrances, except those referred to in such Mortgagee's Title Insurance
Policies at the time such policies were originally issued to the mortgagee, and
that each Mortgagee's Title Insurance Policy is in an amount equal to the
Mortgage Value of the applicable parcel of Eligible Real Property as of the
closing date of such Loan or Letter of Credit.
(f) ADDITIONAL MATTERS. The Administrative Agent shall have received
such additional information and materials as the Administrative Agent may
reasonably request.
Each submission by the Borrower to the Administrative Agent of a Notice of
Borrowing or a Swing Loan Request and the acceptance by the Borrower of the
proceeds of each Loan requested therein, and each submission by the Borrower to
an Issuer of a Letter of Credit Request and the issuance of each Letter of
Credit requested therein, shall be deemed to constitute a representation and
warranty by the Borrower as to the matters specified in SECTION 3.2(B) on the
date of the making of such Loan or the issuance of such Letter of Credit.
SECTION 3.3. CONDITIONS TO INCREASED FIXED ASSET AMOUNT
AVAILABILITY. The obligation of each Lender to make Loans (and of each Issuer to
issue Letters of Credit) to the Borrower based upon the eligibility criteria set
forth in clause (B) of the definition of "FIXED ASSET AMOUNT" is subject to the
receipt by the Administrative Agent within 60 days after the Closing Date of the
following documents in form and substance reasonably satisfactory to the
Administrative Agent (with sufficient copies for each lender):
(a) Mortgages covering the Borrower's Real Property located in
Gaffney, South Carolina, Macon, Georgia, Waco, Texas, Norcross, Georgia and
Harmony, Pennsylvania, together with current as-built surveys, zoning letters
(if reasonably available) and certificates of occupancy (if reasonably
available), in each case reasonably satisfactory in form and substance to the
Administrative Agent; (B) Mortgagee's Title Insurance Policies insuring such
Mortgages sufficient to create a valid and enforceable first priority Lien
(subject to Liens permitted under SECTION 8.2) on property described therein in
favor of the Administrative Agent for the benefit of the Secured Parties (or in
favor of such other trustee as may be required or desired under local
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law); and (C) an opinion of counsel in each state in which any such Mortgage is
to be recorded opining as to the enforceability of such Mortgage and addressing
such other matters as any Lender through the Administrative Agent may reasonably
request, subject to typical or reasonable qualifications and assumptions and
otherwise in form and substance and from counsel reasonably satisfactory to the
Administrative Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lenders, the Issuers and the Administrative
Agent to enter into this Agreement, the Borrower represents and warrants to the
Lenders, the Issuers and the Administrative Agent that, on and as of the Closing
Date, after giving effect to the Reorganization and the making of the Loans and
other financial accommodations on the Closing Date and on and as of each date as
required by SECTION 3.2(B)(I):
SECTION 4.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of
the Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation; (b) is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where such qualification is necessary, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect; (c) has all requisite power and authority and the legal right to own,
pledge, mortgage and operate its properties, to lease the property it operates
under lease and to conduct its business as now or currently proposed to be
conducted; (d) is in compliance with its Constituent Documents; (e) is in
compliance with all applicable Requirements of Law except where the failure to
be in compliance would not in the aggregate have a Material Adverse Effect; and
(f) has all necessary licenses, permits, consents or approvals from or by, has
made all necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for licenses, permits, consents,
approvals or filings which can be obtained or made by the taking of ministerial
action to secure the grant or transfer thereof or the failure to obtain or make
would not in the aggregate have a Material Adverse Effect.
SECTION 4.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS.
(a) The execution, delivery and performance by each Loan Party of the
Loan Documents to which it is a party and the consummation of the transactions
contemplated thereby:
(i) are within such Loan Party's corporate, limited
liability company, partnership or other powers;
(ii) have been or, at the time of delivery thereof
pursuant to ARTICLE III will have been duly authorized by all
necessary corporate action, including the consent of
shareholders where required;
(iii) do not and will not (A) contravene any Loan Party's
or any of its Subsidiaries' respective Constituent Documents,
(B) violate any other Requirement of Law applicable to any
Loan Party (including Regulations T, U and X of the Federal
Reserve Board), or any order or decree of any Governmental
Authority or arbitrator
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applicable to any Loan Party, (C) conflict with or result in
the breach of, or constitute a default under, or result in or
permit the termination or acceleration of, any Contractual
Obligation of any Loan Party or any of its Subsidiaries, or
(D) result in the creation or imposition of any Lien upon any
of the property of any Loan Party or any of its Subsidiaries,
other than those in favor of the Secured Parties pursuant to
the Collateral Documents; and
(iv) do not require the consent of, authorization by,
approval of, notice to, or filing or registration with, any
Governmental Authority or any other Person, other than those
listed on SCHEDULE 4.2 and which have been or will be, prior
to the Closing Date, obtained or made, copies of which have
been or will be delivered to the Administrative Agent pursuant
to SECTION 3.1, and each of which on the Closing Date will be
in full force and effect and, with respect to the Collateral,
filings required to perfect the Liens created by the
Collateral Documents.
(b) This Agreement has been, and each of the other Loan Documents will
have been upon delivery thereof pursuant to the terms of this Agreement, duly
executed and delivered by each Loan Party party thereto. This Agreement is, and
the other Loan Documents will be, when delivered hereunder, the legal, valid and
binding obligation of each Loan Party party thereto, enforceable against such
Loan Party in accordance with its terms.
SECTION 4.3. OWNERSHIP OF BORROWER; SUBSIDIARIES.
(a) The authorized capital stock of the Borrower consists of
25,000,000 shares of common stock, $.01 par value per share, of which 11,891,000
shares are issued and outstanding, and 5,000,000 shares of preferred stock, of
which no shares are issued and outstanding. All of the outstanding capital stock
of the Borrower has been validly issued, is fully paid and non-assessable. No
Stock of the Borrower is subject to any option, warrant, right of conversion or
purchase or any similar right (other than the Option Agreement, the Warrant
Agreement, any shareholder agreements or stock option plans with respect to the
Borrower). There are no agreements or understandings to which the Borrower is a
party with respect to the voting, sale or transfer of any shares of Stock of the
Borrower or any agreement restricting the transfer or hypothecation of any such
shares (other than the Option Agreement, the Warrant Agreement, any shareholder
agreements or stock option plans with respect to the Borrower).
(b) Set forth on SCHEDULE 4.3 hereto is a complete and accurate list
showing, as of the Closing Date, all Subsidiaries of the Borrower and, as to
each such Subsidiary, the jurisdiction of its incorporation, the number of
shares of each class of Stock authorized (if applicable), the number outstanding
on the Closing Date and the number and percentage of the outstanding shares of
each such class owned (directly or indirectly) by the Borrower. No Stock of any
Subsidiary of the Borrower is subject to any outstanding option, warrant, right
of conversion or purchase or any similar right. All of the outstanding Stock of
each Subsidiary of the Borrower owned (directly or indirectly) by the Borrower
has been validly issued, is fully paid and non-assessable and is owned by the
Borrower or a Subsidiary of the Borrower, free and clear of all Liens (other
than the Lien in favor of the Secured Parties created pursuant to the Pledge and
Security Agreement). Neither the Borrower nor any such Subsidiary is a party to,
or has knowledge of, any agreement restricting the transfer or hypothecation of
any Stock of any such Subsidiary, other than the Loan Documents or the Senior
Subordinated Note Indenture. The
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Borrower does not own or hold, directly or indirectly, any Stock of any Person
other than such Subsidiaries and Investments permitted by SECTION 8.3.
SECTION 4.4. FINANCIAL STATEMENTS.
(a) The consolidated balance sheet of the Borrower and its
Subsidiaries as at December 28, 1998, and the related consolidated statements of
income, retained earnings and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, certified by Arthur Andersen LLP, and the
consolidated balance sheets of the Borrower and its Subsidiaries as at September
26, 1999, and the related consolidated statements of income, retained earnings
and cash flows of the Borrower and its Subsidiaries for the nine months then
ended, copies of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheets as at September 26, 1999, and said
statements of income, retained earnings and cash flows for the nine months then
ended, to the absence of footnote disclosure and normal recurring year-end audit
adjustments, the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the period ended on such dates, all in
conformity with GAAP.
(b) Except as disclosed on SCHEDULE 4.8, as of the Closing Date,
neither the Borrower nor any of its Subsidiaries has any material obligation,
contingent liability or liability for taxes, long-term leases or unusual forward
or long-term commitment which is not reflected in the Financial Statements
referred to in CLAUSE (A) above or in the notes thereto or permitted by this
Agreement.
(c) The Projections have been prepared by the Borrower in light of the
past operations of its business, and reflect projections for the three year
period beginning on January 1, 2000 on a month by month basis. The Projections
are based upon estimates and assumptions stated therein, all of which the
Borrower believes to be reasonable and fair in light of current conditions and
current facts known to the Borrower and, as of the Closing Date, reflect the
Borrower's good faith and reasonable estimates of the future financial
performance of the Borrower and its Subsidiaries and of the other information
projected therein for the periods set forth therein.
SECTION 4.5. MATERIAL ADVERSE CHANGE. Since September 30, 1999,
there has been no Material Adverse Change and there have been no events or
developments that in the aggregate have had a Material Adverse Effect.
SECTION 4.6. SOLVENCY. After giving effect to (a) the Loans and
Letter of Credit Obligations to be made or extended on the Closing Date or such
other date as Loans and Letter of Credit Obligations requested hereunder are
made or extended, (b) the disbursement of the proceeds of such Loans pursuant to
the instructions of the Borrower, (c) the Reorganization and the consummation of
the other financing transactions contemplated hereby and (d) the payment and
accrual of all transaction costs in connection with the foregoing, each Loan
Party is Solvent.
SECTION 4.7. LITIGATION. There are no pending or, to the knowledge
of the Borrower, threatened actions, investigations or proceedings affecting the
Borrower, or any of its Subsidiaries before any court, Governmental Authority or
arbitrator other than those that in the aggregate would not have a Material
Adverse Effect. The performance of any action by any Loan
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Party required or contemplated by any of the Loan Documents or the Related
Documents is not restrained or enjoined (either temporarily, preliminarily or
permanently). SCHEDULE 4.7 lists all litigation pending against any Loan Party
at the date hereof which, if adversely determined, would have a Material Adverse
Effect.
SECTION 4.8. TAXES.
(a) All federal, state, local and foreign income and franchise
and other material tax returns, reports and statements (collectively, the "TAX
RETURNS") required to be filed by the Borrower or any of its Tax Affiliates have
been filed with the appropriate Governmental Authorities in all jurisdictions in
which such Tax Returns are required to be filed, all such Tax Returns are true
and correct in all material respects, and all taxes, charges and other
impositions reflected therein or otherwise due and payable have been paid prior
to the date on which any fine, penalty, interest, late charge or loss may be
added thereto for non-payment thereof except where such Tax Returns are
contested in good faith and by appropriate proceedings if adequate reserves
therefor have been established on the books of the Borrower or such Tax
Affiliate in conformity with GAAP. Except as disclosed on SCHEDULE 4.8, as of
the Closing Date no Tax Return is under audit or examination by any Governmental
Authority and no notice of such an audit or examination or any assertion of any
claim for Taxes has been given or made by any Governmental Authority. Proper and
accurate amounts have been withheld by the Borrower and each of its Tax
Affiliates from their respective employees for all periods in material
compliance with the tax, social security and unemployment withholding provisions
of applicable Requirements of Law and such withholdings have been timely paid to
the respective Governmental Authorities.
(b) As of the Closing Date and except as listed on SCHEDULE 4.8, none
of the Borrower or any of its Tax Affiliates has (i) executed or filed with the
IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for the filing of any
Tax Return or the assessment or collection of any charges; (ii) any obligation
under any tax sharing agreement or arrangement other than that to which the
Administrative Agent has a copy prior to the date hereof; or (iii) been a member
of an affiliated, combined or unitary group other than the group of which the
Borrower (or its Tax Affiliate) is the common parent.
SECTION 4.9. FULL DISCLOSURE. The information prepared or
furnished by or on behalf of the Borrower and its Subsidiaries in connection
with this Agreement or the Related Documents or the consummation of the
financing and the Reorganization taken as a whole does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein or herein not misleading. All facts known to
the Borrower which are material to an understanding of the financial condition,
business, properties or prospects of the Borrower and its Subsidiaries taken as
one enterprise have been disclosed to the Lenders.
SECTION 4.10. MARGIN REGULATIONS. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Federal Reserve Board),
and no proceeds of any Borrowing will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock in contravention of Regulation T, U or X of the Federal Reserve
Board.
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SECTION 4.11. NO BURDENSOME RESTRICTIONS; NO DEFAULTS.
(a) Neither the Borrower nor any of its Subsidiaries (i) is a party
to any Contractual Obligation the compliance with which would have a Material
Adverse Effect or the performance of which by any thereof, either
unconditionally or upon the happening of an event, would result in the creation
of a Lien (other than a Lien permitted under SECTION 8.2) on the property or
assets of any thereof or (ii) is subject to any charter or corporate restriction
which would have a Material Adverse Effect.
(b) Neither the Borrower nor any of its Subsidiaries is in default
under or with respect to any Contractual Obligation owed by it and, to the
knowledge of the Borrower, no other party is in default under or with respect to
any Contractual Obligation owed to any Loan Party or to any Subsidiary of a Loan
Party, other than, in either case, those defaults which in the aggregate would
not have a Material Adverse Effect.
(c) No Default or Event of Default has occurred and is continuing.
(d) To the best knowledge of the Borrower, there is no Requirement
of Law applicable to any Loan Party the compliance with which by such Loan Party
would have a Material Adverse Effect.
SECTION 4.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING
COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is (a) an
"INVESTMENT COMPANY" or an "AFFILIATED PERSON" of, or "PROMOTER" or "PRINCIPAL
UNDERWRITER" for, an "INVESTMENT COMPANY," as such terms are defined in the
Investment Company Act of 1940, as amended or (b) a "HOLDING COMPANY," or an
"AFFILIATE" or a "HOLDING COMPANY" or a "SUBSIDIARY COMPANY" of a "HOLDING
COMPANY," as each such term is defined and used in the Public Utility Holding
Act of 1935, as amended.
SECTION 4.13. USE OF PROCEEDS. The proceeds of the Loans and the
Letters of Credit are being used by the Borrower solely as follows: (a) to pay
any administrative, priority, secured and unsecured claims of the Borrower in
connection with the Reorganization, to pay professional fees and to pay related
transaction costs, fees and expenses and (b) for working capital and general
corporate purposes.
SECTION 4.14. INSURANCE. All policies of insurance of any kind or
nature of the Borrower or any of its Subsidiaries, including policies of life,
fire, theft, product liability, public liability, property damage, other
casualty, employee fidelity, workers' compensation and employee health and
welfare insurance, are in full force and effect and are of a nature and provide
such coverage as is sufficient and as is customarily carried by businesses of
the size and character of such Person. None of the Borrower or any of its
Subsidiaries has been refused insurance for any material coverage which it had
applied or had any policy of insurance terminated (other than at its request).
SECTION 4.15. LABOR MATTERS.
(a) There are no strikes, work stoppages, slowdowns or lockouts
pending or threatened against or involving the Borrower or any of their
respective Subsidiaries, other than those which in the aggregate would not have
a Material Adverse Effect.
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(b) There are no unfair labor practices, grievances or complaints
pending, or, to the Borrower's knowledge, threatened against or involving the
Borrower or any of it Subsidiaries, nor are there any arbitrations or grievances
threatened involving the Borrower or any of its Subsidiaries, other than those
which, in the aggregate, if resolved adversely to the Borrower or such
Subsidiary, would not have a Material Adverse Effect.
(c) Except as set forth on SCHEDULE 4.15, as of the Closing Date,
there is no collective bargaining agreement covering any of the employees of the
Borrower or its Subsidiaries.
(d) SCHEDULE 4.15 sets forth as of the date hereof, all material
consulting agreements, executive employment agreements, executive compensation
plans, deferred compensation agreements, employee stock purchase and stock
option plans and severance plans of the Borrower and any of its Subsidiaries.
SECTION 4.16. ERISA.
(a) SCHEDULE 4.16 separately identifies as of the date hereof
all Title IV Plans, all Multiemployer Plans and all of the employee benefit
plans within the meaning of Section 3(3) of ERISA to which the Borrower or any
of its Subsidiaries has any obligation or liability, contingent or otherwise.
(b) Each employee benefit plan of the Borrower or any of its
Subsidiaries which is intended to qualify under Section 401 of the Code does so
qualify, and any trust created thereunder is exempt from tax under the
provisions of Section 501 of the Code, except where such failures in the
aggregate would not have a Material Adverse Effect.
(c) Each Title IV Plan is in compliance in all material respects with
applicable provisions of ERISA, the Code and other Requirements of Law except
for non-compliances that in the aggregate would not have a Material Adverse
Effect.
(d) There has been no, nor is there reasonably expected to occur,
any ERISA Event which would have a Material Adverse Effect.
(e) Except to the extent set forth on SCHEDULE 4.16, none of the
Borrower, any of the Borrower's Subsidiaries or any ERISA Affiliate would have
any Withdrawal Liability as a result of a complete withdrawal as of the date
hereof from any Multiemployer Plan.
SECTION 4.17. ENVIRONMENTAL MATTERS.
(a) The operations of the Borrower and each of its Subsidiaries have
been and are in compliance with all Environmental Laws, including obtaining and
complying with all required environmental, health and safety Permits, other than
non-compliances that in the aggregate would not have a Material Adverse Effect.
(b) None of the Borrower or any of its Subsidiaries or any Real
Property currently or, to the knowledge of the Borrower, previously owned,
operated or leased by or for the Borrower or any of its Subsidiaries is subject
to any pending or, to the knowledge of the Borrower, threatened, claim, order,
agreement, notice of violation, notice of potential liability or is the subject
of any pending or threatened proceeding or governmental investigation under or
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pursuant to Environmental Laws other than those that in the aggregate would not
have a Material Adverse Effect.
(c) Except as disclosed on SCHEDULE 4.17, none of the Borrower or any
of its Subsidiaries is a treatment, storage or disposal facility requiring a
permit under the Resource Conservation and Recovery Act, 42 U.S.C.ss. 6901 ET
SEQ., the regulations thereunder or any state analog.
(d) There are no facts, circumstances or conditions arising out of or
relating to the operations or ownership of real property owned, operated or
leased by the Borrower or any of its Subsidiaries which are not specifically
included in the financial information furnished to the Lenders other than those
that in the aggregate would not have a Material Adverse Effect.
(e) As of the date hereof, no Environmental Lien has attached to any
property of the Borrower or any of its Subsidiaries and, to the knowledge of the
Borrower, no facts, circumstance or conditions exist that could reasonably be
expected to result in any such Lien attaching to any such property.
(f) The Borrower and each of its Subsidiaries has provided the
Lenders with copies of all environmental, health or safety audits, studies,
assessments, inspections, investigations or other environmental health and
safety reports relating to the operations of the Borrower or any of its
Subsidiaries or any of their real property that are in the possession, custody
or control of the Borrower or any of its Subsidiaries.
SECTION 4.18. INTELLECTUAL PROPERTY. Other than Intellectual
Property (as defined in the Pledge and Security Agreement) owned or licensed by
customers of the Borrower or any of its Subsidiaries and used by the Borrower or
any of its Subsidiaries at the direction of such customers, the Borrower and its
Subsidiaries own or license or otherwise have the right to use all licenses,
permits, valid patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, copyright applications, franchises,
authorizations and other intellectual property rights (including all
Intellectual Property as defined in the Pledge and Security Agreement) that are
necessary for the operations of their respective businesses as such businesses
are currently being conducted, without infringement upon or conflict with the
rights of any other Person with respect thereto, including all trade names
associated with any private label brands of the Borrower or any of its
Subsidiaries, other than any such infringements or conflicts that in the
aggregate have no Material Adverse Effect. To the Borrower's knowledge, no
slogan or other advertising device, product, process, method, substance, part or
component, or other material now employed, or now contemplated to be employed,
by the Borrower or any of its Subsidiaries materially infringes upon or
conflicts with any rights including any of the Intellectual Property owned by
any other Person, and no claim or litigation regarding any of the foregoing
including Intellectual Property is pending or threatened, other than any such
infringements or conflicts which do not (in the aggregate) have a Material
Adverse Effect.
SECTION 4.19. TITLE; REAL PROPERTY.
(a) Each of the Borrower and its Subsidiaries has good, marketable
and indefeasible fee simple title to, or valid leasehold interests in, all Real
Property and good title to all personal property purported to be owned by it,
including those reflected on the most recent Financial Statements delivered by
the Borrower, free and clear of any liens, encumbrances and charges whatsoever
except Liens permitted under SECTION 8.2. The Borrower and its Subsidiaries
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have received all deeds, assignments, waivers, consents, non-disturbance and
recognition or similar agreements, bills of sale and other documents, and have
duly effected all recordings, filings and other actions necessary to establish,
protect and perfect the Borrower's and its Subsidiaries' right, title and
interest in and to all such property.
(b) Set forth on SCHEDULE 4.19 hereto is a complete and accurate
list of all Real Property owned by each Loan Party and its Subsidiaries showing
as of the Closing Date the street address, county or other relevant
jurisdiction, state, and record owner.
(c) All components of all improvements included within the Real
Property owned or leased by any Loan Party or any of its Subsidiaries
(collectively, "IMPROVEMENTS"), including the roofs and structural elements
thereof and the heating, ventilation, air conditioning, plumbing, electrical,
mechanical, sewer, waste water, storm water, paving and parking equipment,
systems and facilities included therein, are maintained in good working order
and repair, ordinary wear and tear excepted, except where the failure to so
maintain would not have a Material Adverse Effect. All water, gas, electrical,
steam, compressed air, telecommunication, sanitary and storm sewage lines and
systems and other similar systems serving the real property owned or leased by
any Loan Party or any of its Subsidiaries are installed and operating and are
sufficient to enable the Real Property owned or leased by such Loan Party or
Subsidiary to continue to be used and operated in the manner currently being
used and operated, and no Loan Party nor any of its Subsidiaries has any
knowledge of any factor or condition that could result in the termination or
material impairment of the furnishing thereof, other than any such terminations
or impairments which do not in the aggregate have a Material Adverse Effect. No
Improvement or portion thereof is dependent for its access, operation or utility
on any land, building or other Improvement not included in the Real Property
owned or leased by any Loan Party or any of its Subsidiaries.
(d) As of the Closing Date, no portion of any Real Property owned or
leased by any Loan Party or any of its Subsidiaries has suffered any material
damage by fire or other casualty loss which has not heretofore been completely
repaired and restored to its original condition. Except as set forth in the
surveys, no portion of any Real Property owned or leased by any Loan Party or
any of its Subsidiaries is located in a special flood hazard area as designated
by any federal Governmental Authority.
(e) All Permits required to have been issued or appropriate to enable
all real property owned or leased by the Borrower or any of its Subsidiaries to
be lawfully occupied and used for all of the purposes for which they are
currently occupied and used have been lawfully issued and are in full force and
effect, other than those which in the aggregate would not have a Material
Adverse Effect.
(f) None of the Borrower or any of its Subsidiaries has received any
notice, or has any knowledge, of any pending, threatened or contemplated
condemnation proceeding affecting any Real Property owned or leased by the
Borrower or any of its Subsidiaries or any part thereof, except those which, in
the aggregate, would not have a Material Adverse Effect.
SECTION 4.20. RELATED DOCUMENTS.
(a) The execution, delivery and performance by each Loan Party of the
Related Documents to which it is a party and the consummation of the
transactions contemplated thereby by such Loan Party:
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(i) are within such Loan Party's respective corporate,
limited liability company, partnership or other powers;
(ii) have been duly authorized by all necessary
corporate or other action, including the consent of
stockholders where required;
(iii) do not and will not (A) contravene or violate any
Loan Party's or any of its Subsidiaries' respective
Constituent Documents, (B) violate any other Requirement of
Law applicable to any Loan Party, or any order or decree of
any Governmental Authority or arbitrator, (C) conflict with or
result in the breach of, or constitute a default under, or
result in or permit the termination or acceleration of, any
Contractual Obligation of any Loan Party or any of its
Subsidiaries, except for those that in the aggregate would not
have a Material Adverse Effect or (D) result in the creation
or imposition of any Lien upon any of the property of any Loan
Party or any of its Subsidiaries; and
(iv) do not require the consent of, authorization by,
approval of, notice to, or filing or registration with, any
Governmental Authority or any other Person, other than those
which will have been obtained at the Closing Date, each of
which will be in full force and effect on the Closing Date and
none of which will on the Closing Date impose materially
adverse conditions upon the exercise of control by the
Borrower over any of its Subsidiaries or those which in the
aggregate, if not obtained, would not have a Material Adverse
Effect.
(b) Each of the Related Documents has been or at the Closing Date will
have been duly executed and delivered by each Loan Party party thereto and at
the Closing Date will be the legal, valid and binding obligation of each Loan
Party party thereto, enforceable against such Loan Party in accordance with its
terms.
(c) None of the Related Documents has been amended or modified in any
respect and no provision therein has been waived, except in each case to the
extent permitted by SECTION 8.11, and each of the representations and warranties
therein are true and correct in all material respects and no default or event
which with the giving of notice or lapse of time or both would be a default has
occurred thereunder.
(d) The Obligations constitute "Senior Indebtedness" as defined in the
Senior Subordinated Note Indenture.
SECTION 4.21. YEAR 2000 COMPLIANCE. The business and operations of
the Borrower and its Subsidiaries have not been adversely affected by the risk
that computer applications used by the Borrower and its Subsidiaries may not be
Year 2000 Compliant.
ARTICLE V
FINANCIAL COVENANTS
As long as there are any Revolving Credit Outstandings or the
Revolving Credit Commitments remain outstanding, unless the Requisite Lenders
otherwise consent in writing, the Borrower agrees with the Lenders and the
Administrative Agent that:
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SECTION 5.1. MAXIMUM LEVERAGE RATIO. The Borrower will maintain
a Leverage Ratio, as determined as of the last day of each Fiscal Quarter set
forth below, for the four Fiscal Quarters ending on such day (which compliance
shall be maintained from the beginning of the first day of such four
fiscal-quarter period through the end of the last day of such period), of not
more than the maximum ratio set forth opposite such Fiscal Quarter:
FISCAL QUARTER ENDING MAXIMUM LEVERAGE RATIO
- --------------------------------------- ---------------------------
April 1, 2001 4.75 to 1
July 1, 2001 4.75 to 1
September 30, 2001 4.75 to 1
December 30, 2001 4.50 to 1
March 31, 2002 4.50 to 1
June 30, 2002 4.50 to 1
September 29, 2002 4.50 to 1
December 29, 2002 4.00 to 1
SECTION 5.2. MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower will
maintain a Fixed Charge Coverage Ratio, as determined as of the last day of each
Fiscal Quarter set forth below, for the four Fiscal Quarters ending on such day,
of at least the minimum ratio set forth opposite such Fiscal Quarter:
FISCAL QUARTER ENDING MINIMUM FIXED
CHARGE COVERAGE
RATIO
- --------------------------------------- ---------------------------
April 1, 2001 1.00 to 1
July 1, 2001 1.00 to 1
September 30, 2001 1.00 to 1
December 30, 2001 1.00 to 1
March 31, 2002 1.00 to 1
June 30, 2002 1.00 to 1
September 29, 2002 1.00 to 1
December 29, 2002 1.00 to 1
SECTION 5.3. MINIMUM EBITDA. The Borrower will have, as of the
last day of each Fiscal Quarter set forth below, EBITDA for the four Fiscal
Quarters ending on such day (or with respect to the Fiscal Quarters ending on or
before December 31,2000, the period commencing on the Closing Date and ending on
the last day of such Fiscal Quarter) of not less than the following:
FISCAL QUARTER ENDING MINIMUM EBITDA
- ------------------------------------- -----------------------------
March 26, 2000 $3,000,000
June 25, 2000 $13,000,000
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September 24, 2000 $23,000,000
December 31, 2000 $34,000,000
SECTION 5.4. MAINTENANCE OF TANGIBLE NET WORTH. The Borrower will maintain
during each Fiscal Quarter set forth below a Tangible Net Worth of not less than
the minimum amount set forth opposite such Fiscal Quarter:
FISCAL QUARTER ENDING MINIMUM TANGIBLE
NET WORTH
- --------------------------------------- --------------------------
March 26, 2000 $95,000,000
June 25, 2000 $95,000,000
September 24, 2000 $95,000,000
December 31, 2000 $97,500,000
April 1, 2001 $100,000,000
July 1, 2001 $102,500,000
September 30, 2001 $106,250,000
December 30, 2001 $110,000,000
March 31, 2002 $111,250,000
June 30, 2002 $118,000,000
September 29, 2002 $123,000,000
December 29, 2002 $129,000,000
SECTION 5.5. CAPITAL EXPENDITURES. The Borrower will not permit Capital
Expenditures to be made or incurred during each of the Fiscal Years set forth
below to be in excess of the maximum amount set forth below for such Fiscal
Year:
FISCAL YEAR MAXIMUM CAPITAL
EXPENDITURES
- --------------------------------------- --------------------------
2000 $30,000,000
2001 $30,000,000
2002 $34,000,000
PROVIDED, HOWEVER, that to the extent that actual Capital Expenditures for any
such Fiscal Year shall be less than the maximum amount set forth above for such
Fiscal Year (without giving effect to the carryover permitted by this proviso),
the difference between said stated maximum amount and such actual Capital
Expenditures shall, in addition, be available for Capital Expenditures in the
next succeeding Fiscal Year.
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ARTICLE VI
REPORTING COVENANTS
As long as any of the Obligations or the Revolving Credit
Commitments remain outstanding, unless the Requisite Lenders otherwise consent
in writing, the Borrower agrees with the Lenders and the Administrative Agent
that:
SECTION 6.1. FINANCIAL STATEMENTS. The Borrower shall furnish to
the Administrative Agent (with sufficient copies for each of the Lenders) the
following Financial Statements:
(a) MONTHLY REPORTS. Within 30 days after the end of each Fiscal
Month in each Fiscal Year, financial information regarding the Borrower and its
Subsidiaries consisting of consolidated unaudited balance sheets as of the close
of such month and the related statements of income and cash flow for such month
and that portion of the current Fiscal Year ending as of the close of such
month, setting forth in comparative form the figures for the corresponding
period in the prior year and, for the first year following the Closing Date, the
figures contained in the monthly Projections, and thereafter, the figures
contained in the annual business plan (as described in CLAUSE (E) of this
SECTION 6.1), for the current Fiscal Year, in each case certified by a
Responsible Officer of the Borrower as fairly presenting the consolidated
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in accordance with GAAP (subject to the absence of footnote disclosure
and normal year-end audit adjustments).
(b) QUARTERLY REPORTS. Within 45 days after the end of each Fiscal
Quarter of each Fiscal Year, financial information regarding the Borrower and
its Subsidiaries consisting of consolidated and consolidating unaudited balance
sheets as of the close of such quarter and the related statements of income and
cash flow for such quarter and that portion of the Fiscal Year ending as of the
close of such quarter, setting forth in comparative form the figures for the
corresponding period in the prior year and the figures contained in the
Projections for the current Fiscal Year, in each case certified by a Responsible
Officer of the Borrower as fairly presenting the consolidated and consolidating
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in accordance with GAAP (subject to the absence of footnote disclosure
and normal year-end audit adjustments).
(c) ANNUAL REPORTS. Within 90 days after the end of each Fiscal Year,
financial information regarding the Borrower and its Subsidiaries consisting of
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such year and related statements of income and
cash flows of the Borrower and its Subsidiaries for such Fiscal Year, all
prepared in conformity with GAAP and certified, in the case of such consolidated
financial statements, without qualification as to the scope of the audit by
Arthur Andersen LLP or other independent public accountants of recognized
national standing acceptable to the Administrative Agent, together with the
report of such accounting firm stating that (i) such financial statements fairly
present the consolidated financial position of the Borrower and its Subsidiaries
as at the dates indicated and the results of their operations and cash flow for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years (except for changes with which such independent certified public
accountants shall concur and which
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shall have been disclosed in the notes to the financial statements), and (ii)
the examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards, and accompanied by a certificate stating that in the course
of the regular audit of the business of the Borrower and its Subsidiaries such
accounting firm has obtained no knowledge that a Default or Event of Default in
respect of the financial covenants contained in ARTICLE V has occurred and is
continuing, or, if in the opinion of such accounting firm, a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof.
(d) COMPLIANCE CERTIFICATE. Together with each delivery of any
financial statement pursuant to CLAUSES (B) and (C) of this SECTION 6.1, a
certificate of a Responsible Officer of the Borrower (each, a "COMPLIANCE
CERTIFICATE") (i) showing in reasonable detail the calculations used in
determining the Leverage Ratio (for purposes of determining the Applicable
Margin) and demonstrating compliance with each of the financial covenants
contained in ARTICLE V which is tested on a quarterly basis and (ii) stating
that no Default or Event of Default has occurred and is continuing or, if a
Default or an Event of Default has occurred and is continuing, stating the
nature thereof and the action which the Borrower proposes to take with respect
thereto.
(e) BUSINESS PLAN. Not later than 30 days prior to the end of each
Fiscal Year, and containing substantially the types of financial information
contained in the Projections, (i) the annual business plan of the Borrower for
the next succeeding Fiscal Year approved by the Board of Directors of the
Borrower, (ii) forecasts prepared by management of the Borrower for each fiscal
month in the next succeeding Fiscal Year, and (iii) forecasts prepared by
management of the Borrower for each of the succeeding Fiscal Years through the
Fiscal Year in which the Revolving Credit Termination Date is scheduled to
occur, including, in each instance described in CLAUSE (II) and CLAUSE (III)
above, (A) a projected year-end consolidated balance sheet and income statement
and statement of cash flows and (B) a statement of all of the material
assumptions on which such forecasts are based.
(f) MANAGEMENT LETTERS, ETC. Within five Business Days after receipt
thereof by any Loan Party, copies of each management letter, exception report or
similar letter or report received by such Loan Party from its independent
certified public accountants.
(g) INTERCOMPANY LOAN BALANCES. Together with each delivery of any
financial statement pursuant to CLAUSE (A) of this SECTION 6.1, a summary of the
outstanding balance of all intercompany Indebtedness as of the last day of the
fiscal month covered by such financial statement, certified by a Responsible
Officer.
(h) BORROWING BASE CERTIFICATES. No later than the tenth Business Day
of each Fiscal Month, a Borrowing Base Certificate as of the first day of such
month executed by a Responsible Officer of the Borrower; PROVIDED, HOWEVER, that
if at any time the aggregate Revolving Credit Outstandings exceed 50% of the
lesser of (i) $95,000,000 and (ii) the Available Credit, the Borrower shall
deliver a Borrowing Base Certificate on the last Business Day of the first week
ending after such time and on the last Business Day of each two-week period
ending thereafter until such time as such bi-weekly certificate is no longer
required hereunder.
(i) ADDITIONAL INFORMATION. Promptly, from time to time, such other
information regarding the operations, including information regarding specific
product categories and lines of business of the Borrower and its Subsidiaries,
business affairs and financial condition of the
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Borrower or any of its Subsidiaries, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 6.2. DEFAULT NOTICES. As soon as practicable, and in any
event within five Business Days after a Responsible Officer of any Loan Party
has actual knowledge of the existence of any Default, Event of Default or other
event which has had a Material Adverse Effect or which has any reasonable
likelihood of causing or resulting in a Material Adverse Change, the Borrower
shall give the Administrative Agent notice specifying the nature of such Default
or Event of Default or other event, including the anticipated effect thereof,
which notice, if given by telephone, shall be promptly confirmed in writing on
the next Business Day.
SECTION 6.3. LITIGATION. Promptly after the commencement thereof,
the Borrower shall give the Administrative Agent written notice of the
commencement of all actions, suits and proceedings before any domestic or
foreign Governmental Authority or arbitrator, affecting the Borrower or any of
its Subsidiaries, which in the reasonable judgment of the Borrower or such
Subsidiary, expose the Borrower or such Subsidiary to liability in an amount
aggregating $100,000 or more or which, if adversely determined, would have a
Material Adverse Effect.
SECTION 6.4. NOTICES UNDER RELATED DOCUMENTS. Promptly after the
sending or filing thereof, the Borrower shall send the Administrative Agent
copies of all material notices, certificates or reports delivered pursuant to
any Related Document.
SECTION 6.5. SEC FILINGS; PRESS RELEASES. Promptly after the
sending or filing thereof, the Borrower shall send the Administrative Agent
copies of (a) all reports which the Borrower sends to its Security holders
generally, (b) all reports and registration statements which the Borrower or any
of its Subsidiaries files with the Securities and Exchange Commission or any
national or foreign securities exchange or the National Association of
Securities Dealers, Inc., (c) all press releases and (d) all other statements
concerning material changes or developments in the business of such Loan Party
made available by any Loan Party to the public.
SECTION 6.6. LABOR RELATIONS. Promptly after becoming aware of
the same, the Borrower shall give the Administrative Agent written notice of (a)
any material labor dispute to which the Borrower of any of its Subsidiaries is
or may become a party, including any strikes, lockouts or other material
disputes relating to any of such Person's plants and other facilities, and (b)
any Worker Adjustment and Retraining Notification Act or related material
liability incurred with respect to the closing of any plant or other facility of
any of such Person.
SECTION 6.7. TAX RETURNS. Upon the request of any Lender,
through the Administrative Agent, the Borrower will provide copies of all
federal, state, local and foreign tax returns and reports filed by the Borrower
or any of its Subsidiaries in respect of taxes measured by income (excluding
sales, use and like taxes).
SECTION 6.8. INSURANCE. As soon as is practicable and in any
event within 90 days after the end of each Fiscal Year, the Borrower will
furnish the Administrative Agent (in sufficient copies for each of the Lenders)
with (a) a report in form and substance reasonably satisfactory to the
Administrative Agent and the Lenders outlining all material insurance coverage
maintained as of the date of such report by the Borrower and its Subsidiaries
and the duration of
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such coverage and (b) an insurance broker's statement that all premiums then due
and payable with respect to such coverage have been paid.
SECTION 6.9. ERISA MATTERS. The Borrower shall furnish the
Administrative Agent (with sufficient copies for each of the Lenders):
(a) promptly and in any event within 30 days after the Borrower,
any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that
any ERISA Event has occurred;
(b) promptly and in any event within 10 days after the Borrower,
any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that
a request for a minimum funding waiver under Section 412 of the Code has been
filed with respect to any Title IV Plan or Multiemployer Plan, a written
statement of a Responsible Officer of the Borrower describing such ERISA Event
or waiver request and the action, if any, which the Borrower, its Subsidiaries
and ERISA Affiliates propose to take with respect thereto and a copy of any
notice filed with the PBGC or the IRS pertaining thereto;
(c) simultaneously with the date that the Borrower, any of its
Subsidiaries or any ERISA Affiliate files a notice of intent to terminate any
Title IV Plan, if such termination would require material additional
contributions in order to be considered a standard termination within the
meaning of Section 4041(b) of ERISA, a copy of each notice.
SECTION 6.10. ENVIRONMENTAL MATTERS. The Borrower shall provide
the Administrative Agent promptly and in any event within 10 Business Days of
the Borrower or any Subsidiary learning of any of the following, written notice
of any of the following:
(a) that any Loan Party is or may be liable to any Person as a result
of a Release or threatened Release which could reasonably be expected to subject
such Loan Party to Environmental Liabilities and Costs of $1,000,000 or more;
(b) the receipt by any Loan Party of notification that any real or
personal property of such Loan Party is or is reasonably likely to be subject to
any Environmental Lien;
(c) the receipt by any Loan Party of any notice of violation of or
potential liability under, or knowledge by such Loan Party that there exists a
condition which could reasonably be expected to result in a violation of or
liability under any Environmental Law, except for violations and liabilities the
consequence of which in the aggregate would have no reasonable likelihood of
subjecting the Loan Parties collectively to Environmental Liabilities and Costs
of $1,000,000 or more;
(d) the commencement of any judicial or administrative proceeding
or investigation alleging a violation of or liability under any Environmental
Law, which in the aggregate, if adversely determined, would have a reasonable
likelihood of subjecting the Loan Parties collectively to Environmental
Liabilities and Costs of $1,000,000 or more;
(e) any proposed acquisition of stock, assets or real estate, or any
proposed leasing of property, or any other action by any Loan Party or any of
its Subsidiaries other than those the consequences of which in the aggregate
have reasonable likelihood of subjecting the Loan Parties collectively to
Environmental Liabilities and Costs of $1,000,000 or more;
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(f) any proposed action by any Loan Party or any of its Subsidiaries
or any proposed change in Environmental Laws which in the aggregate have a
reasonable likelihood of requiring the Loan Parties to obtain additional
environmental, health or safety Permits or make additional capital improvements
to obtain compliance with Environmental Laws that in the aggregate would cost
$1,000,000 or more or subject the Loan Parties to additional Environmental
Liabilities and Costs of $1,000,000 or more; and
(g) upon written request by any Lender through the Administrative
Agent, a report providing an update of the status of any environmental, health
or safety compliance, hazard or liability issue identified in any notice or
report delivered pursuant to this Agreement.
SECTION 6.11. BORROWING BASE DETERMINATION.
(a) The Borrower shall conduct, or shall cause to be conducted, at its
expense, and upon request of the Administrative Agent, and present to the
Administrative Agent for approval, such appraisals, investigations and reviews
as the Administrative Agent shall request for the purpose of determining the
Borrowing Base, all upon notice and at such times during normal business hours
and as often as may be reasonably requested; PROVIDED, HOWEVER, that for the
purposes of determining the Fixed Asset Amount, such appraisals shall be
obtained in accordance with SECTION 6.11(D). The Borrower shall furnish to the
Administrative Agent any information which the Administrative Agent may
reasonably request regarding the determination and calculation of the Borrowing
Base including correct and complete copies of any invoices, underlying
agreements, instruments or other documents and the identity of all Account
Debtors in respect of Accounts referred to therein.
(b) The Borrower shall promptly notify the Administrative Agent in
writing in the event that at any time the Borrower receives or otherwise gains
knowledge that (i) the Borrowing Base is less than 90% of the Borrowing Base
reflected in the most recent Borrowing Base Certificate delivered pursuant to
SECTION 6.1(H) or that (ii) the outstanding Revolving Credit Outstandings exceed
the Borrowing Base as a result of a decrease therein, and the amount of such
excess.
(c) The Administrative Agent may, at the Borrower's sole cost and
expense, make test verifications of the Accounts and physical verifications of
the Inventory in any manner and through any medium that the Administrative Agent
considers advisable, and the Borrower shall furnish all such assistance and
information as the Administrative Agent may require in connection therewith.
(d) For the purposes of determining the Fixed Asset Amount in
effect on the Closing Date, (i) the orderly liquidation value of the Borrower's
Eligible Equipment shall be determined using the valuations set forth in the
appraisal dated July 16, 1999 by MB Valuations and (ii) the Fair Market Value of
the Borrower's Eligible Real Property shall be determined using the valuations
set forth in the appraisal dated July 28, 1999 by Cushman & Wakefield, as
reflected in the Borrowing Base Certificate delivered to the Administrative
Agent prior to the Closing Date. The Fixed Asset Amount shall be adjusted by the
Administrative Agent (A) on the first anniversary of the Closing Date, based
upon revised "desktop" valuations of the Borrower's Eligible Equipment and
Eligible Real Property undertaken by Citicorp's internal auditors and notified
to the Borrower not less than 30 days prior to the first anniversary of the
Closing Date, (B) on the second anniversary of the Closing Date, based upon
third party appraisals from MB Valuations and Cushman & Wakefield (or any other
appraiser reasonably satisfactory to the
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Administrative Agent) obtained by Citicorp at the Borrower's expense not more
than 90 nor less than 30 days prior to the second anniversary of the Closing
Date, (C) upon any sale of Equipment or Real Property (other than the Excluded
Property), by reducing the Fixed Asset Amount by 75% of the orderly liquidation
value of the Equipment or 50% of the Fair Market Value of the Real Property
which is the subject of any such sale, and (D) by the amount of any reserves
then in effect with respect to such Eligible Equipment and Eligible Real
Property.
SECTION 6.12. OTHER INFORMATION. The Borrower will provide the
Administrative Agent or any Lender with such other information respecting the
business, properties, condition, financial or otherwise, or operations of the
Borrower or any of its Subsidiaries as any Lender through the Administrative
Agent may from time to time reasonably request.
ARTICLE VII
AFFIRMATIVE COVENANTS
As long as the Obligations or the Revolving Credit Commitments
remain outstanding, unless the Requisite Lenders otherwise consent in writing,
the Borrower agrees with the Lenders and the Administrative Agent that:
SECTION 7.1. PRESERVATION OF CORPORATE EXISTENCE, ETC. The
Borrower shall, and shall cause each of its Subsidiaries to, preserve and
maintain its corporate existence, rights (charter and statutory) and franchises,
except (i) as permitted by SECTIONS 8.3 and 8.4 and (ii) where the failure to do
so could not reasonably be expected to cause a Material Adverse Effect.
SECTION 7.2. COMPLIANCE WITH LAWS, ETC. The Borrower shall, and
shall cause each of its Subsidiaries to, comply with all applicable Requirements
of Law, Contractual Obligations and Permits, except where the failure so to
comply would not in the aggregate have a Material Adverse Effect.
SECTION 7.3. CONDUCT OF BUSINESS. The Borrower shall, and
shall cause each of its Subsidiaries to, (a) conduct its business consistent
with past practice and (b) use its reasonable efforts, in the ordinary course
and consistent with past practice, to preserve its business and the goodwill and
business of the customers, advertisers, suppliers and others having business
relations with the Borrower or any of its Subsidiaries, except in each case
where the failure to comply with the covenants in each of clauses (a) and (b)
above would not in the aggregate have a Material Adverse Effect.
SECTION 7.4. PAYMENT OF TAXES, ETC. The Borrower shall, and
shall cause each of its Subsidiaries to, pay and discharge before the same shall
become delinquent, all lawful governmental claims, taxes, assessments, charges
and levies, except where contested in good faith, by proper proceedings and
adequate reserves therefor have been established on the books of the Borrower or
the appropriate Subsidiary in conformity with GAAP.
SECTION 7.5. MAINTENANCE OF INSURANCE. The Borrower shall (i)
maintain, and cause to be maintained for each of its Subsidiaries insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried
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by companies engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower or such Subsidiary operates, and such
other insurance as may be reasonably requested by the Requisite Lenders, and, in
any event, all insurance required by any Collateral Documents and (ii) cause all
such insurance to name the Administrative Agent on behalf of the Secured Parties
as additional insured or loss payee, as appropriate, and to provide that no
cancellation, material addition in amount or material change in coverage shall
be effective until after 30 days' written notice thereof to the Administrative
Agent.
SECTION 7.6. ACCESS. The Borrower shall from time to time
permit the Administrative Agent and the Lenders, or any agents or
representatives thereof, within two Business Days after written notification of
the same (except that during the continuance of an Event of Default, no such
notice shall be required) to (a) examine and make copies of and abstracts from
the records and books of account of the Borrower and each of its Subsidiaries,
(b) visit the properties of the Borrower and each of its Subsidiaries, (c)
discuss the affairs, finances and accounts of the Borrower and each of its
Subsidiaries with any of their respective officers or directors, and (d)
communicate directly with the Borrower's independent certified public
accountants. The Borrower shall authorize its independent certified public
accountants to disclose to the Administrative Agent or any Lender any and all
financial statements and other information of any kind, as the Administrative
Agent or any Lender reasonably requests from the Borrower and which such
accountants may have with respect to the business, financial condition, results
of operations or other affairs of the Borrower or any of its Subsidiaries.
SECTION 7.7. KEEPING OF BOOKS. The Borrower shall, and shall
cause each of its Subsidiaries to keep, proper books of record and account, in
which full and correct entries shall be made in conformity with GAAP of all
financial transactions and the assets and business of the Borrower and each such
Subsidiary.
SECTION 7.8. MAINTENANCE OF PROPERTIES, ETC. The Borrower shall,
and shall cause each of its Subsidiaries to, maintain and preserve, (a) all of
its properties which are necessary in the conduct of its business in good
working order and condition, ordinary wear and tear excepted, (b) all rights,
permits, licenses, approvals and privileges (including all Permits) which are
used or useful or necessary in the conduct of its business, and (c) all
registered patents, trademarks, trade names, copyrights and service marks with
respect to its business; except in each case where the failure to so maintain
and preserve would not in the aggregate have a Material Adverse Effect.
SECTION 7.9. APPLICATION OF PROCEEDS. The Borrower shall use the
entire amount of the proceeds of the Loans as provided in SECTION 4.13.
SECTION 7.10. ENVIRONMENTAL. The Borrower shall, and shall cause any
Subsidiary to comply in all material respects with Environmental Laws and,
without limiting the foregoing, the Borrower shall, at its sole cost and
expense, upon receipt of any notification or otherwise obtaining knowledge of
any Release or other event that has any reasonable likelihood of the Borrower
and its Subsidiaries incurring Environmental Liabilities and Costs in excess of
$1,000,000, (a) conduct or pay for consultants to conduct, tests or assessments
of environmental conditions at such operations or properties, including the
investigation and testing of subsurface conditions and (b) take such Remedial
Action, investigational or other action as required by Environmental Laws or as
any Governmental Authority requires or as is appropriate and consistent with
good business practice to address the Release or event.
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SECTION 7.11. ADDITIONAL COLLATERAL AND GUARANTIES. To the extent
not delivered to the Administrative Agent on or before the Closing Date, the
Borrower agrees promptly to (i) execute and deliver to the Administrative Agent
such amendments to the Collateral Documents as the Administrative Agent deems
necessary or advisable in order to grant to the Administrative Agent, for the
benefit of the Secured Parties, a perfected first priority security interest in
the Stock and Stock Equivalents and other debt Securities of any Material
Subsidiary which are owned by the Borrower or any of its Subsidiaries and
requested to be pledged by the Administrative Agent; PROVIDED, HOWEVER, that in
no event shall the Borrower or any of its Subsidiaries be required to pledge in
excess of 65% of the outstanding Stock of any Material Subsidiary that is not a
Domestic Subsidiary, (ii) deliver to the Administrative Agent the certificates
(if any) representing such Stock and Stock Equivalents and other debt
Securities, together with (A) in the case of such certificated Stock and Stock
Equivalents, undated stock powers endorsed in blank, and (B) in the case of such
certificated debt Securities, endorsed in blank, in each case executed and
delivered by a Responsible Officer of the Borrower or such Subsidiary, as the
case may be, (iii) in the case of any such Material Subsidiary that is a
Domestic Subsidiary cause such new Material Subsidiary (A) to become a party to
the Guaranty and the applicable Collateral Documents and (B) to take such
actions necessary or advisable to grant to the Administrative Agent for the
benefit of the Secured Parties a perfected security interest in the Collateral
described in the Collateral Documents with respect to such new Material
Subsidiary, including the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be required by the Collateral Documents or by law
or as may be reasonably requested by the Administrative Agent and (iv) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the Agent.
SECTION 7.12. CONCENTRATION ACCOUNT AND CASH MANAGEMENT SYSTEM.
(a) The Borrower has established the following cash concentration
account with Citibank in New York, New York:
ACCOUNT NO. ACCOUNT TITLE
30422415 Paragon Trade Brands Concentration
Account (the "CONCENTRATION ACCOUNT")
(b) The Administrative Agent shall possess sole dominion and control
over the Concentration Account. As long as there are any Revolving Credit
Outstandings or all of the Revolving Credit Commitments have not been
terminated, neither the Borrower nor any Person or entity claiming by, through
or under the Borrower shall have any control over the use of the Concentration
Account.
(c) The Borrower shall instruct its Account Debtors to mail their
remittances to a Blocked Account and the Borrower agrees to take all steps
necessary or desirable, in the Administrative Agent's sole discretion exercised
reasonably, to cause its Account Debtors to mail their remittances to such
Blocked Account. The Borrower shall mail to the Blocked Account any remittances
received directly by it as soon as possible (but in any event no later than the
Business Day immediately following receipt).
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(d) Each Blocked Account Letter shall provide (i) for all funds
received by the Borrower to be deposited in a Blocked Account covered by a
Blocked Account Letter and (ii) daily deposit of remittances received in any
lockboxes to the Blocked Account.
(e) On any day on which the aggregate Revolving Credit Outstandings
exceed 50% of the lesser of (i) $95,000,000 and (ii) the Available Credit (such
event being a "CASH SWEEP EVENT"), the Administrative Agent shall immediately
notify each Blocked Account Bank by sending a notice in the form attached as
ANNEX A to the Blocked Account Letter. Upon receipt of such notice and on a
daily basis thereafter until otherwise notified by the Administrative Agent, all
available funds in the Concentration Account shall be applied in the manner set
forth in Section 2.9(D). Notwithstanding anything to the contrary contained
herein, all cash and Cash Equivalents of the Borrower in excess of $2,000,000
shall be deposited in the Cash Collateral Account.
SECTION 7.13. REAL PROPERTY.
(a) The Borrower shall, within 30 days after the Closing Date (or
such later date as shall be acceptable to the Administrative Agent in its sole
discretion) deliver such Landlord Lien Waivers and Bailee's Waivers as the
Administrative Agent shall request in its sole discretion exercised reasonably.
(b) The Borrower shall, and shall cause each of its Subsidiaries to,
(i) comply in all respects with all of their respective obligations under all of
their respective Leases now or hereafter held respectively by them with respect
to Real Property, including the Leases set forth in SCHEDULE 4.19, except where
the failure to do so would not in the aggregate result in a Material Adverse
Effect; (ii) not modify, amend, cancel, extend or otherwise change in any
materially adverse manner any of the terms, covenants or conditions of any such
Leases, except where such action would not result in a Material Adverse Effect;
(iii) not assign or sublet any other Lease if such assignment or sublet would
have a Material Adverse Effect; (iv) provide the Administrative Agent with a
copy of each notice of default under any Lease received by the Borrower or any
Subsidiary of the Borrower immediately upon receipt thereof and deliver to the
Administrative Agent a copy of each notice of default sent by the Borrower or
any Subsidiary of the Borrower under any Lease simultaneously with its delivery
of such notice under such Lease; and (v) notify the Administrative Agent at
least 14 days prior to the date the Borrower or any Subsidiary takes possession
of, or becomes liable under, any new leased premises or Lease, whichever is
earlier.
(c) If, at any time, the Borrower or any of its Subsidiaries acquires
a fee interest in any Real Property not covered by a mortgage, the Borrower or
such Subsidiary promptly shall execute, deliver and record a first priority
Mortgage in favor of the Administrative Agent on behalf and for the ratable
benefit of the Secured Parties covering such Real Property (subordinate only to
such Liens as are permitted hereunder), in form and substance satisfactory to
the Administrative Agent, and provide the Administrative Agent with a
Mortgagee's Title Insurance Policy covering such Real Property in an amount
equal to the purchase price of such Real Property, a current ALTA survey thereof
and a surveyor's certificate in form and substance satisfactory to the
Administrative Agent and such other information reasonably requested by the
Administrative Agent.
(d) At least fifteen (15) Business Days prior to entering into any
Lease (other than a renewal of an existing Lease) for the principal place of
business and chief executive office of the Borrower or any other Subsidiary
Guarantor or any other Lease (including any renewal) in
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which the annual rental payments are anticipated to equal or exceed $1,500,000,
at the request of the Administrative Agent the Borrower shall, and shall cause
such Subsidiary Guarantor to, execute and deliver to the Administrative Agent,
for the benefit of the Secured Parties, immediately upon the acquisition of any
such Lease, a mortgage, deed of trust, assignment or other appropriate
instrument evidencing a Lien upon any such Lease, together with such title
policies, certified surveys, and local counsel opinions with respect thereto and
such other agreements, documents and instruments which the Administrative Agent
deems necessary or desirable, the same to be in form and substance satisfactory
to the Administrative Agent and to be subject only to (i) Liens permitted under
SECTION 8.2 and (ii) such other Liens as the Administrative Agent may reasonably
approve.
ARTICLE VIII
NEGATIVE COVENANTS
As long as there are any Revolving Credit Outstandings or the
Revolving Credit Commitments remain outstanding, without the written consent of
the Requisite Lenders, the Borrower agrees with the Lenders and the
Administrative Agent that:
SECTION 8.1. INDEBTEDNESS. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly create, incur, assume
or otherwise become or remain directly or indirectly liable with respect to any
Indebtedness except:
(a) the Secured Obligations;
(b) Indebtedness existing on the date of this Agreement and disclosed
on SCHEDULE 8.1;
(c) Guaranty Obligations incurred by the Borrower or any Subsidiary
Guarantor in respect of Indebtedness of the Borrower or any Subsidiary Guarantor
otherwise permitted by this SECTION 8.1;
(d) Capital Lease Obligations and purchase money Indebtedness incurred
by the Borrower or a Subsidiary of the Borrower to finance the acquisition of
fixed assets in an aggregate outstanding principal amount not to exceed
$20,000,000 at any time; PROVIDED, HOWEVER, that the Capital Expenditure related
thereto is otherwise permitted by SECTION 5.5;
(e) Renewals, extensions, refinancings and refundings of Indebtedness
permitted by CLAUSES (B), (D) OR (J) of this SECTION 8.1; PROVIDED, HOWEVER,
that any such renewal extension, refinancing or refunding is in an aggregate
principal amount not greater than the principal amount of, and is on material
terms no less favorable to the Borrower or such Subsidiary, including as to
weighted average maturity, than the Indebtedness being renewed, extended,
refinanced or refunded;
(f) Indebtedness arising from intercompany loans (i) from the Borrower
to any Subsidiary Guarantor or from any Subsidiary Guarantor to the Borrower or
any other Subsidiary Guarantor or from any Subsidiary to the Borrower or any
Subsidiary Guarantor and (ii) from the Borrower or any Subsidiary Guarantor to
any Subsidiary of the Borrower that is not a Subsidiary Guarantor; PROVIDED,
HOWEVER, that the Investment in the intercompany loan to such Subsidiary is
permitted under SECTION 8.3;
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(g) Indebtedness arising under any performance or surety bond entered
into in the ordinary course of business;
(h) Indebtedness in respect of the Senior Subordinated Notes in a
aggregate principal amount not in excess of $146,000,000 plus the aggregate
principal amount of any Secondary Securities issued by the Borrower under the
Senior Subordinated Note Indenture pursuant to the provisions of SECTION 2.11
thereof.
(i) Obligations under Interest Rate Contracts required by SECTION
7.12; and
(j) unsecured Indebtedness not otherwise permitted under this SECTION
8.1 in an aggregate outstanding principal amount not to exceed $15,000,000 at
any time.
SECTION 8.2. LIENS, ETC. The Borrower will not, and will not
permit any of its Subsidiaries to, create or suffer to exist, any Lien upon or
with respect to any of its properties or assets, whether now owned or hereafter
acquired, or assign, or permit any of its Subsidiaries to assign, any right to
receive income, except for:
(a) Liens created pursuant to the Loan Documents;
(b) Liens existing on the date of this Agreement and disclosed on
SCHEDULE 8.2;
(c) Customary Permitted Liens of the Borrower and its Subsidiaries;
(d) purchase money Liens granted by the Borrower or any Subsidiary
of the Borrower (including the interest of a lessor under a Capital Lease and
Liens to which any property is subject at the time of the Borrower's or such
Subsidiary's acquisition thereof) securing Indebtedness permitted under SECTION
8.1(d) and limited in each case to the property purchased with the proceeds of
such purchase money Indebtedness or subject to such Capital Lease;
(e) any Lien securing the renewal, extension, refinancing or refunding
of any Indebtedness secured by any Lien permitted by CLAUSES (B), (D), (E) or
(G) of this SECTION 8.2 without any change in the assets subject to such Lien;
(f) Liens in favor of lessors securing operating leases; and
(g) Liens not otherwise permitted by the foregoing clauses of this
SECTION 8.2 securing obligations or other liabilities (other than Indebtedness)
of any Loan Party; PROVIDED, however, that the aggregate outstanding amount of
such obligations and liabilities secured by such Liens shall not exceed
$2,000,000 at any time.
SECTION 8.3. INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly make or maintain any
Investment except:
(a) Investments existing on the date of this Agreement and disclosed
on SCHEDULE 8.3;
(b) Investments in cash and Cash Equivalents held (i) in the Cash
Collateral Account or in any other accounts maintained by the Borrower and the
Subsidiary Guarantors in
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an aggregate principal amount (for all accounts other than the Cash Collateral
Account) not to exceed $2,000,000 or (ii) a securities account with respect to
which the Administrative Agent for the benefit of the Secured Parties has a
first priority perfected Lien;
(c) Investments in accounts, contract rights and chattel paper (each
as defined in the Uniform Commercial Code), notes receivable and similar items
arising or acquired in the ordinary course of business consistent with the past
practice of the Borrower and its Subsidiaries;
(d) Investments received in settlement of amounts due to the Borrower
or any Subsidiary of the Borrower effected in the ordinary course of business;
(e) Investments by (i) the Borrower in any Subsidiary Guarantor,
or by any Subsidiary Guarantor in the Borrower or any other Subsidiary
Guarantor, and (ii) a Subsidiary that is not a Subsidiary Guarantor in the
Borrower or any other Subsidiary, PROVIDED, HOWEVER, that no Investments shall
be made by the Borrower or any other Subsidiary in PTB Holdings, Inc.;
(f) loans or advances to employees of the Borrower or any of its
Subsidiaries in the ordinary course of business, which loans and advances shall
not exceed the aggregate outstanding principal amount of $2,000,000 at any time;
(g) Investments made after the Closing Date pursuant to the exercise
of the Mabesa Option; PROVIDED, HOWEVER, that immediately prior to and after
giving effect thereto (i) no Default or Event of Default shall have occurred and
be continuing, (ii) the Borrower shall be in pro forma compliance with the
financial covenants specified in ARTICLE V of this Agreement (and the
Administrative Agent shall have received a certificate of the Chief Financial
Officer of the Borrower at least 10 Business Days prior to making any such
Investment demonstrating such pro forma compliance), (iii) the Available Credit
shall equal or exceed $25,000,000 and (iv) the Borrower's accounts and trade
payables shall be current in accordance with its usual business practices; and
(h) Investments not otherwise permitted hereby in an aggregate
outstanding amount not to exceed $25,000,000 at any time; PROVIDED, HOWEVER,
that immediately prior to and after making any such investment in excess of
$5,000,000 (i) no Default or Event of Default shall have occurred and be
continuing, (ii) the Borrower shall be in pro forma compliance with the
financial covenants specified in ARTICLE V of this Agreement (and the
Administrative Agent shall have received a certificate of the Chief Financial
Officer of the Borrower at least five days prior to making any such Investment
demonstrating such pro forma compliance).
SECTION 8.4. SALE OF ASSETS. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise
dispose of, any of its assets or any interest therein (including the sale or
factoring at maturity or collection of any accounts) to any Person, or permit or
suffer any other Person to acquire any interest in any of its assets or, in the
case of any Subsidiary, issue or sell any shares of such Subsidiary's Stock or
Stock Equivalent (any such disposition being an "ASSET SALE"), except:
(a) the sale or disposition of inventory in the ordinary course of
business;
(b) the sale or disposition of equipment which has become obsolete
or are replaced in the ordinary course of business; PROVIDED, HOWEVER, that (i)
the aggregate Fair Market
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Value of all such equipment disposed of in any Fiscal Year shall not exceed
$1,500,000 and (ii) following any such disposition, the Fixed Asset Amount shall
be adjusted to the extent required by SECTION 6.11(D);
(c) the lease or sublease of real property not constituting a sale and
leaseback, to the extent not otherwise prohibited by this Agreement;
(d) assignments and licenses of intellectual property of the Borrower
and its Subsidiaries in the ordinary course of business;
(e) any Asset Sale to the Borrower or any Subsidiary Guarantor (other
than to PTB Holdings Inc.);
(f) the sale of (i) the Borrower's manufacturing facility located in
Brampton, Ontario and (ii) the Borrower's tampon manufacturing equipment line
(the "Excluded Property");
(g) as long as no Default or Event of Default is continuing or would
result therefrom, any other Asset Sale for its Fair Market Value thereof,
payable in cash upon such sale; PROVIDED, HOWEVER, that with respect to any such
sale pursuant to this CLAUSE (G), (i) the aggregate consideration received for
the sale of all assets sold during any Fiscal Year shall not exceed $5,000,000
and (ii)following any such disposition, the Fixed Asset Amount shall be adjusted
to the extent required by SECTION 6.11(D); and
(h) the sale of all or a portion of the Borrower's equity in Mabesa
or all or a portion of the Mabesa Option, in each case concurrently with the
exercise of the Mabesa Option.
SECTION 8.5. RESTRICTED PAYMENTS. The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, declare, order,
pay, make or set apart any sum for any Restricted Payment, except (i) Restricted
Payments by any Subsidiary of the Borrower to the Borrower or any Subsidiary
Guarantor and by the Borrower to any Subsidiary Guarantor and (ii) the
repurchase, redemption or other acquisition or retirement for value of any Stock
or Stock Equivalents held by any member of the Borrower's management or Board of
Directors pursuant to any management or directors' equity subscription agreement
or stock option agreement.
SECTION 8.6. RESTRICTION ON FUNDAMENTAL CHANGES. The Borrower will
not, and will not permit any of its Subsidiaries to (a) merge with any Person,
(b) consolidate with any Person, (c) except in connection with an investment
permitted by Section 8.3, acquire all or substantially all of the Stock or Stock
Equivalents of any Person, (d) except in connection with an investment permitted
by Section 8.3, acquire all or substantially all of the assets of any Person or
all or substantially all of the assets constituting the business of a division,
branch or other unit operation of any Person, (e) except in connection with any
Investment permitted by SECTION 8.3, enter into any joint venture or partnership
with any Person or (f) acquire or create any Subsidiary unless, after giving
effect thereto, the Borrower is in compliance with SECTION 7.11; PROVIDED,
HOWEVER, that the provisions of this Section 8.6 shall not apply to (i) any
transfer of the assets of a Subsidiary to the Borrower or another Subsidiary
Guarantor (other than to PTB Holdings Inc.), or (ii) any merger of a Subsidiary
Guarantor into the Borrower, or (iii) any merger of any Subsidiary into the
Borrower or any Subsidiary Guarantor.
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SECTION 8.7. CHANGE IN NATURE OF BUSINESS. The Borrower will not,
and will not permit any of its Subsidiaries to, make any material change in the
nature or conduct of its business as carried on at the date hereof.
SECTION 8.8. TRANSACTIONS WITH AFFILIATES. The Borrower will not,
and will not permit any of its Subsidiaries to, except as otherwise expressly
permitted herein, do any of the following: (a) make any Investment in an
Affiliate of the Borrower which is not a Subsidiary of the Borrower except as
permitted by SECTION 8.3; (b) transfer, sell, lease, assign or otherwise dispose
of any asset to any Affiliate of the Borrower which is not a Subsidiary of the
Borrower; (c) merge into or consolidate with or purchase or acquire assets from
any Affiliate of the Borrower which is not a Subsidiary of the Borrower; (d)
repay any Indebtedness to any Affiliate of the Borrower which is not a
Subsidiary of the Borrower; or (e) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate of the Borrower which is not
a Subsidiary Guarantor (including guaranties and assumptions of obligations of
any such Affiliate), except for (i) transactions in the ordinary course of
business on a basis no less favorable to the Borrower or such Subsidiary
Guarantor than those that could be obtained at the time of such transaction in
arm's length dealings with a Person who is not such an Affiliate, (ii) salaries
and other employee compensation to officers or directors of the Borrower or any
of its Subsidiaries commensurate with current compensation levels, (iii)
transactions contemplated by Existing Foreign Joint Venture Agreements, the
Option Agreement and the Warrant Agreement (as such agreements are in effect on
the Closing Date) to the extent such payments are otherwise permitted under the
Loan Documents and (iv) between the Borrower or any Subsidiary, on the one hand,
and each of The Procter & Gamble Company and Kimberly Clark Corporation, on the
other, relating to technology licenses.
SECTION 8.9. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS; NO NEW
NEGATIVE PLEDGE. Other than pursuant to the Loan Documents and the Senior
Subordinated Note Indenture and any agreements governing any purchase money
Indebtedness or Capital Lease Obligations permitted by clause (B), (D), (E) or
(J) of SECTION 8.1 (in which latter case, any prohibition or limitation shall
only be effective against the assets financed thereby), the Borrower will not,
and will not permit any of its Subsidiaries to, (a) agree to enter into or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of such Subsidiary to pay dividends or make any other
distribution or transfer of funds or assets or make loans or advances to or
other Investments in, or pay any Indebtedness owed to, the Borrower or any other
Subsidiary of the Borrower or (b) enter into or suffer to exist or become
effective any agreement which prohibits or limits the ability of the Borrower or
any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired, to
secure the Obligations, including any agreement which requires other
Indebtedness or Contractual Obligation to be equally and ratably secured with
the Obligations.
SECTION 8.10. MODIFICATION OF CONSTITUENT DOCUMENTS. The Borrower
will not, and will not permit any of its Subsidiaries to, change its capital
structure (including in the terms of its outstanding Stock) or otherwise amend
its Constituent Documents, except for changes and amendments which do not
materially and adversely affect the rights and privileges of the Borrower or any
of its Subsidiaries, or the interests of the Administrative Agent, the Lenders
and the Issuers under the Loan Documents or in the Collateral.
SECTION 8.11. MODIFICATION OF RELATED DOCUMENTS. The Borrower
will not, and will not permit any of its Subsidiaries to, (a) alter, rescind,
terminate, amend, supplement,
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waive or otherwise modify any provision of any Related Document (other than the
Senior Subordinated Notes, the Senior Subordinated Note Indenture or any
agreement entered into in connection therewith) or (b) permit any breach or
default to exist under any Related Document or take or fail to take any action
thereunder, if (in each case) to do so would have a Material Adverse Effect.
SECTION 8.12. MODIFICATION OF SENIOR SUBORDINATED NOTES; The
Borrower will not, and will not permit any of its Subsidiaries to, change or
amend the terms of the Senior Subordinated Notes, the Senior Subordinated Note
Indenture or any agreement entered into in connection therewith) if the effect
of such amendment is to: (a) increase the interest rate on such Senior
Subordinated Notes; (b) change the dates upon which payments of principal or
interest are due on such Senior Subordinated Notes other than to extend such
dates; (c) amend any provisions thereof describing default or event of default
other than to delete or make less restrictive any default provision therein, or
add any covenant with respect to such Senior Subordinated Notes; (d) change the
redemption or prepayment provisions of such Senior Subordinated Notes other than
to extend the dates therefor or to reduce the premiums payable in connection
therewith; or (e) change or amend any other term if such change or amendment
could reasonably be expected to have a Material Adverse Effect.
SECTION 8.13. ACCOUNTING CHANGES; FISCAL YEAR. The Borrower will
not, and will not permit any of its Subsidiaries to, change its (a) accounting
treatment and reporting practices or tax reporting treatment, except as required
by GAAP or any Requirement of Law and disclosed to the Lenders and the
Administrative Agent or (b) Fiscal Year.
SECTION 8.14. MARGIN REGULATIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, use all or any portion of the
proceeds of any credit extended hereunder to purchase or carry Margin Stock.
SECTION 8.15. OPERATING LEASES; SALE/LEASEBACKS.
(a) The Borrower will not, and will not permit any of its Subsidiaries
to, become or remain liable as lessee or guarantor or other surety with respect
to any operating lease, unless that aggregate amount of all rents paid or
accrued under all such operating leases shall not exceed $3,000,000 in any
Fiscal Year.
(b) The Borrower will not, and will not permit any of its Subsidiaries
to, enter into any sale and leaseback transaction covering any property with an
aggregate Fair Market Value in excess of $2,000,000.
SECTION 8.16. CANCELLATION OF INDEBTEDNESS OWED TO IT. The
Borrower will not, and will not permit any of its Subsidiaries to, cancel any
claim or Indebtedness owed to it except in the ordinary course of business
consistent with past practice (other than any such cancellation of Indebtedness
or claims among the Borrower and the Subsidiary Guarantors or among the
Subsidiary Guarantors).
SECTION 8.17. NO SPECULATIVE TRANSACTIONS. The Borrower will
not, and will not permit any of its Subsidiaries to, engage in any speculative
transaction or in any transaction involving Hedging Contracts except for the
sole purpose of hedging in the normal course of business and consistent with
industry practices.
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SECTION 8.18. COMPLIANCE WITH ERISA. The Borrower will not, and
will not permit any of its Subsidiaries to, or cause or permit any ERISA
Affiliate to, cause or permit to occur (a) an event which could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or (b) an ERISA Event that would have a Material Adverse Effect.
SECTION 8.19. ENVIRONMENTAL. The Borrower will not, and will not
permit any of its Subsidiaries to, allow a Release of any Contaminant in
violation of any Environmental Law; PROVIDED, HOWEVER, that the Borrower shall
not be deemed in violation of this SECTION 8.19 if, as the consequence of all
such Releases, such Loan Party would not incur Environmental Liabilities and
Costs in excess of $1,000,000 in the aggregate.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1. EVENTS OF DEFAULT. Each of the following events shall
be an Event of Default:
(a) The Borrower shall fail to pay any principal of any Loan or
any Reimbursement Obligation when the same becomes due and payable; or
(b) The Borrower shall fail to pay any interest on any Loan, any fee
under any of the Loan Documents or any other Obligation (other than one referred
to in clause (a) above) and such non-payment continues for a period of three
Business Days after the due date therefor;
(c) any representation or warranty made or deemed made by any Loan
Party in any Loan Document or by any Loan Party (or any of its officers) in
connection with any Loan Document shall prove to have been incorrect in any
material respect when made or deemed made; or
(d) any Loan Party shall fail to perform or observe (i) any term,
covenant or agreement contained in ARTICLE V, SECTION 6.1, 6.2, 7.1, 7.6, 7.11,
7.12, or 7.13 or ARTICLE VIII, or (ii) any other term, covenant or agreement
contained in this Agreement or in any other Loan Document if such failure under
this clause (ii) shall remain unremedied for 30 days after the earlier of the
date on which (A) a Responsible Officer of the Borrower becomes aware of such
failure or (B) written notice thereof shall have been given to the Borrower by
the Administrative Agent or any Lender; or
e) (i) the Borrower or any of its ubsidiaries shall fail to make any
payment on any Indebtedness (other than the Obligations) of the Borrower or any
such Subsidiary (or any Guaranty Obligation in respect of Indebtedness of any
other Person) having a principal amount of $1,000,000 or more, when the same
becomes due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or (ii) any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Indebtedness, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Indebtedness; or (iii) any such
Indebtedness shall become or be declared to be due and payable, or required to
be prepaid or repurchased (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
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(f) the Borrower or any of the Subsidiary Guarantors shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against the
Borrower or any of the Subsidiary Guarantor seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against the
Borrower or any of the Subsidiary Guarantors (but not instituted by it), either
such proceedings shall remain undismissed or unstayed for a period of 30 days or
any of the actions sought in such proceedings shall occur; or the Borrower or
any of the Subsidiary Guarantors shall take any corporate action to authorize
any of the actions set forth above in this SUBSECTION (F); or
(g) one or more judgments or orders (or other similar process)
involving, in any single case or in the aggregate, an amount in excess of
$1,000,000 in the case of a money judgment, to the extent not covered by
insurance, shall be rendered against one or more of the Borrower and its
Subsidiaries; or
(h) an ERISA Event shall occur and the amount of all liabilities
and deficiencies resulting therefrom, whether or not assessed, exceeds
$1,000,000 in the aggregate; (i) any provision of any Collateral Document or any
Guaranty after delivery thereof pursuant to this Agreement or any other Loan
Document shall for any reason cease to be valid and binding, or enforceable
against, on any Loan Party party thereto, or any Loan Party shall so state in
writing; or
(j) any Collateral Document shall for any reason cease to create
a valid Lien on any of the Collateral purported to be covered thereby or except
as permitted by the Loan Documents, such Lien shall cease to be a perfected and
first priority Lien or any Loan Party shall so state in writing; or
(k) there shall occur any Change of Control; or
(l) there shall occur a Material Adverse Change; or
(m) one or more of the Borrower and its Subsidiaries shall have
entered into one or more consent or settlement decrees or agreements or similar
arrangements with a Governmental Authority or one or more judgments, orders,
decrees or similar actions shall have been entered against one or more of the
Borrower and its Subsidiaries based on or arising from the violation of or
pursuant to any Environmental Law, or the generation, storage, transportation,
treatment, disposal or Release of any Contaminant and, in connection with all
the foregoing, the Borrower and its Subsidiaries are likely to incur
Environmental Liabilities and Costs in excess of $1,000,000 in the aggregate
that were not reflected in the Projections or the Financial Statements delivered
pursuant to SECTION 4.4; or
(n) the Plan of Reorganization shall have been amended or modified
in any material respect after the Closing Date without the prior written consent
of the Requisite Lenders; or
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(o) the Borrower shall fail to satisfy the conditions set forth in
Section 3.3 within 60 days following the Closing Date.
SECTION 9.2. REMEDIES. During the continuance of any Event of
Default, the Administrative Agent (a) may, and shall at the request of the
Requisite Lenders, by notice to the Borrower declare that all or any portion of
the Revolving Credit Commitments be terminated, whereupon the obligation of each
Lender to make any Loan and each Issuer to issue any Letter of Credit shall
immediately terminate, and/or (b) may and shall at the request of the Requisite
Lenders, by notice to the Borrower, declare the Loans, all interest thereon and
all other amounts and Obligations payable under this Agreement to be forthwith
due and payable, whereupon the Loans, all such interest and all such amounts and
Obligations shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; PROVIDED, HOWEVER, that upon the occurrence of the Event
of Default specified in subparagraph (d) above, (i) the Revolving Credit
Commitments of each Lender to make Loans and of each Lender and Issuer to issue
or participate in Letters of Credit shall automatically be terminated and (ii)
the Loans, all such interest and all such amounts and Obligations shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower. In addition to the remedies set forth above, the Administrative
Agent may exercise any remedies provided for by the Collateral Documents in
accordance with the terms thereof or any other remedies provided by applicable
law.
SECTION 9.3. ACTIONS IN RESPECT OF LETTERS OF CREDIT. Upon the
Revolving Credit Termination Date, the Borrower shall pay to the Administrative
Agent in immediately available funds at the Administrative Agent's office
referred to in SECTION 12.3, for deposit in the Cash Collateral Account, an
amount equal to 105% of the sum of all outstanding Letter of Credit Obligations.
The Administrative Agent may, from time to time after funds are deposited in the
Cash Collateral Account, apply funds then held in the Cash Collateral Account to
the payment of any amounts, in accordance with SECTION 2.13(F), as shall have
become or shall become due and payable by the Borrower to the Issuers or Lenders
in respect of the Letter of Credit Obligations. The Administrative Agent shall
promptly give written notice of any such application; PROVIDED, HOWEVER, that
the failure to give such written notice shall not invalidate any such
application. Neither the Borrower nor any Person claiming on behalf of or
through the Borrower shall have any right to withdraw any of the funds held in
the Cash Collateral Account at any time prior to the termination of all
outstanding Letters of Credit and the payment in full of all then outstanding
and payable monetary Obligations.
SECTION 9.4. RESCISSION. If at any time after termination of
the Revolving Credit Commitments and/or acceleration of the maturity of the
Loans, the Borrower shall pay all arrears of interest and all payments on
account of principal of the Loans and Reimbursement Obligations which shall have
become due otherwise than by acceleration (with interest on principal and, to
the extent permitted by law, on overdue interest, at the rates specified herein)
and all Events of Default and Defaults (other than non-payment of principal of
and accrued interest on the Loans due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to SECTION 11.1, then upon
the written consent of the Requisite Lenders and written notice to the Borrower,
the termination of the Revolving Credit Commitments and/or the acceleration and
their consequences may be rescinded and annulled; but such action shall not
affect any subsequent Event of Default or Default or impair any right or remedy
consequent thereon. The provisions of the preceding sentence are intended merely
to bind the Lenders and
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the Issuers to a decision which may be made at the election of the Requisite
Lenders; they are not intended to benefit the Borrower and do not give the
Borrower the right to require the Lenders to rescind or annul any acceleration
hereunder, even if the conditions set forth herein are met.
ARTICLE X
THE ADMINISTRATIVE AGENT
SECTION 10.1. AUTHORIZATION AND ACTION.
(a) Each Lender and each Issuer hereby appoints Citicorp as the
Administrative Agent hereunder and each Lender and each Issuer authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Administrative Agent under such agreements and to exercise such powers as
are reasonably incidental thereto. Without limiting the foregoing, each Lender
and each Issuer hereby authorizes the Administrative Agent to execute and
deliver, and to perform its obligations under, each of the Loan Documents to
which the Administrative Agent is a party and to exercise all rights, powers and
remedies that the Administrative Agent may have under such Loan Documents.
(b) As to any matters not expressly provided for by this Agreement and
the other Loan Documents (including enforcement or collection), the
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Requisite Lenders, and such instructions shall be binding upon all Lenders
and each Issuer; PROVIDED, HOWEVER, that the Administrative Agent shall not be
required to take any action which (i) the Administrative Agent in good faith
believes exposes it to personal liability unless the Administrative Agent
receives an indemnification satisfactory to it from the Lenders and the Issuers
with respect to such action or (ii) is contrary to this Agreement or applicable
law. The Administrative Agent agrees to give to each Lender and each Issuer
prompt notice of each notice given to it by any Loan Party pursuant to the terms
of this Agreement or the other Loan Documents.
(c) In performing its functions and duties hereunder and under
the Loan Documents, the Administrative Agent is acting solely on behalf of the
Lenders and the Issuers and its duties are entirely administrative in nature.
The Administrative Agent does not assume and shall not be deemed to have assumed
any obligation other than as expressly set forth herein and in the other Loan
Documents or any other relationship as the agent, fiduciary or trustee of or for
any Lender, Issuer or holder of any other Obligation. The Administrative Agent
may perform any of its duties under any of the Loan Documents by or through its
agents or employees.
SECTION 10.2. ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither the
Administrative Agent nor any of its Affiliates or any of the respective
directors, officers, agents or employees of the Administrative Agent or any such
Affiliate shall be liable for any action taken or omitted to be taken by it,
him, her or them under or in connection with this Agreement or the other Loan
Documents, except for its, his, her or their own gross negligence or willful
misconduct. Without limiting the foregoing, the Administrative Agent (a) may
treat the payee of any Revolving Credit Note as its holder until such Revolving
Credit Note has been assigned in accordance with SECTION 11.2; (b) may rely on
the Register to the extent set forth in SECTION
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11.2(C); (c) may consult with legal counsel (including counsel to the Borrower
or any other Loan Party), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (d) makes no warranty or representation to any Lender or
Issuer and shall not be responsible to any Lender or Issuer for any statements,
warranties or representations made by or on behalf of the Borrower or any of its
Subsidiaries in or in connection with this Agreement or any of the other Loan
Documents; (e) shall not have any duty to ascertain or to inquire either as to
the performance or observance of any of the terms, covenants or conditions of
this Agreement or any of the other Loan Documents or the financial condition of
any Loan Party, or the existence or possible existence of any Default or Event
of Default; (f) shall not be responsible to any Lender or Issuer for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; and (g) shall incur no liability
under or in respect of this Agreement or any of the other Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopy) or any telephone message believed by it to be genuine
and signed or sent by the proper party or parties.
SECTION 10.3. THE ADMINISTRATIVE AGENT INDIVIDUALLY With respect to
its Ratable Portion, Citicorp shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender. The terms "LENDERS" or
"REQUISITE LENDERS" or any similar terms shall, unless the context clearly
otherwise indicates, include the Administrative Agent in its individual capacity
as a Lender or as one of the Requisite Lenders. Citicorp and its Affiliates may
accept deposits from, lend money to, and generally engage in any kind of
banking, trust or other business with any Loan Party as if it were not acting as
the Administrative Agent.
SECTION 10.4. LENDER CREDIT DECISION. Each Lender and each Issuer
acknowledges that it shall, independently and without reliance upon the
Administrative Agent or any other Lender conduct its own independent
investigation of the financial condition and affairs of the Borrower and each
other Loan Party in connection with the making and continuance of the Loans and
with the issuance of the Letters of Credit. Each Lender and each Issuer also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and other
Loan Documents.
SECTION 10.5. INDEMNIFICATION. Each Lender agrees to indemnify
the Administrative Agent and each of its Affiliates, and each of their
respective directors, officers, employees, agents and advisors (to the extent
not reimbursed by the Borrower), from and against such Lender's aggregate
Ratable Portion of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements
(including fees and disbursements of legal counsel) of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against, the
Administrative Agent or any of its Affiliates, directors, officers, employees,
agents and advisors in any way relating to or arising out of this Agreement or
the other Loan Documents or any action taken or omitted by the Administrative
Agent under this Agreement or the other Loan Documents; PROVIDED, HOWEVER, that
no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Administrative Agent's or such Affiliate's
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gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse the Administrative Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including fees and disbursements of
legal counsel) incurred by the Administrative Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of its rights or responsibilities under, this
Agreement or the other Loan Documents, to the extent that the Administrative
Agent is not reimbursed for such expenses by the Borrower or another Loan Party.
SECTION 10.6. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign at any time by giving written notice thereof to the Lenders and
the Borrower. Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Requisite Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, selected from among the Lenders. In either case, such
appointment shall be subject to the prior written approval of the Borrower
(which approval may not be unreasonably withheld and shall not be required upon
the occurrence and during the continuance of an Event of Default). Upon the
acceptance of any appointment as Administrative Agent by a successor
Administrative Agent, such successor Administrative Agent shall succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. Prior to any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the retiring Administrative Agent shall take such action
as may be reasonably necessary to assign to the Successor Administrative Agent
its rights as Administrative Agent under the Loan Documents. After such
resignation, the retiring Administrative Agent shall continue to have the
benefit of this ARTICLE X as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents.
SECTION 10.7. CONCERNING THE COLLATERAL AND THE COLLATERAL DOCUMENTS.
(a) Each Lender and each Issuer agrees that any action taken by the
Administrative Agent or the Requisite Lenders (or, where required by the express
terms of this Agreement, a greater proportion of the Lenders) in accordance with
the provisions of this Agreement or of the other Loan Documents, and the
exercise by the Administrative Agent or the Requisite Lenders (or, where so
required, such greater proportion) of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Lenders, Issuers and other Secured
Parties. Without limiting the generality of the foregoing, the Administrative
Agent shall have the sole and exclusive right and authority to (i) act as the
disbursing and collecting agent for the Lenders and the Issuers with respect to
all payments and collections arising in connection herewith and with the
Collateral Documents; (ii) execute and deliver each Collateral Document and
accept delivery of each such agreement delivered by the Borrower or any of its
Subsidiaries; (iii) act as collateral agent for the Lenders, the Issuers and the
other Secured Parties for purposes of the perfection of all security interests
and Liens created by such agreements and all other purposes stated therein;
PROVIDED, HOWEVER, that the Administrative Agent hereby appoints, authorizes and
directs each Lender and Issuer to act as collateral sub-agent for the
Administrative Agent, the Lenders and the Issuers for purposes of the perfection
of all security interests and Liens with respect to the
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Borrower's and its Subsidiaries' respective deposit accounts maintained with,
and cash and Cash Equivalents held by, such Lender or such Issuer; (iv) manage,
supervise and otherwise deal with the Collateral; (v) take such action as is
necessary or desirable to maintain the perfection and priority of the security
interests and Liens created or purported to be created by the Collateral
Documents; and (vi) except as may be otherwise specifically restricted by the
terms hereof or of any other Loan Document, exercise all remedies given to the
Administrative Agent, the Lenders, the Issuers and the other Secured Parties
with respect to the Collateral under the Loan Documents relating thereto,
applicable law or otherwise.
(b) Each of the Lenders and the Issuers hereby directs, in accordance
with the terms hereof, the Administrative Agent to release (or, in the case of
clause (ii) below, release or subordinate) any Lien held by the Administrative
Agent for the benefit of the Lenders and the Issuers:
(i) against all of the Collateral, upon termination
of the Revolving Credit Commitments and payment and
satisfaction in full of all Loans, Reimbursement Obligations
and all other Obligations which have matured and which the
Administrative Agent has been notified in writing are then due
and payable (and, in respect of contingent Letter of Credit
Obligations, with respect to which cash collateral has been
deposited or a back-up letter of credit has been issued, in
either case on terms satisfactory to the Administrative Agent
and the applicable Issuers);
(ii) against any assets that are subject to a Lien
permitted by SECTION 8.2(D) or (E); and
(iii) against any part of the Collateral sold or
disposed of by a Loan Party if such sale or disposition is
permitted by this Agreement (or permitted pursuant to a waiver
or consent of a transaction otherwise prohibited by this
Agreement) or, if not pursuant to such sale or disposition,
against Collateral with a book value of up to $5,000,000, if
such release is consented to by the Requisite Lenders, or any
part of the Collateral in excess of such amount, if such
release is consented to by all the Lenders.
Each of the Lenders and the Issuers hereby directs the Administrative Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this SECTION 10.7 promptly upon the effectiveness of any such release.
SECTION 10.8. COLLATERAL MATTERS RELATING TO RELATED OBLIGATIONS.
The benefit of the Loan Documents and of the provisions of this Agreement
relating to the Collateral shall extend to and be available in respect of any
Secured Obligation which arises under any Hedging Contract or which is otherwise
owed to Persons other than the Administrative Agent, the Lenders and the Issuers
(collectively, "RELATED OBLIGATIONS") solely on the condition and understanding,
as among the Administrative Agent and all Secured Parties, that (i) the Related
Obligations shall be entitled to the benefit of the Loan Documents and the
Collateral to the extent expressly set forth in this Agreement and the other
Loan Documents and to such extent the Administrative Agent shall hold, and have
the right and power to act with respect to, the Guaranty and the Collateral on
behalf of and as agent for the holders of the Related Obligations, but the
Administrative Agent is otherwise acting solely as agent for the Lenders and the
Issuers and shall
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have no fiduciary duty, duty of loyalty, duty of care, duty of disclosure or
other obligation whatsoever to any holder of Related Obligations; (ii) all
matters, acts and omissions relating in any manner to the Guaranty, the
Collateral, or the omission, creation, perfection, priority, abandonment or
release of any Lien, shall be governed solely by the provisions of this
Agreement and the other Loan Documents and no separate Lien, right, power or
remedy shall arise or exist in favor of any Secured Party under any separate
instrument or agreement or in respect of any Related Obligation; and (iii) each
Secured Party shall be bound by all actions taken or omitted, in accordance with
the provisions of this Agreement and the other Loan Documents, by the
Administrative Agent and the Requisite Lenders, each of whom shall be entitled
to act at its sole discretion and exclusively in its own interest given its own
Revolving Credit Commitments and its own interest in the Loans, Letter of Credit
Obligations and other Obligations to it arising under this Agreement or the
other Loan Documents, without any duty or liability to any other Secured Party
or as to any Related Obligation and without regard to whether any Related
Obligation remains outstanding or is deprived of the benefit of the Collateral
or becomes unsecured or is otherwise affected or put in jeopardy thereby; and
(iv) no holder of Related Obligations and no other Secured Party (except the
Administrative Agent, the Lenders and the Issuers, to the extent set forth in
this Agreement) shall have any right to be notified of, or to direct, require or
be heard with respect to, any action taken or omitted in respect of the
Collateral or under this Agreement or the Loan Documents; and (v) no holder of
any Related Obligation shall exercise any right of setoff, banker's lien or
similar right except as expressly provided in SECTION 11.6.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. AMENDMENTS, WAIVERS, ETC.
(a) No amendment or waiver of any provision of this Agreement or any
other Loan Document nor consent to any departure by any Loan Party therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Requisite Lenders, and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing
and signed by each Lender, in addition to the Requisite Lenders, do any of the
following:
(i) waive any of the conditions specified in Section
3.1 or 3.2 except with respect to a condition based upon
another provision hereof, the waiver of which requires only
the concurrence of the Requisite Lenders;
(ii) increase the Revolving Credit Commitments of the
Lenders or subject the Lenders to any additional obligations;
(iii) extend the scheduled final maturity of any Loan,
or waive, reduce or postpone any scheduled date fixed for the
payment or reduction of principal (it being understood that a
Section 2.9 does not provide for scheduled dates fixed for
payment) or of the Revolving Credit Commitments;
(iv) reduce the principal amount of any Loan or
Reimbursement Obligation (other than by the payment or
prepayment thereof);
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(v) reduce the rate of interest on any Loan or
Reimbursement Obligations or any fee payable hereunder;
(vi) postpone any scheduled date fixed for payment
of such interest or fees;
(vii) change the aggregate Ratable Portions of the
Lenders which shall be required for the Lenders or any of them
to take any action hereunder;
(viii) increase the Advance Rates above the rates set forth
in the definition thereof;
(ix) release any of the Collateral except as provided
in Section 10.7(b) or release any Subsidiary Guarantor from
its obligations under the Guaranty except in connection with
sale or other disposition permitted by this Agreement (or
permitted pursuant to a waiver or consent of a transaction
otherwise prohibited by this Agreement); or
(x) amend Section 10.7(b) or this Section 11.1 or the
definition of the terms "REQUISITE LENDERS", "RATABLE
PORTION", "FIXED ASSET AMOUNT", "ELIGIBLE INVENTORY",
"ELIGIBLE EQUIPMENT", "ELIGIBLE REAL PROPERTY", "ELIGIBLE
RECEIVABLE", "ELIGIBLE FINISHED GOODS", "ELIGIBLE RAW
MATERIALS", ELIGIBLE WORK-IN-PROCESS", "ELIGIBLE SUPPLIES" and
"ELIGIBLE PARTS".
and PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by the Administrative Agent in addition to the Lenders
required above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement or the other Loan Documents.
(b) The Administrative Agent may, but shall have no obligation to,
with the written concurrence of any Lender, execute amendments, modifications,
waivers or consents on behalf of that Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on the Borrower in any case shall entitle
the Borrower to any other or further notice or demand in similar or other
circumstances.
SECTION 11.2. ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Lender may sell, transfer, negotiate or assign to one or more
Eligible Assignees all or a portion of its rights and obligations hereunder
(including all of its rights and obligations with respect to the Revolving
Credit Loans, the Swing Loans and the Letters of Credit); PROVIDED, HOWEVER,
that (i) such assignment shall cover the same percentage of such Lender's
Revolving Credit Outstandings and Revolving Credit Commitment, (ii) the
aggregate amount being assigned pursuant to each such assignment (determined as
of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event (if less than the Assignor's entire interest) be less than
$5,000,000 or an integral multiple of $1,000,000 in excess thereof, except, in
either case, (A) with the consent of the Borrower and the Administrative Agent
or (B) if such assignment is being made to a Lender or an Affiliate or Approved
Fund of such Lender, and (iii) if such Eligible Assignee is not, prior to the
date of such assignment, a Lender or an Affiliate or Approved Fund of a Lender,
such assignment shall be subject to the prior consent
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of the Administrative Agent and the Borrower (which consent shall not be
unreasonably withheld or delayed); PROVIDED, HOWEVER, that notwithstanding any
other provision of this SECTION 11.2, the consent of the Borrower shall not be
required for any assignment which occurs when any Event of Default shall have
occurred and be continuing.
(b) The parties to each assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording, an Assignment and
Acceptance, together with any Revolving Credit Note (if the assigning Lender's
Loans are evidenced by a Revolving Credit Note) subject to such assignment. Upon
such execution, delivery, acceptance and recording and the receipt by the
Administrative Agent from the assignee of an assignment fee in the amount of
$3,500 from and after the effective date specified in such Assignment and
Acceptance, (i) the assignee thereunder shall become a party hereto and, to the
extent that rights and obligations under the Loan Documents have been assigned
to such assignee pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender, and if such Lender were an Issuer, of such Issuer
hereunder and thereunder, and (ii) the assignor thereunder shall, to the extent
that rights and obligations under this Agreement have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights (except those
which survive the payment in full of the Obligations) and be released from its
obligations under the Loan Documents, other than those relating to events or
circumstances occurring prior to such assignment (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under the Loan Documents, such Lender shall
cease to be a party hereto).
(c) The Administrative Agent shall maintain at its address referred to
in SECTION 11.3 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recording of the names and addresses of
the Lenders and the Revolving Credit Commitments of and principal amount of the
Loans and Letter of Credit Obligations owing to each Lender from time to time
(the "REGISTER"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Loan Parties, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower, the Administrative
Agent or any Lender at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, the Administrative Agent shall, if such
Assignment and Acceptance has been completed, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall, if
requested by such assignee, execute and deliver to the Administrative Agent, new
Revolving Credit Notes to the order of such assignee in an amount equal to the
Revolving Credit Commitments assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has surrendered any Revolving Credit
Note for exchange in connection with the assignment and has retained Revolving
Credit Commitments hereunder, new Revolving Credit Notes to the order of the
assigning Lender in an amount equal to the Revolving Credit Commitments retained
by it hereunder. Such new Revolving Credit Notes shall be dated the same date as
the surrendered Revolving Credit Notes and be in substantially the form of
EXHIBIT B.
(e) In addition to the other assignment rights provided in this
SECTION 11.2, each Lender may assign, as collateral or otherwise, any of its
rights under this Agreement (including rights to payments of principal or
interest on the Loans) to (i) any Federal Reserve Bank pursuant
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to Regulation A of the Federal Reserve Board without notice to or consent of the
Borrower or the Administrative Agent and (ii) any trustee for the benefit of the
holders of such Lender's Securities; PROVIDED, HOWEVER, that no such assignment
shall release the assigning Lender from any of its obligations hereunder.
(f) Each Lender may sell participations to one or more Persons in or
to all or a portion of its rights and obligations under the Loan Documents
(including all its rights and obligations with respect to Revolving Credit Loans
and Letters of Credit). The terms of such participation shall not, in any event,
require the participant's consent to any amendments, waivers or other
modifications of any provision of any Loan Documents, the consent to any
departure by any Loan Party therefrom, or to the exercising or refraining from
exercising any powers or rights which such Lender may have under or in respect
of the Loan Documents (including the right to enforce the obligations of the
Loan Parties), except if any such amendment, waiver or other modification or
consent would (i) reduce the amount, or postpone any date fixed for, any amount
(whether of principal, interest or fees) payable to such participant under the
Loan Documents, to which such participant would otherwise be entitled under such
participation or (ii) result in the release of all or substantially all of the
Collateral other than in accordance with SECTION 10.7(B). In the event of the
sale of any participation by any Lender, (A) such Lender's obligations under the
Loan Documents shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties for the performance of such obligations, (C)
such Lender shall remain the holder of such Obligations for all purposes of this
Agreement, and (D) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement. Each participant
shall be entitled to the benefits of SECTIONS 2.14(D), 2.15 and 2.16 as if it
were a Lender; PROVIDED, HOWEVER, that anything herein to the contrary
notwithstanding, the Borrower shall not, at any time, be obligated to pay to any
participant of any interest of any Lender, under SECTION 2.13, 2.14(D), 2.13 or
2.15, any sum in excess of the sum which the Borrower would have been obligated
to pay to such Lender in respect of such interest had such participation not
been sold.
(g) Any Issuer may at any time assign its rights and obligations
hereunder to any other Lender by an instrument in form and substance
satisfactory to the Borrower, the Administrative Agent, such Issuer and such
Lender. If any Issuer ceases to be a Lender hereunder by virtue of any
assignment made pursuant to this SECTION 11.2, then, as of the effective date of
such cessation, such Issuer's obligations to issue Letters of Credit pursuant to
SECTION 2.04 shall terminate and such Issuer shall be an Issuer hereunder only
with respect to outstanding Letters of Credit issued prior to such date.
SECTION 11.3. COSTS AND EXPENSES.
(a) The Borrower agrees upon demand to pay, or reimburse the
Administrative Agent for, all of the Administrative Agent's reasonable internal
and external audit, legal, appraisal, valuation, filing, document duplication
and reproduction and investigation expenses and for all other reasonable
out-of-pocket costs and expenses of every type and nature (including, without
limitation, the reasonable fees, expenses and disbursements of the
Administrative Agent's counsel, Weil, Gotshal & Manges LLP, local legal counsel,
auditors, accountants, appraisers, printers, insurance and environmental
advisers, and other consultants and agents) incurred by the Administrative Agent
in connection with (i) the Administrative Agent's audit and investigation of the
Borrower and its Subsidiaries in connection with the preparation, negotiation
and execution of the Loan Documents and the Administrative Agent's periodic
audits of the
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Borrower and its Subsidiaries, as the case may be; (ii) the preparation,
negotiation, execution and interpretation of this Agreement (including, without
limitation, the satisfaction or attempted satisfaction of any of the conditions
set forth in ARTICLE III), the Loan Documents and any proposal letter or
commitment letter issued in connection therewith and the making of the Loans
hereunder; (iii) the creation, perfection or protection of the Liens under the
Loan Documents (including, without limitation, any reasonable fees and expenses
for local counsel in various jurisdictions); (iv) the ongoing administration of
this Agreement and the Loans, including consultation with attorneys in
connection therewith and with respect to the Administrative Agent's rights and
responsibilities hereunder and under the other Loan Documents; (v) the
protection, collection or enforcement of any of the Obligations or the
enforcement of any of the Loan Documents; (vi) the commencement, defense or
intervention in any court proceeding relating in any way to the Obligations, any
Loan Party, any of the Borrower's Subsidiaries, the Reorganization, the Related
Documents, this Agreement or any of the other Loan Documents; (vii) the response
to, and preparation for, any subpoena or request for document production with
which the Administrative Agent is served or deposition or other proceeding in
which the Administrative Agent is called to testify, in each case, relating in
any way to the Obligations, any Loan Party, any of the Borrowers' Subsidiaries,
the Reorganization, the Related Documents, this Agreement or any of the other
Loan Documents; and (viii) any amendments, consents, waivers, assignments,
restatements, or supplements to any of the Loan Documents and the preparation,
negotiation, and execution of the same.
(b) The Borrower further agrees to pay or reimburse the Administrative
Agent and each of the Lenders and Issuers upon demand for all out-of-pocket
costs and expenses, including, without limitation, reasonable attorneys' fees
(including allocated costs of internal counsel and costs of settlement),
incurred by the Administrative Agent, such Lenders or Issuers (i) in enforcing
any Loan Document or Obligation or any security therefor or exercising or
enforcing any other right or remedy available by reason of an Event of Default;
(ii) in connection with any refinancing or restructuring of the credit
arrangements provided hereunder in the nature of a "work-out" or in any
insolvency or bankruptcy proceeding; (iii) in commencing, defending or
intervening in any litigation or in filing a petition, complaint, answer, motion
or other pleadings in any legal proceeding relating to the Obligations, any Loan
Party, any of the Borrowers' Subsidiaries and related to or arising out of the
transactions contemplated hereby or by any of the other Loan Documents or
Related Documents; and (iv) in taking any other action in or with respect to any
suit or proceeding (bankruptcy or otherwise) described in CLAUSES (I) through
(III) above.
SECTION 11.4. INDEMNITIES.
(a) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, each Lender and each Issuer and each of their respective
Affiliates, and each of the directors, officers, employees, agents,
representative, attorneys, consultants and advisors of or to any of the
foregoing (including those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in ARTICLE III) (each
such Person being an "INDEMNITEE") from and against any and all claims, damages,
liabilities, obligations, losses, penalties, actions, judgments, suits, costs,
disbursements and expenses of any kind or nature (including fees and
disbursements of counsel to any such Indemnitee) which may be imposed on,
incurred by or asserted against any such Indemnitee in connection with or
arising out of any investigation, litigation or proceeding, whether or not any
such Indemnitee is a party thereto, whether direct, indirect, or consequential
and whether based on any federal, state or local law or
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other statutory regulation, securities or commercial law or regulation, or under
common law or in equity, or on contract, tort or otherwise, in any manner
relating to or arising out of this Agreement, any other Loan Document, any
Obligation, any Letter of Credit, the Disclosure Statement, any Related
Document, the Plan of Reorganization or any act, event or transaction related or
attendant to any thereof, or the use or intended use of the proceeds of the
Loans or Letters of Credit or in connection with any investigation of any
potential matter covered hereby (collectively, the "INDEMNIFIED MATTERS");
PROVIDED, HOWEVER, that the Borrower shall not have any obligation under this
SECTION 11.4 to an Indemnitee with respect to any Indemnified Matter caused by
or resulting from the gross negligence or willful misconduct of that Indemnitee,
as determined by a court of competent jurisdiction in a final non-appealable
judgment or order. Without limiting the foregoing, Indemnified Matters include
(i) all Environmental Liabilities and Costs arising from or connected with the
past, present or future operations of the Borrower or any of its Subsidiaries
involving any property subject to a Collateral Document, or damage to real or
personal property or natural resources or harm or injury alleged to have
resulted from any Release of Contaminants on, upon or into such property or any
contiguous real estate; (ii) any costs or liabilities incurred in connection
with any Remedial Action concerning the Borrower or any of its Subsidiaries;
(iii) any costs or liabilities incurred in connection with any Environmental
Lien; (iv) any costs or liabilities incurred in connection with any other matter
under any Environmental Law, including CERCLA and applicable state property
transfer laws, whether, with respect to any of such matters, such Indemnitee is
a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the
successor in interest to the Borrower or any of its Subsidiaries, or the owner,
lessee or operator of any property of the Borrower or any of its Subsidiaries by
virtue of foreclosure, except, with respect to those matters referred to in
CLAUSES (I), (II), (III) and (IV) above, to the extent incurred following (A)
foreclosure by the Administrative Agent, any Lender or any Issuer, or the
Administrative Agent, any Lender or any Issuer having become the successor in
interest to the Borrower or any of its Subsidiaries, and (B) attributable solely
to acts of the Administrative Agent, such Lender or such Issuer or any agent on
behalf of the Administrative Agent or such Lender.
(b) The Borrower shall indemnify the Administrative Agent, the Lenders
and each Issuer for, and hold the Administrative Agent, the Lenders and each
Issuer harmless from and against, any and all claims for brokerage commissions,
fees and other compensation made against the Administrative Agent, the Lenders
and the Issuers for any broker, finder or consultant with respect to any
agreement, arrangement or understanding made by or on behalf of any Loan Party
or any of its Subsidiaries in connection with the transactions contemplated by
this Agreement.
(c) The Administrative Agent, each Lender and each Issuer agree that
in the event that any such investigation, litigation or proceeding set forth in
subparagraph (b) above is asserted or threatened in writing or instituted
against it or any other Indemnitee, or any Remedial Action, is requested of it
or any of its officers, directors, Administrative Agents and employees, for
which any Indemnitee may desire indemnity or defense hereunder, such Indemnitee
shall promptly notify the Borrower in writing.
(d) The Borrower, at the request of any Indemnitee, shall have the
obligation to defend against such investigation, litigation or proceeding or
requested Remedial Action and the Borrower, in any event, may participate in the
defense thereof with legal counsel of the Borrower's choice. In the event that
such Indemnitee requests the Borrower to defend against such investigation,
litigation or proceeding or requested Remedial Action, the Borrower shall
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promptly do so and such Indemnitee shall have the right to have legal counsel of
its choice participate in such defense. No action taken by legal counsel chosen
by such Indemnitee in defending against any such investigation, litigation or
proceeding or requested Remedial Action, shall vitiate or in any way impair the
Borrower's obligation and duty hereunder to indemnify and hold harmless such
Indemnitee.
(e) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including pursuant to
this SECTION 11.4) or any other Loan Document shall (i) survive payment in full
of the Obligations and (ii) inure to the benefit of any Person who was at any
time an Indemnitee under this Agreement or any other Loan Document.
SECTION 11.5. LIMITATION OF LIABILITY. The Borrower agrees that
no Indemnitee shall have any liability (whether direct or indirect, in contract,
tort or otherwise) to any Loan Party or any of their respective Subsidiaries or
any of their equity holders or creditors for or in connection with the
transactions contemplated hereby and in the other Loan Documents and Related
Documents, except to the extent such liability is found in a final judgment by a
court of competent jurisdiction to have resulted from such Indemnitee's gross
negligence or willful misconduct. In no event, however, shall any Indemnified
Party be liable on any theory of liability for any special, indirect,
consequential or punitive damages and the Borrower hereby waives, releases and
agrees (for itself and on behalf of its Subsidiaries) not to sue upon any such
claim for any such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
SECTION 11.6. RIGHT OF SET-OFF. Upon the occurrence and during
the continuance of any Event of Default each Lender and each Affiliate of a
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender or its Affiliates to or for the
credit or the account of the Borrower against any and all of the Obligations now
or hereafter existing whether or not such Lender shall have made any demand
under this Agreement or any other Loan Document and although such Obligations
may be unmatured. Each Lender agrees promptly to notify the Borrower after any
such set-off and application made by such Lender or its Affiliates; PROVIDED,
HOWEVER, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this SECTION 11.6
are in addition to the other rights and remedies (including other rights of
set-off) which such Lender may have.
SECTION 11.7. SHARING OF PAYMENTS, ETC.
(a) If any Lender shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off or otherwise) on
account of the Revolving Loans made by it (other than pursuant to SECTIONS 2.14,
2.15 or 2.16) in excess of its Ratable Portion of payments obtained by all the
Lenders on account of such Obligations, such Lender (a "PURCHASING LENDER")
shall forthwith purchase from the other Lenders (each, a "SELLING LENDER") such
participations in their Loans or other Obligations as shall be necessary to
cause such Purchasing Lender to share the excess payment ratably with each of
them.
(b) If all or any portion of any payment received by a Purchasing
Lender is thereafter recovered from such Purchasing Lender, such purchase from
each Selling Lender shall
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be rescinded and such Selling Lender shall repay to the Purchasing Lender the
purchase price to the extent of such recovery together with an amount equal to
such Selling Lender's ratable share (according to the proportion of (i) the
amount of such Selling Lender's required repayment to (ii) the total amount so
recovered from the Purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
(c) The Borrower agrees that any Purchasing Lender so purchasing a
participation from a Selling Lender pursuant to this SECTION 11.7 may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 11.8. NOTICES, ETC. All notices, demands, requests and
other communications provided for in this Agreement shall be given in writing,
or by any telecommunication device capable of creating a written record, and
addressed to the party to be notified as follows:
(a) if to the Borrower:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, GA 30092
Attention:
Telecopy no:
(b) if to any Lender, at its Domestic Lending Office specified
opposite its name on SCHEDULE II or on the signature page of any applicable
Assignment and Acceptance;
(c) if to any Issuer, at the address set forth under its name
on SCHEDULE II; and
(d) if to the Administrative Agent:
Citicorp USA, Inc.
399 Park Avenue
New York, NY 10043
Attention:
Telecopy no:
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue,
New York, New York 10153-0119
Attention: Daniel S. Dokos, Esq.
Telecopy no: (212) 310-8007
or at such other address as shall be notified in writing (i) in the case of the
Borrower and the Administrative Agent, to the other parties and (ii) in the case
of all other parties, to the Borrower and the Administrative Agent. All such
notices and communications shall be effective upon personal delivery (if
delivered by hand, including any overnight courier service), when deposited
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in the mails (if sent by mail), or when properly transmitted (if sent by a
telecommunications device); PROVIDED, HOWEVER, that notices and communications
to the Administrative Agent pursuant to Article II or X shall not be effective
until received by the Administrative Agent.
SECTION 11.9. NO WAIVER; REMEDIES. No failure on the part of any
Lender, Issuer or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 11.10. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent and when the Administrative Agent shall have been notified
by each Lender that such Lender has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Administrative Agent and each
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.
SECTION 11.11. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
SECTION 11.12. SUBMISSION TO JURISDICTION; SERVICE OF PROCESS.
(a) Any legal action or proceeding with respect to this Agreement or
any other Loan Document may be brought in the courts of the State of New York or
of the United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The parties hereto hereby irrevocably waive any
objection, including any objection to the laying of venue or based on the
grounds of FORUM NON CONVENIENS, which any of them may now or hereafter have to
the bringing of any such action or proceeding in such respective jurisdictions.
(b) The Borrower hereby irrevocably designates, appoints and
empowers Corporation Service Company (telecopy no: (212) 728-8111) (the "PROCESS
AGENT"), in the case of any suit, action or proceeding brought in the United
States of America as its designee, appointee and agent to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents that may be served in
any action or proceeding arising out of or in connection with this Agreement or
any Loan Document. Such service may be made by mailing (by registered or
certified mail, postage prepaid) or delivering a copy of such process to the
Borrower in care of the Process Agent at the Process Agent's above address, and
the Borrower hereby irrevocably authorizes and directs the Process Agent to
accept such service on its behalf. As an alternative method of service, the
Borrower irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing (by registered or certified mail, postage
prepaid) of copies of such process to the Process Agent or the Borrower at its
address specified in SECTION 11.8. The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
The Borrower hereby irrevocably consents to the service of any and all legal
process,
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summons, notices and documents in any suit, action or proceeding brought in the
United States of America arising out of or in connection with this Agreement or
any of the other Loan Documents by the mailing (by registered or certified mail,
postage prepaid) or delivering of a copy of such process to the Borrower at its
address specified in SECTION 11.8. The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Nothing contained in this SECTION 11.12 shall affect the right
of the Administrative Agent or any Lender to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against the
Borrower or any other Loan Party in any other jurisdiction.
(d) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in Dollars into another currency, the
parties hereto agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in accordance with normal
banking procedures the Administrative Agent could purchase Dollars with such
other currency at the spot rate of exchange quoted by the Administrative Agent
at 11:00 a.m. (New York time) on the Business Day preceding that on which final
judgment is given, for the purchase of Dollars, for delivery two Business Days
thereafter.
SECTION 11.13. WAIVER OF JURY TRIAL. EACH OF THE ADMINISTRATIVE
AGENT, THE LENDERS, THE ISSUERS AND THE BORROWER IRREVOCABLY WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT.
SECTION 11.14. MARSHALING; PAYMENTS SET ASIDE. None of the
Administrative Agent, any Lender or any Issuer shall be under any obligation to
marshal any assets in favor of the Borrower or any other party or against or in
payment of any or all of the Obligations. To the extent that the Borrower makes
a payment or payments to the Administrative Agent, the Lenders or the Issuers or
any of such Persons receives payment from the proceeds of the Collateral or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all Liens,
right and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
SECTION 11.15. SECTION TITLES. The Section titles contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
SECTION 11.16. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties 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.
Signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are attached to the same
document.
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SECTION 11.17. ENTIRE AGREEMENT. This Agreement, together with
all of the other Loan Documents and all certificates and documents delivered
hereunder or thereunder, embodies the entire agreement of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
SECTION 11.18. CONFIDENTIALITY. Each Lender and the Administrative
Agent agree to keep information obtained by it pursuant hereto and the other
Loan Documents confidential in accordance with its customary practices and
agrees that it will only use such information in connection with the
transactions contemplated by this Agreement and not disclose any of such
information other than (a) to such Lender's or the Administrative Agent's, as
the case may be, employees, representatives and agents who are or are expected
to be involved in the evaluation of such information in connection with the
transactions contemplated by this Agreement and who are advised of the
confidential nature of such information, (b) to the extent such information
presently is or hereafter becomes available to such Lender or the Administrative
Agent, as the case may be, on a non-confidential basis from a source other than
the Borrower, (c) to the extent disclosure is required by law, regulation or
judicial order or requested or required by bank regulators or auditors, or (d)
to assignees or participants or potential assignees or participants who agree to
be bound by the provisions of this SECTION 11.18.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
PARAGON TRADE BRANDS, INC.
By: /S/ ALAN J. CYRON
---------------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
CITICORP U.S.A., INC.
as Administrative Agent
By: /S/ SHAPLEIGH B. SMITH
---------------------------
Name: Shapleigh Smith
Title: Managing Director -
Global Structural Products
LENDERS
CITIBANK, N.A.
By: /S/ SHAPLEIGH B. SMITH
---------------------------
Name: Shapleigh Smith
Title: Managing Director -
Global Structural Products
HELLER FINANCIAL, INC.
By: /S/ ALBERT J. FORZANO
---------------------------
Name: Albert J. Forzano
Title: Vice President
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By: /S/ RUSSELL KASOW
---------------------------
Name: Russell Kasow
Title: A.V.P.
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /S/ GREGORY A. GODEC
---------------------------
Name: Gregory A. Godec
Title: Sr. V.P.
FLEET CAPITAL CORPORATION
By: /S/ FRANK DICEGLIE
Name: Frank Diceglie
Title: S.V.P.
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By: /S/ PETER J. HOLLITSCHER
---------------------------
Name: Peter J. Hollitscher
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT
By: /S/ PATRICK LEE
---------------------------
Name: Patrick Lee
Title: Vice President
PLEDGE AND SECURITY AGREEMENT
DATED AS OF JANUARY 28, 2000
AMONG
PARAGON TRADE BRANDS, INC. AND EACH OTHER GRANTOR
FROM TIME TO TIME PARTY HERETO
AND
CITICORP USA, INC.
AS ADMINISTRATIVE AGENT
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
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TABLE OF CONTENTS
PAGE
ARTICLE I.......................................................Defined Terms 1
Section 1.1 ............................................Definitions 1
Section 1.2 ....................................Certain Other Terms 5
ARTICLE II.........................................Grant of Security Interest 5
Section 2.1 .............................................Collateral 5
Section 2.2 ...............Grant of Security Interest in Collateral 7
ARTICLE III....................................Representations And Warranties 7
Section 3.1 ..................................Title; No Other Liens 7
Section 3.2 ................................Perfection and Priority 7
Section 3.3 .........State of Incorporation; Chief Executive Office 7
Section 3.4 ................................Inventory and Equipment 7
Section 3.5 .....................................Pledged Collateral 8
Section 3.6 ...............................................Accounts 8
Section 3.7 .........................................No Other Names 8
Section 3.8 ..................................Intellectual Property 9
ARTICLE IV..........................................................Covenants 9
Section 4.1 ..............................................Generally 9
Section 4.2 Maintenance of Perfected Security Interest; Further
......................................... Documentation 10
Section 4.3 .......................Changes in Locations, Name, Etc. 10
Section 4.4 .............. ......................Pledged Collateral 10
Section 4.5 .....................Control Accounts; Blocked Accounts 12
Section 4.6 ...............................................Accounts 12
Section 4.7 ..............Delivery of Instruments and Chattel Paper 13
Section 4.8 ..................................Intellectual Property 13
Section 4.9 .................................Payment of Obligations 14
ARTICLE V.................................................Remedial Provisions 15
Section 5.1 ................................Code and Other Remedies 15
Section 5.2 .......................Accounts and Payment Intangibles 15
Section 5.3 .....................................Pledged Collateral 16
Section 5.4 .....Proceeds to be Turned Over To Administrative Agent 17
Section 5.5 ....................................Registration Rights 17
Section 5.6 .....................................Waiver; Deficiency 18
ARTICLE VI...........................................The Administrative Agent 18
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TABLE OF CONTENTS
(CONTINUED)
Section 6.1 .Administrative Agent's Appointment as Attorney-in-Fact 18
Section 6.2 ...........................Duty of Administrative Agent 20
Section 6.3 ......................Execution of Financing Statements 20
Section 6.4 ......................Authority of Administrative Agent 20
ARTICLE VII.....................................................Miscellaneous 21
Section 7.1 ..................................Amendments in Writing 21
Section 7.2 ................................................Notices 21
Section 7.3 ....No Waiver by Course of Conduct; Cumulative Remedies 21
Section 7.4 .................................Successors and Assigns 21
Section 7.5 ...........................................Counterparts 21
Section 7.6 ...........................................Severability 21
Section 7.7 .......................................Section Headings 21
Section 7.8 .......................................Entire Agreement 22
Section 7.9 ..........................................Governing Law 22
Section 7.10 ...................................Additional Grantors 22
Section 7.11 .................................Release of Collateral 22
Section 7.12 .........................................Reinstatement 22
ANNEXES AND SCHEDULES
Annex 1 Blocked Account Letter
Annex 2 Control Account Letter
Annex 3 Pledge Amendment
Annex 4 Joinder Agreement
Annex 5 Short Form Copyright Security Agreement
Annex 6 Short Form Patent Security Agreement
Annex 7 Short Form Trademark Security Agreement
Schedule 1 State of Incorporation; Principal Executive Office
Schedule 2 Pledged Collateral
Schedule 3 Filings
Schedule 4 Location of Inventory and Equipment
Schedule 5 Intellectual Property
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PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of January 28, 2000,
by Paragon Trade Brands, Inc., a Delaware corporation (the "BORROWER") PTB
International, Inc., a Delaware corporation, PTB Acquisition Sub, Inc., a
Delaware corporation and PTB Holdings, Inc., an Ohio corporation (each,
including the Borrower, a "GRANTOR" and, collectively, the "GRANTORS"), in favor
of Citicorp USA, Inc. ("CITICORP"), as agent for the Secured Parties (as defined
in the Credit Agreement referred to below) (in such capacity, the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of January
28, 2000 (as the same may be amended, restated, supplemented or otherwise
modified from time to time, (the "CREDIT AGREEMENT") among the Borrower, the
Lenders and Issuers party thereto and Citicorp, as agent for the Lenders and
Issuers, the Lenders and the Issuers have severally agreed to make extensions of
credit to the Borrower upon the terms and subject to the conditions set forth
therein; and
WHEREAS, the Grantors other than the Borrower are party to the
Guaranty pursuant to which they have guaranteed the Obligations; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders and the Issuers to make their respective extensions of credit to the
Borrower under the Credit Agreement that the Grantors shall have executed and
delivered this Agreement to the Administrative Agent;
NOW, THEREFORE, in consideration of the premises and to induce
the Lenders, the Issuers and the Administrative Agent to enter into the Credit
Agreement and to induce the Lenders and the Issuers to make their respective
extensions of credit to the Borrower thereunder, each Grantor hereby agrees with
the Administrative Agent as follows:
ARTICLE I. DEFINED TERMS
SECTION 1.1 DEFINITIONS.
(a) Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein have the meanings given to them in the Credit
Agreement.
(b) Terms used herein that are defined in the UCC have the meanings
given to them in the UCC, including the following which are capitalized herein:
"ACCOUNT DEBTOR"
"ACCOUNTS"
"CHATTEL PAPER"
"CONTROL"
"DOCUMENTS"
"EQUIPMENT"
"FINANCIAL ASSET"
"GENERAL INTANGIBLES"
"INSTRUMENTS"
"INVENTORY"
"INVESTMENT PROPERTY"
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"PROCEEDS"
"SECURITY"
"SECURITY ENTITLEMENT"
(c) The following terms shall have the following meanings:
"ADDITIONAL PLEDGED COLLATERAL" means all shares of, limited
and/or general partnership interests in, and limited liability company interests
in, and all securities convertible into, and warrants, options and other rights
to purchase or otherwise acquire, stock of, either (i) any Person that, after
the date of this Agreement, as a result of any occurrence, becomes a direct
Subsidiary of any Grantor or (ii) any issuer of Pledged Stock, any Partnership
or any LLC that is acquired by any Grantor after the date hereof; all
certificates or other instruments representing any of the foregoing; all
Security Entitlements of any Grantor in respect of any of the foregoing; all
additional indebtedness from time to time owed to any Grantor by any obligor on
the Pledged Notes and the instruments evidencing such indebtedness; and all
interest, cash, instruments and other property or Proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing. Additional Pledged Collateral may be General
Intangibles or Investment Property.
"AGREEMENT" means this Pledge and Security Agreement.
"APPROVED SECURITIES INTERMEDIARY" means a securities
intermediary or commodity intermediary selected or approved by the
Administrative Agent and with respect to which a Grantor has delivered to the
Administrative Agent an executed Control Account Letter.
"CASH COLLATERAL ACCOUNT" means any deposit account or
securities account established by the Administrative Agent as provided in
SECTION 5.2 or 5.4 in which cash and Cash Equivalents may from time to time be
on deposit or held therein.
"COLLATERAL" has the meaning specified in SECTION 2.1.
"CONTROL ACCOUNT" means a securities account or commodity
account maintained by any Grantor with an Approved Securities Intermediary which
account is the subject of an effective Control Account Letter, and includes all
Financial Assets held therein and all certificates and instruments, if any,
representing or evidencing such Control Account.
"CONTROL ACCOUNT LETTER" means a letter agreement,
substantially in the form of ANNEX 2 (with such changes as may be agreed to by
the Administrative Agent), executed by the Grantor and the Administrative Agent
and acknowledged and agreed to by the relevant Approved Securities Intermediary.
"COPYRIGHTS" means (a) all copyrights arising under the laws
of the United States, any other country or any political subdivision thereof,
whether registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any foreign counterparts thereof and (b)
the right to obtain all renewals and extensions thereof.
"COPYRIGHT LICENSES" means any written agreement naming any
Grantor as licensor or licensee granting any right under any Copyright,
including the grant of rights to copy,
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publicly perform, create derivative works, manufacture, distribute, exploit and
sell materials derived from any Copyright.
"INTELLECTUAL PROPERTY" means, collectively, all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark
Licenses, the entire goodwill of any business connected with use of and
symbolized by the Trademarks and trade secrets, and all rights to sue at law or
in equity for past, present and future infringement or other misappropriations
thereof, including, without limitation, the right to receive all proceeds,
royalties, income and damages therefrom now or hereafter due and payable or both
with respect thereto including damages and payments for past or future
infringements or misappropriations thereof, and all other rights corresponding
thereto throughout the world.
"INTERCOMPANY NOTE" means any promissory note evidencing loans
made by any Grantor to any of its Subsidiaries or another Grantor.
"LLC" means each limited liability company in which a Grantor
has an interest, including those set forth on SCHEDULE 2.
"LCC AGREEMENT" means each operating agreement with respect to
an LLC, as each agreement has heretofore been and may hereafter be amended,
restated, supplemented or otherwise modified from time to time.
"MATERIAL INTELLECTUAL PROPERTY" means Intellectual Property
owned by or licensed to a Grantor which is material to its business.
"PARTNERSHIP" means each partnership in which a Grantor has an
interest, including those set forth on SCHEDULE 2.
"PARTNERSHIP AGREEMENT" means each partnership agreement
governing a Partnership, as each such agreement has heretofore been and may
hereafter be amended, restated, supplemented or otherwise modified.
"PATENTS" means (a) all letters patent of the United States,
any other country or any political subdivision thereof and all reissues and
extensions thereof, (b) all applications for letters patent of the United States
or any other country and all divisions, continuations and continuations-in-part
or extensions thereof, and (c) all rights to obtain any reissues or extensions
of the foregoing.
"PATENT LICENSE" means all agreements, whether written or
oral, providing for the grant by or to any Grantor of any right to manufacture,
use, import, sell or offer for sale any invention covered in whole or in part by
one or more Patents or granting any interest in Patents.
"PAYMENT INTANGIBLES" has the meaning specified in SECTION
5.2(A).
"PLEDGED COLLATERAL" means, collectively, the Pledged Notes,
the Pledged Stock, the Pledged Partnership Interests, the Pledged LLC Interests,
all certificates or other instruments representing any of the foregoing, all
Security Entitlements of any Grantor in respect of any of the foregoing, all
dividends, interest distributions, cash, warrants, rights, instruments and other
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property or Proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the foregoing.
Pledged Collateral may be General Intangibles or Investment Property.
"PLEDGED LLC INTERESTS" means all of any Grantor's right,
title and interest as a member of any LLCs and all of such Grantor's right,
title and interest in, to and under any LLC Agreement to which it is a party.
"PLEDGED NOTES" means all right, title and interest of any
Grantor, in the Instruments evidencing all Indebtedness owed to such Grantor,
including all Indebtedness described on SCHEDULE 2, issued by the obligors named
therein, and all interest, cash, Instruments and other property or Proceeds from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Indebtedness.
"PLEDGED PARTNERSHIP INTERESTS" shall mean all of any
Grantor's right, title and interest as a limited and/or general partner in all
Partnerships and all of such Grantor's right, title and interest in, to and
under any Partnership Agreements to which it is a party.
"PLEDGED STOCK" means the shares of capital stock owned by
each Grantor, including all shares of capital stock listed on SCHEDULE 2;
PROVIDED, HOWEVER, that only the outstanding capital stock of a subsidiary that
is not a Domestic Subsidiary possessing up to but not exceeding 65% of the
voting power of all classes of capital stock of such controlled foreign
corporation (actually owned by each such Grantor) entitled to vote shall be
deemed to be pledged hereunder.
"RELATED CONTRACT" means each security agreement, lease and
other contract securing or otherwise relating to any Account.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADEMARKS" means (a) all trademarks (whether registered or
at common law), trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and other source
or business identifiers, and all goodwill associated therewith and in connection
with the business of owner symbolized thereby, now existing or hereafter adopted
or acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State thereof or
any other country or any political subdivision thereof, or otherwise, and all
common-law rights related thereto, and (b) the right to obtain all renewals
thereof.
"TRADEMARK LICENSE" means any agreement, whether written or
oral, providing for the grant by or to any Grantor of any right to use any
Trademarks.
"UCC" means the Uniform Commercial Code as from time to time
in effect in the State of New York; PROVIDED, HOWEVER, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Administrative Agent's and the Secured Parties'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of
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definitions related to such provisions; PROVIDED, FURTHER, that if the UCC is
amended after the date hereof, such amendment will not be given effect for the
purposes of this Agreement if and to the extent the result of such amendment
would be to limit or eliminate any item of Collateral.
SECTION 1.2 CERTAIN OTHER TERMS.
(a) The words "HEREIN," "HEREOF," "HERETO" and "HEREUNDER" and similar
words refer to this Agreement as a whole and not to any particular Article,
Section, subsection or clause in this Agreement.
(b) References herein to an Annex, Schedule, Article, Section,
subsection or clause refer to the appropriate Annex or Schedule to, or Article,
Section, subsection or clause in this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) Where the context requires, provisions relating to the Collateral
or any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
(e) Any reference in this Agreement to a Loan Document shall include
all appendices, exhibits and schedules thereto, and, unless specifically stated
otherwise all amendments, restatements, supplements or other modifications
thereto, and as the same may be in effect at any and all times such reference
becomes operative.
(f) The term "INCLUDING" means "INCLUDING WITHOUT LIMITATION" except
when used in the computation of time periods.
(g) The terms "LENDER," "ISSUER," "ADMINISTRATIVE AGENT" and "SECURED
PARTY" include their respective successors.
(h) References in this Agreement to any statute shall be to such
statute as amended or modified and in effect from time to time.
ARTICLE II. GRANT OF SECURITY INTEREST
SECTION 2.1 COLLATERAL. For the purposes of this Agreement, all of
the following property now owned or at any time hereafter acquired by a Grantor
or in which a Grantor now has or at any time in the future may acquire any
right, title or interests is collectively referred to as the "COLLATERAL":
(a) all Accounts;
(b) all Inventory;
(c) all Equipment;
(d) all General Intangibles, including all Intellectual Property of
any such Grantor and that portion of the Pledged Collateral constituting General
Intangibles;
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(e) all Investment Property, including all Control Accounts and that
portion of the Pledged Collateral constituting Investment Property;
(f) all Documents, Instruments and Chattel Paper;
(g) the Cash Collateral Accounts and all Blocked Accounts and other
deposit accounts;
(h) all books and records pertaining to the Collateral;
(i) all other goods and personal property of such Grantor whether
tangible or intangible wherever located, including money, letters of credit and
all rights of payment or performance under letters of credit;
(j) all property of any Grantor held by Administrative Agent or any
Secured Party, including all property of every description, in the possession or
custody of or in transit to Administrative Agent or such Secured Party for any
purpose, including safekeeping, collection or pledge, for the account of such
Grantor, or as to which such Grantor may have any right or power; and
(k) to the extent not otherwise included, all Proceeds and products
of each of the foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of, each of the foregoing, any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to the
Grantor from time to time with respect to any of the Collateral;
PROVIDED, HOWEVER, that the foregoing grant of a security interest shall not
include a security interest in a contract right, any license agreement, any
lease pertaining to real or personal property or any other General Intangible of
any Grantor or any equity interests of each of the Borrower and PTB
International, Inc. in any Existing Foreign Joint Venture Agreements or any
obligations or property of or contracts with any joint venture resulting
therefrom (each such contract right, license agreement, lease pertaining to real
or personal property, foreign joint venture interests and other General
Intangible of such Grantor discussed in this PROVISO being hereinafter referred
to as "EXCLUDED PROPERTY") if the granting of a security interest therein by
such Grantor to the Administrative Agent is prohibited by any Requirement of Law
or by the terms and provisions of the written agreement, document or instrument
creating or evidencing such Excluded Property or rights related thereto; and
PROVIDED FURTHER that if and when the prohibition which prevents the granting by
such Grantor to the Administrative Agent of a security interest in such Excluded
Property is removed or otherwise terminated, the Administrative Agent will be
deemed to have, and at all times from and after the date hereof to have had, a
security interest in such Excluded Property, as the case may be, and that,
notwithstanding anything set forth herein to the contrary, the Administrative
Agent will be deemed to have, and at all times from and after the date hereof to
have had, a security interest in the proceeds of such Excluded Property.
SECTION 2.2 GRANT OF SECURITY INTEREST IN COLLATERAL. Each Grantor,
as collateral security for the full, prompt and complete payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations of such Grantor, hereby collaterally assigns, conveys,
mortgages, pledges, hypothecates and transfers to the Administrative Agent for
the benefit of the Secured Parties, and grants to the Administrative
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Agent for the benefit of the Secured Parties a lien on and security interest in,
all of its right, title and interest in, to and under the Collateral of such
Grantor.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
To induce the Lenders, the Issuers and the Administrative Agent to
enter into the Credit Agreement, each Grantor hereby represents and warrants to
the Administrative Agent, the Lenders, the Issuers and the other Secured Parties
that:
SECTION 3.1 TITLE; NO OTHER LIENS. Except for the Lien granted
to the Administrative Agent pursuant to this Agreement and the other Liens
permitted to exist on the Collateral under the Credit Agreement, (a) such
Grantor is the record and beneficial owner of the Pledged Collateral pledged by
it hereunder constituting Instruments or certificated securities and is the
entitlement holder of all such Pledged Collateral constituting Investment
Property held in a securities account and owns each other item of Collateral in
which a Lien is granted by it hereunder and (b) all such Collateral is owned
free and clear of any and all Liens.
SECTION 3.2 PERFECTION AND PRIORITY. The security interest granted
pursuant to this Agreement will constitute a valid and continuing perfected
security interest in favor of the Administrative Agent in the Collateral for
which perfection is governed by the UCC or filing with the United States
Copyright Office upon (i) the completion of the filings and other actions
specified on SCHEDULE 3 (which, in the case of all filings and other documents
referred to on such schedule, have been delivered to the Administrative Agent in
completed and duly executed form), (ii) the delivery to the Administrative Agent
of all Collateral consisting of Instruments and certificated securities, in each
case properly endorsed for transfer to the Administrative Agent or in blank, and
(iii) all appropriate filings having been made with the United States Copyright
Office. Such security interest will be prior to all other Liens on the
Collateral except for Customary Permitted Liens which have priority over the
Administrative Agent's Lien by operation of law or otherwise as permitted under
the Credit Agreement.
SECTION 3.3 STATE OF INCORPORATION; CHIEF EXECUTIVE OFFICE. On the
date hereof such Grantor's jurisdiction of organization and the location of such
Grantor's chief executive office or sole place of business is specified on
SCHEDULE 1.
SECTION 3.4 INVENTORY AND EQUIPMENT. On the date hereof, such
Grantor's Inventory and Equipment (other than mobile goods and Inventory or
Equipment in transit) are kept at the locations listed on SCHEDULE 4.
SECTION 3.5 PLEDGED COLLATERAL.
(a) The Pledged Stock, Pledged Partnership Interests and Pledged LLC
Interests pledged hereunder by such Grantor constitutes that percentage of the
issued and outstanding equity of all classes of each issuer thereof as set forth
on SCHEDULE 2.
(b) All of the Pledged Stock, Pledged Partnership Interests and
Pledged LLC Interests have been duly and validly issued and are fully paid and
nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and
binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
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laws relating to or affecting creditors' rights generally, and general equitable
principles (whether considered in a proceeding in equity or at law).
(d) All Pledged Stock, Pledged Partnership Interests and Pledged LLC
Interests of such Grantor as of the date hereof are listed on SCHEDULE 2.
(e) All Pledged Collateral consisting of certificated securities or
Instruments has been delivered to the Administrative Agent in accordance with
SECTION 4.4(A).
(f) All Pledged Collateral held by a securities intermediary in a
securities account is in a Control Account.
(g) Other than the Pledged Partnership Interests and the Pledged LLC
Interests that constitute General Intangibles, there is no Pledged Collateral
other than that represented by certificated securities or Instruments in the
possession of the Administrative Agent or that consisting of Financial Assets
held in a Control Account.
(h) No Person other than the Administrative Agent has Control over any
Investment Property of such Grantor.
(i) As to any Grantor that is an LLC or a Partnership, the LLC
Agreement or Partnership Agreement, as the case may be, provides that, upon the
occurrence and during the continuance of an Event of Default, the Administrative
Agent shall be entitled to exercise all of the rights of the member of such
Grantor and that a transferee or assignee of a membership interest or
partnership interest, as the case may be, of such Grantor shall become a member
or partner, as the case may be, of such Grantor entitled to participate in the
management of such Grantor and, upon the transfer of the entire interest of the
transferor, such transferor ceases to be a member or partner, as the case may
be.
SECTION 3.6 ACCOUNTS. No amount payable to such Grantor under or in
connection with any Account is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Administrative Agent, properly endorsed for
transfer, to the extent delivery is required by SECTION 4.3.
SECTION 3.7 NO OTHER NAMES. Except as set forth on SCHEDULE 1, such
Grantor has no trade names, fictitious names or other names except its legal
name, and does not operate in any jurisdiction under, and has not had or
operated in any jurisdiction within the five-year period preceding the date
hereof under, any trade name, fictitious name or other name other than its legal
name.
SECTION 3.8 INTELLECTUAL PROPERTY.
(a) SCHEDULE 5 lists all Material Intellectual Property of such
Grantor on the date hereof, separately identifying that owned by such Grantor
and that licensed to such Grantor. Each such Grantor has the full right, power
and authority to enter into this Agreement and to grant all the right, title and
interest herein granted. The Material Intellectual Property set forth on
SCHEDULE 5 for such Grantor constitutes all of the intellectual property rights
necessary to conduct its business as currently conducted on the date hereof.
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(b) On the date hereof, all Material Intellectual Property owned by
such Grantor is valid, subsisting, unexpired and enforceable, has not been
adjudged invalid or unenforceable in whole or in part, and has not been
abandoned and the use thereof in the business of such Grantor does not, to the
best knowledge of such Grantor, infringe the Intellectual Property rights, owned
or possessed by any other Person, except where such infringement would not have
a Material Adverse Effect on the Grantors.
(c) Except as set forth in SCHEDULE 5, on the date hereof, none of the
Material Intellectual Property owned by such Grantor is the subject of any
licensing or franchise agreement pursuant to which such Grantor is the licensor
or franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of or
enforceability of, or such Grantor's rights in, any Material Intellectual
Property.
(e) Except as set forth on Schedule 5, no action or proceeding seeking
to limit, cancel or question the validity or enforceability of any Material
Intellectual Property owned by such Grantor or such Grantor's ownership interest
therein is on the date hereof pending or, to the knowledge of such Grantor,
threatened. Except as set forth on Schedule 5, there are no claims, judgments or
settlements to be paid by such Grantor relating to the Material Intellectual
Property.
ARTICLE IV. COVENANTS
As long as any of the Obligations or the Commitments remain
outstanding, unless the Requisite Lenders otherwise consent in writing, each
Grantor agrees with the Administrative Agent that:
SECTION 4.1 GENERALLY. Such Grantor shall (a) except for the security
interest created by this Agreement, not create or suffer to exist any Lien upon
or with respect to any of the Collateral, except Liens permitted under Section
8.2 of the Credit Agreement or otherwise as permitted under the Credit
Agreement; (b) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement, any other Loan Document, any
Requirement of Law or any policy of insurance covering the Collateral; (c) not
sell, transfer or assign (by operation of law or otherwise) any Collateral
except as permitted under the Credit Agreement; (d) enter into any agreement or
undertaking restricting the right or ability of such Grantor or the
Administrative Agent to sell, assign or transfer any of the Collateral if such
restriction would have a Material Adverse Effect; and (e) promptly notify the
Administrative Agent of its entry into any agreement or assumption of
undertaking that restricts the ability to sell, assign or transfer any of the
Collateral regardless of whether or not it has a Material Adverse Effect.
SECTION 4.2 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER
DOCUMENTATION.
(a) Such Grantor will maintain the security interest created by this
Agreement as a perfected security interest having at least the priority
described in SECTION 3.2 and shall defend such security interest against the
claims and demands of all Persons.
(b) Such Grantor will furnish to the Administrative Agent from time
to time statements and schedules further identifying and describing the
Collateral and such other reports
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in connection with the Collateral as the Administrative Agent may reasonably
request, all in reasonable detail.
(c) At any time and from time to time, upon the written request
of the Administrative Agent, and at the sole expense of such Grantor, such
Grantor will promptly and duly execute and deliver, and have recorded, such
further instruments and documents and take such further action as the
Administrative Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including the filing of any financing or continuation statement
under the UCC (or other similar laws) in effect in any jurisdiction with respect
to the security interest created hereby and the execution and delivery of
Blocked Account Letters and Control Account Letters.
SECTION 4.3 CHANGES IN LOCATIONS, NAME, ETC.
(a) Except upon 15 days' prior written notice to the Administrative
Agent and delivery to the Administrative Agent of (i) all additional executed
financing statements and other documents reasonably requested by the
Administrative Agent to maintain the validity, perfection and priority of the
security interests provided for herein and (ii) if applicable, a written
supplement to SCHEDULE 4 showing any additional location at which Inventory or
Equipment shall be kept, such Grantor will not:
(i) permit any of the Inventory or Equipment to be kept at a location
other than those listed on SCHEDULE 4;
(ii) change its state of incorporation or the location of its chief
executive office or sole place of business from that referred to in
SECTION 3.3; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent
in connection with this Agreement would become misleading.
(b) Such Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including a record of
all payments received and all credits granted with respect to the Collateral
and all other dealings with the Collateral.
SECTION 4.4 PLEDGED COLLATERAL.
(a) Such Grantor will (i) deliver to the Administrative Agent, all
certificates or Instruments representing or evidencing any Pledged Collateral,
whether now arising or hereafter acquired, in suitable form for transfer by
delivery or, as applicable, accompanied by such Grantor's endorsement, where
necessary, or duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Administrative Agent, together with a
Pledge Amendment, duly executed by the Grantor, in substantially the form of
ANNEX 2 (a "PLEDGE AMENDMENT"), in respect of such additional Pledged Collateral
and authorizes the Administrative Agent to attach each Pledge Amendment to this
Pledge Agreement and (ii) maintain all other Pledged Collateral constituting
Investment Property in a Control Account. The Administrative Agent shall have
the right, at any time in its discretion and without notice to the Grantor, to
transfer to or to register in its name or in the name of its nominees any or all
of the Pledged Collateral. The Administrative Agent shall have the right at any
time to exchange
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certificates or instruments representing or evidencing any of the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
(b) Except as provided in ARTICLE V, such Grantor shall be entitled
to receive all cash dividends paid in respect of the Pledged Collateral (other
than liquidating or distributing dividends). Any sums paid upon or in respect of
any of the Pledged Collateral upon the liquidation or dissolution of any issuer
of any of the Pledged Collateral or any property distributed upon or with
respect to any of the Pledged Collateral pursuant to the recapitalization or
reclassification of the capital of any issuer of Pledged Collateral or pursuant
to the reorganization thereof shall, unless otherwise subject to a perfected
security interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Secured Obligations. If any sums of money or property so paid
or distributed in respect of any of the Pledged Collateral shall be received by
such Grantor, such Grantor shall, until such money or property is paid or
delivered to the Administrative Agent, hold such money or property in trust for
the Administrative Agent, segregated from other funds of such Grantor, as
additional security for the Secured Obligations.
(c) Except as provided in ARTICLE V, such Grantor will be entitled to
exercise all voting, consent and corporate rights with respect to the Pledged
Collateral; PROVIDED, HOWEVER, that no vote shall be cast, consent given or
right exercised or other action taken by such Grantor which would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement, this Agreement or any other Loan Document or,
without prior notice to the Administrative Agent, to enable or take any other
action to permit any issuer of Pledged Collateral to issue any stock or other
equity securities of any nature or to issue any other securities convertible
into or granting the right to purchase or exchange for any stock or other equity
securities of any nature of any issuer of Pledged Collateral.
(d) Such Grantor shall not grant Control over any Investment Property
to any Person other than the Administrative Agent.
(e) In the case of each Grantor which is an issuer of Pledged
Collateral, such Grantor agrees to be bound by the terms of this Agreement
relating to the Pledged Collateral issued by it and will comply with such terms
insofar as such terms are applicable to it. In the case of each Grantor which is
a partner in a Partnership, such Grantor hereby consents to the extent required
by the applicable Partnership Agreement to the pledge by each other Grantor,
pursuant to the terms hereof, of the Pledged Partnership Interests in such
Partnership and to the transfer of such Pledged Partnership Interests to the
Administrative Agent or its nominee and to the substitution of the
Administrative Agent or its nominee as a substituted partner in such Partnership
with all the rights, powers and duties of a general partner or a limited
partner, as the case may be. In the case of each Grantor which is a member of an
LLC, such Grantor hereby consents to the extent required by the applicable LLC
Agreement to the pledge by each other Grantor, pursuant to the terms hereof, of
the Pledged LLC Interests in such LLC and to the transfer of such Pledged LLC
Interests to the Administrative Agent or its nominee and to the substitution of
the Administrative Agent or its nominee as a substituted member of the LLC with
all the rights, powers and duties of a member of the LLC in question.
(f) Such Grantor will not agree to any amendment of an LLC Agreement
or Partnership Agreement that in any way adversely affects the perfection of the
security interest of the Administrative Agent in the Pledged Partnership
Interests or Pledged LLC Interests pledged
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by such Grantor hereunder, including electing to treat the membership interest
or partnership interest of such Grantor as a security under Section 8-103 of the
UCC.
SECTION 4.5 CONTROL ACCOUNTS; BLOCKED ACCOUNTS.
(a) Such Grantor will (i) except
for Investments permitted by the Credit Agreement to be maintained in a Control
Account, deposit all cash and all Proceeds received by such Grantor in a Blocked
Account, (ii) not make or maintain any securities account or commodity account
with any financial or other institution other than an Approved Securities
Intermediary that maintains the same in a Control Account and (iii) not make or
maintain any account in which Proceeds are deposited with any financial or other
institution other than a Blocked Account Bank, a Lender or an Affiliate of a
Lender.
(b) Subject to the terms of the Credit Agreement, such Grantor shall
instruct each Account Debtor or other Person obligated to make a payment to such
Grantor to make payment, or to continue to make payment, as the case may be, to
a Blocked Account and will deposit in a Blocked Account all Proceeds received by
such Grantor from any other Person immediately upon receipt.
(c) In the event such Grantor, to the extent permitted under the
Credit Agreement, or any Approved Securities Intermediary or Blocked Account
Bank shall, after the date hereof, terminate an agreement with respect to the
maintenance of a Control Account or Blocked Account for any reason, or if the
Administrative Agent shall demand such termination as a result of the failure of
an Approved Securities Intermediary or Blocked Account Bank to comply with the
terms of the applicable Control Account Letter or Blocked Account Letter or
there shall be continuing an Event of Default or if the Administrative Agent
determines in its sole discretion that the financial condition of an Approved
Securities Intermediary or Blocked Account Bank, as the case may be, has
materially deteriorated, such Grantor agrees to notify all of its obligors that
were making payments to such terminated Control Account or Blocked Account, as
the case may be, to make all future payments to another Control Account or
Blocked Account, as the case may be.
SECTION 4.6 ACCOUNTS.
(a) Such Grantor will not, other than in the ordinary course of
business, (i) grant any extension of the time of payment of any Account, (ii)
compromise or settle any Account for less than the full amount thereof, (iii)
release, wholly or partially, any Person liable for the payment of any Account,
(iv) allow any credit or discount on any Account, or (v) amend, supplement or
modify any Account in any manner that could adversely affect the value thereof.
(b) The Administrative Agent shall have the right to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and such Grantor shall furnish all such
assistance and information as the Administrative Agent may reasonably require in
connection therewith. At any time and from time to time, upon the Administrative
Agent's request and at the expense of the relevant Grantor, such Grantor shall
cause independent public accountants or others satisfactory to the
Administrative Agent to furnish to the Administrative Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts; PROVIDED, HOWEVER, that unless a Default or Event of Default shall be
continuing, the Administrative Agent shall request no more than two such reports
during any calendar year.
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SECTION 4.7 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount
in excess of $250,000 payable under or in connection with any of the Collateral
owned by such Grantor shall be or become evidenced by an Instrument or Chattel
Paper, such Grantor shall immediately deliver such Instrument or Chattel Paper
to the Administrative Agent, duly indorsed in a manner satisfactory to the
Administrative Agent, or, if consented to by the Administrative Agent, shall
mark all such Instruments and Chattel Paper with the following legend: "This
writing and the obligations evidenced or secured hereby are subject to the
security interest of Citicorp USA, Inc., as Administrative Agent".
SECTION 4.8 INTELLECTUAL PROPERTY.
(a) Such Grantor (either itself or through licensees) will (i)
continue to use each Trademark that is Material Intellectual Property of such
Grantor in order to maintain such Trademark in full force and effect with
respect to each class of goods for which such Trademark is currently used, free
from any claim of abandonment for non-use, except where such abandonment or
expiration would not have a Material Adverse Effect on the business of such
Grantor, such Grantor may allow a Trademark to expire in the ordinary course of
its business upon prior notice to the Administrative Agent, (ii) maintain as in
the past the quality of products and services offered under such Trademark,
(iii) use such Trademark with the appropriate notice of registration and all
other notices and legends required by applicable Requirements of Law, (iv) not
adopt or use any mark which is confusingly similar or a colorable imitation of
such Trademark unless the Administrative Agent shall obtain a perfected security
interest in such mark pursuant to this Agreement and (v) not (and not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby such Trademark may become invalidated or impaired in any way.
(b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any Patent which is Material Intellectual
Property of such Grantor may become forfeited, abandoned or dedicated to the
public where such forfeiture, abandonment or dedication would have a Material
Adverse Effect on the business of such Grantor.
(c) Such Grantor (either itself or through licensees) (i) will not
(and will not permit any licensee or sublicensee thereof to) do any act or omit
to do any act whereby any portion of the Copyrights which is Material
Intellectual Property of such Grantor may become invalidated or otherwise
impaired and (ii) will not (either itself or through licensees) do any act
whereby any portion of the Copyrights which is Material Intellectual Property of
such Grantor may fall into the public domain, if in either case such event would
have a Material Adverse Effect on the business of such Grantor.
(d) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any trade secret which is Material
Intellectual Property of such Grantor may become publicly available or otherwise
unprotectable where such forfeiture, abandonment or dedication would have a
Material Adverse Effect on the business of such Grantor unless compelled by
order of a Governmental Authority.
(e) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any Material Intellectual Property to infringe the
intellectual property rights of any other Person where such infringement would
have a Material Adverse Effect on the business of such Grantor.
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(f) Such Grantor will notify the Administrative Agent as soon as
reasonably possible if it knows, or has reason to know, that any application or
registration relating to any Material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court or tribunal in any country)
regarding such Grantor's ownership of, right to use, interest in, or the
validity of, any Material Intellectual Property or such Grantor's right to
register the same or to own and maintain the same.
(g) Whenever such Grantor, either by itself or through any agent,
licensee or designee, shall file an application for the registration of any
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency within or outside
the United States, such Grantor shall report such filing to the Administrative
Agent within five Business Days after the last day of the fiscal quarter in
which such filing occurs. Upon the reasonable request of the Administrative
Agent, such Grantor shall execute and deliver, and have recorded, any and all
agreements, instruments, documents, and papers as the Administrative Agent may
request to evidence the Administrative Agent's security interest in any
Copyright, Patent or Trademark and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby.
(h) Such Grantor will take all reasonable actions necessary or
requested by the Administrative Agent, including in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain each registration of any
Copyright, Trademark or Patent that is Material Intellectual Property of such
Grantor, including filing of applications for renewal, affidavits of use,
affidavits of incontestability and opposition, reissue, reexamination,
interference and cancellation proceedings.
(i) In the event that any Material Intellectual Property of such
Grantor is infringed upon or misappropriated or diluted by a third party, such
Grantor shall notify the Administrative Agent promptly after such Grantor learns
thereof. Such Grantor shall take such action as it deems appropriate in its
reasonable business judgement under the circumstances in response to such
infringement, misappropriation or dilution to protect such Material Intellectual
Property of such Grantor if the loss thereof would have a Material Adverse
Effect on the business of the Grantor.
(j) Unless otherwise agreed to by the Administrative Agent, such
Grantor will execute and deliver to the Administrative Agent for filing in (i)
the United States Copyright Office a short-form copyright security agreement in
the form attached hereto as Annex 5, (ii) in the United States Patent and
Trademark Office a short-form patent security agreement in the form attached
hereto as Annex 6 and (iii) the United States Patent and Trademark Office a
short-form trademark security agreement in form attached hereto as Annex 7.
SECTION 4.9 PAYMENT OF OBLIGATIONS. Such Grantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including claims for labor,
materials and supplies) against or with respect to the Collateral, except that
no such charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been
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provided on the books of such Grantor and such proceedings could not reasonably
be expected to result in the sale, forfeiture or loss of any material portion of
the Collateral or any interest therein.
ARTICLE V. REMEDIAL PROVISIONS
SECTION 5.1 CODE AND OTHER REMEDIES. During the continuance of an
Event of Default, the Administrative Agent may exercise, in addition to all
other rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC or any
other applicable law. Without limiting the generality of the foregoing, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of the Administrative Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Grantor,
which right or equity is hereby waived and released. Each Grantor further
agrees, at the Administrative Agent's request, to assemble the Collateral and
make it available to the Administrative Agent at places which the Administrative
Agent shall reasonably select, whether at such Grantor's premises or elsewhere.
The Administrative Agent shall apply the net proceeds of any action taken by it
pursuant to this SECTION 5.1, after deducting all reasonable costs and expenses
actually incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Administrative Agent and any other Secured Party hereunder,
including reasonable attorneys' fees and disbursements, to the payment in whole
or in part of the Secured Obligations, in such order as the Credit Agreement
shall proscribe, and only after such application and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including Section 9-504(1)(c) of the UCC, need the Administrative Agent account
for the surplus, if any, to any Grantor. To the extent permitted by applicable
law, each Grantor waives all claims, damages and demands it may acquire against
the Administrative Agent or any other Secured Party arising out of the exercise
by them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.
SECTION 5.2 ACCOUNTS AND PAYMENT INTANGIBLES.
(a) If required by the Administrative Agent at any time during the
continuance of an Event of Default, any payments of Accounts or payments in
respect of General Intangibles ("PAYMENT INTANGIBLES"), when collected by any
Grantor, shall be forthwith (and, in any event, within two Business Days)
deposited by such Grantor in the exact form received, duly indorsed by such
Grantor to the Administrative Agent if required, in a Cash Collateral Account
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent only as provided in SECTION
5.4. Until so turned over, such payments shall
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be held by such Grantor in trust for the Administrative Agent, segregated from
other funds of such Grantor.
(b) At the Administrative Agent's request, during the continuance of
an Event of Default, each Grantor shall deliver to the Administrative Agent
copies of the material documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts or Payment Intangibles, including
copies of all original orders, invoices and shipping receipts.
(c) The Administrative Agent may, without notice, at any time during
the continuance of an Event of Default, limit or terminate the authority of a
Grantor to collect its Accounts or Payment Intangibles or any thereof.
(d) The Administrative Agent in its own name or in the name of others
may at any time during the continuance of an Event of Default communicate with
Account Debtors to verify with them to the Administrative Agent's satisfaction
the existence, amount and terms of any Accounts or amounts due under any General
Intangibles.
(e) Upon the request of the Administrative Agent at any time during
the continuance of an Event of Default, each Grantor shall notify Account
Debtors that the Accounts or Payment Intangibles have been collaterally assigned
to the Administrative Agent and that payments in respect thereof shall be made
directly to the Administrative Agent. In addition, the Administrative Agent may
at any time during the continuance of an Event of Default so notify Account
Debtors.
(f) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Accounts and Payment Intangibles to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. Neither the Administrative Agent nor any other Secured
Party shall have any obligation or liability under any agreement giving rise to
an Account or a Payment Intangible by reason of or arising out of this Agreement
or the receipt by Administrative Agent nor any other Secured Party of any
payment relating thereto, nor shall Administrative Agent nor any other Secured
Party be obligated in any manner to perform any of the obligations of any
Grantor under or pursuant to any agreement giving rise to an Account or a
Payment Intangible, to make any payment, to make any inquiry as to the nature or
the sufficiency of any payment received by it or as to the sufficiency of any
performance by any party thereunder, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
SECTION 5.3 PLEDGED COLLATERAL.
(a) During the continuance of an Event of Default, if the
Administrative Agent shall give written notice of its intent to exercise such
rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall
have the right to receive any and all cash dividends, payments or other Proceeds
paid in respect of the Pledged Collateral and make application thereof to the
Obligations in the order and manner set forth in the Credit Agreement, and (ii)
the Administrative Agent or its nominee may exercise (A) all voting, consent,
corporate and other rights pertaining to the Pledged Collateral at any meeting
of shareholders, partners or members, as the case may be, of the relevant issuer
or issuers of Pledged Collateral or otherwise and (B) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
options pertaining to
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the Pledged Collateral as if it were the absolute owner thereof (including the
right to exchange at its discretion any and all of the Pledged Collateral upon
the merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of any issuer of Pledged Securities, the right
to deposit and deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.
(b) In order to permit the Administrative Agent to exercise the voting
and other consensual rights which it may be entitled to exercise pursuant hereto
and to receive all dividends and other distributions which it may be entitled to
receive hereunder, (i) each Grantor shall promptly execute and deliver (or cause
to be executed and delivered) to the Administrative Agent all such proxies,
dividend payment orders and other instruments as the Administrative Agent may
from time to time reasonably request and (ii) without limiting the effect of
CLAUSE (I) above, such Grantor hereby grants to the Administrative Agent an
irrevocable proxy to vote all or any part of the Pledged Collateral and to
exercise all other rights, powers, privileges and remedies to which a holder of
the Pledged Collateral would be entitled (including giving or withholding
written consents of shareholders, partners or members, as the case may be,
calling special meetings of shareholders, partners or members, as the case may
be, and voting at such meetings), which proxy shall be effective, automatically
and without the necessity of any action (including any transfer of any Pledged
Collateral on the record books of the issuer thereof) by any other person
(including the issuer of such Pledged Collateral or any officer or agent
thereof) during the continuance of an Event of Default and which proxy shall
only terminate upon the payment in full of the Secured Obligations.
(c) Each Grantor hereby expressly authorizes and instructs each issuer
of any Pledged Collateral pledged hereunder by such Grantor to (i) comply with
any instruction received by it from the Administrative Agent in writing that (A)
states that an Event of Default has occurred and is continuing and (B) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that such issuer
shall be fully protected in so complying and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Collateral directly to the Administrative Agent.
SECTION 5.4 PROCEEDS TO BE TURNED OVER TO ADMINISTRATIVE AGENT. All
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Cash Collateral Account maintained under its sole
dominion and control. All Proceeds while held by the Administrative Agent in a
Cash Collateral Account (or by such Grantor in trust for the Administrative
Agent) shall continue to be held as collateral security for the Secured
Obligations and shall not constitute payment thereof until applied as provided
in the Credit Agreement.
SECTION 5.5 REGISTRATION RIGHTS.
(a) Each Grantor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise or may determine that a public sale is
impracticable or not commercially reasonable and, accordingly, may resort to one
or
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more private sales thereof to a restricted group of purchasers which will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. Each Grantor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Collateral for the period of time necessary to permit the issuer thereof
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such issuer would agree to do so.
(b) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Collateral pursuant to this SECTION 5.5 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this SECTION 5.5 will cause irreparable injury to the Administrative Agent and
other Secured Parties, that the Administrative Agent and the other Secured
Parties have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this SECTION 5.5 shall be
specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Credit Agreement.
SECTION 5.6 WAIVER; DEFICIENCY. Each Grantor waives and agrees not to
assert any rights or privileges which it may acquire under Section 9-112 of the
UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to pay its Secured
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any other Secured Party to collect such deficiency.
ARTICLE VI. THE ADMINISTRATIVE AGENT
SECTION 6.1 ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Each Grantor hereby irrevocably constitutes and appoints the
Administrative Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:
(i) in the name of such Grantor or its own name, or otherwise,
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under
any Account or General Intangible or with respect to any other
Collateral and file any claim or take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any and all such
moneys due under
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any Account or General Intangible or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's security interest in such Intellectual Property
and the goodwill and General Intangibles of such Grantor relating
thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral other than Customary Permitted Liens,
effect any repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and the
costs thereof;
(iv) execute, in connection with any sale provided for in SECTION
5.1 or 5.5, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(v) (A) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the
Administrative Agent shall direct; (B) ask or demand for, collect, and
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising
out of any Collateral; (C) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices and other
documents in connection with any of the Collateral; (D) commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any
portion thereof and to enforce any other right in respect of any
Collateral; (E) defend any suit, action or proceeding brought against
such Grantor with respect to any Collateral; (F) settle, compromise or
adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Administrative Agent
may deem appropriate; (G) assign any Copyright, Patent or Trademark
(along with the goodwill of the business to which any such Trademark
pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Administrative Agent shall in
its sole discretion determine, including without limitation the
execution and filing of any documents necessary to effectuate and/or
record such assignment; and (H) generally, sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Administrative Agent
were the absolute owner thereof for all purposes, and do, at the
Administrative Agent's option and such Grantor's expense, at any time,
or from time to time, all acts and things which the Administrative
Agent deems necessary to protect, preserve or realize upon the
Collateral and the Administrative Agent's and the other Secured
Parties' security interests therein and to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do.
Anything in this SECTION 6.1(A) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this SECTION 6.1(A) unless an Event of Default shall
be continuing.
19
<PAGE>
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent actually incurred in
connection with actions undertaken as provided in this SECTION 6.1, together
with interest thereon at a rate per annum equal to the rate per annum at which
interest would then be payable on past due Revolving Loans that are Base Rate
Loans under the Credit Agreement, from the date of payment by the Administrative
Agent to the date reimbursed by the relevant Grantor, shall be payable by such
Grantor to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations and
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
SECTION 6.2 DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession shall be to deal with it in the same manner as
the Administrative Agent deals with similar property for its own account.
Neither the Administrative Agent, any other Secured Party nor any of their
respective officers, directors, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Grantor or any other Person or to take any
other action whatsoever with regard to the Collateral or any part thereof. The
powers conferred on the Administrative Agent hereunder are solely to protect the
Administrative Agent's interest in the Collateral and shall not impose any duty
upon the Administrative Agent or any other Secured Party to exercise any such
powers. The Administrative Agent and the other Secured Parties shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 6.3 EXECUTION OF FINANCING STATEMENTS. Each Grantor
authorizes the Administrative Agent to file or record financing statements and
other filing or recording documents or instruments with respect to the
Collateral without the signature of such Grantor in such form and in such
offices as the Administrative Agent reasonably determines appropriate to perfect
the security interests of the Administrative Agent under this Agreement. A
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement or other filing or recording document or instrument for
filing or recording in any jurisdiction.
SECTION 6.4 AUTHORITY OF ADMINISTRATIVE AGENT. Each Grantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the other Secured Parties, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Administrative Agent and the Grantors, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Administrative Agent and the other Secured
20
<PAGE>
Parties with full and valid authority so to act or refrain from acting, and no
Grantor shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
ARTICLE VII. MISCELLANEOUS
SECTION 7.1 AMENDMENTS IN WRITING. None of the terms or provisions
of this Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with Section 11.1 of the Credit Agreement.
SECTION 7.2 NOTICES. All notices, requests and demands to or upon
the Administrative Agent or any Grantor hereunder shall be effected in the
manner provided for in Section 11.8 of the Credit Agreement; PROVIDED, however,
that any such notice, request or demand to or upon any Grantor shall be
addressed in case of the Borrower at the Borrower's notice address set forth in
such Section 11.8 and to the Grantors at the address of their chief executive
office as noted on Schedule 1 hereto.
SECTION 7.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES.
Neither the Administrative Agent nor any other Secured Party shall by any act
(except by a written instrument pursuant to SECTION 7.1), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default. No failure to exercise,
nor any delay in exercising, on the part of the Administrative Agent or any
other Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Administrative Agent or
any other Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Administrative
Agent or such other Secured Party would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any other rights or remedies provided
by law.
SECTION 7.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Administrative Agent and each other Secured Party and their successors
and assigns; PROVIDED, HOWEVER, that no Grantor may assign, transfer or delegate
any of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent.
SECTION 7.5 COUNTERPARTS. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same agreement.
SECTION 7.6 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 7.7 SECTION HEADINGS. The Article and Section titles
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not part of the agreement of the parties
hereto.
21
<PAGE>
SECTION 7.8 ENTIRE AGREEMENT. This Agreement together with the
other Loan Documents represents the entire agreement of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
SECTION 7.9 GOVERNING LAW. This agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the state of New York.
SECTION 7.10 ADDITIONAL GRANTORS. If, pursuant to Section 7.11(b) of
the Credit Agreement, the Borrower shall be required to cause any Subsidiary
that is not a Grantor to become a Grantor hereunder, such Subsidiary shall
execute and deliver to the Administrative Agent a Joinder Agreement in the form
of ANNEX 4 and shall thereafter for all purposes be a party hereto and have the
same rights, benefits and obligations as a Grantor party hereto on the Closing
Date.
SECTION 7.11 RELEASE OF COLLATERAL.
(a) At the time provided in Section 10.7(b)(i) of the Credit
Agreement, the Collateral shall be released from the Lien created hereby and
this Agreement and all obligations (other than those expressly stated to survive
such termination) of the Administrative Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors. At the
sole expense of any Grantor following any such termination, the Administrative
Agent shall deliver to such Grantor any Collateral of such Grantor held by the
Administrative Agent hereunder and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold or disposed of by any
Grantor in a transaction permitted by the Credit Agreement, the Collateral so
sold or disposed of shall be released from the Lien created hereby to the extent
provided in Section 10.7(b)(i) or (ii) of the Credit Agreement and, in
connection therewith, the Administrative Agent, at the sole expense of the
Borrower, shall execute and deliver to the Borrower all releases or other
documents reasonably necessary or desirable for the release of the Lien created
hereby on such Collateral. At the sole expense of the Borrower, a Grantor shall
be released from its obligations hereunder in the event that all the capital
stock of such Grantor shall be so sold or disposed; PROVIDED, HOWEVER, that the
Borrower shall have delivered to the Administrative Agent, at least ten Business
Days prior to the date of the proposed release, a written request for release
identifying the relevant Grantor and the terms of the sale or other disposition
in reasonable detail, including the price thereof and any expenses in connection
therewith, together with a certification by the Borrower stating that such
transaction is in compliance with the Credit Agreement and the other Loan
Documents.
SECTION 7.12 REINSTATEMENT. Each Grantor further agrees that, if any
payment made by any Loan Party or other Person and applied to the Obligations is
at any time annulled, avoided, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or
the proceeds of Collateral are required to be returned by any Secured Party to
such Loan Party, its estate, trustee, receiver or any other party, including any
Grantor, under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, any Lien or other
Collateral securing such liability shall be and remain in full force and effect,
as fully as if such payment had never
22
<PAGE>
been made or, if prior thereto the Lien granted hereby or other Collateral
securing such liability hereunder shall have been released or terminated by
virtue of such cancellation or surrender, such Lien or other Collateral shall be
reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect any Lien or
other Collateral securing the obligations of any Grantor in respect of the
amount of such payment.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Pledge and Security Agreement to be duly executed and delivered as of the date
first above written.
PARAGON TRADE BRANDS, INC., as Borrower
By: /S/ ALAN J. CYRON
-----------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
PTB INTERNATIONAL, INC., as Grantor
By: /S/ ALAN J. CYRON
-----------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
PTB ACQUISITION SUB, INC., as Grantor
By: /S/ ALAN J. CYRON
-----------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
PTB HOLDINGS, INC., as Grantor
By: /S/ ALAN J. CYRON
-----------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
ACCEPTED AND AGREED:
CITICORP USA, INC., as Administrative Agent
By: /S/ SHAPLEIGH SMITH
-----------------------
Name: Shapleigh SMith
Title: Managing Director - Global Structured Products
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into Paragon Trade Brands, Inc.'s previously
filed Registration Statements on Form S-8, File Nos. 33-73726, 33-61802,
33-95344 and 33-34626.
Arthur Andersen LLP
/S/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR
THE YEAR ENDED DECEMBER 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> DEC-28-1998
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> DEC-26-1999
<CASH> 11,685
<SECURITIES> 0
<RECEIVABLES> 99,775
<ALLOWANCES> 13,799
<INVENTORY> 48,744
<CURRENT-ASSETS> 155,707
<PP&E> 291,409
<DEPRECIATION> (177,772)
<TOTAL-ASSETS> 400,520
<CURRENT-LIABILITIES> 76,499
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> (89,941)
<TOTAL-LIABILITY-AND-EQUITY> 400,520
<SALES> 498,656
<TOTAL-REVENUES> 498,656
<CGS> 435,611
<TOTAL-COSTS> 435,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 482
<INCOME-PRETAX> (29,726)
<INCOME-TAX> (1,350)
<INCOME-CONTINUING> (28,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,376)
<EPS-BASIC> (2.37)
<EPS-DILUTED> (2.37)
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