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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 33-68412
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AVONDALE INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA 58-0477150
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
506 SOUTH BROAD STREET 30655
MONROE, GEORGIA (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 267-2226
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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
---
The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant as of November 9, 1998 (based upon the book
value per share of Class A Common Stock as of October 2, 1998) was $15,748,489.
As of November 9, 1998, the registrant had 11,698,184 and 978,939 shares of
Class A Common Stock and Class B Common Stock outstanding, respectively.
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INDEX TO FORM 10-K
AVONDALE INCORPORATED
<TABLE>
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PAGE
REFERENCE
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PART I
<S> <C> <C>
Item 1. Business............................................................... 2
Item 2. Properties............................................................. 10
Item 3. Legal Proceedings...................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................... 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 12
Item 6. Selected Financial Data................................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk............. 22
Item 8. Financial Statements and Supplementary Data............................ 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................ 39
Part III
Item 10. Directors and Executive Officers of the Registrant..................... 40
Item 11. Executive Compensation................................................. 43
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 48
Item 13. Certain Relationships and Related Transactions......................... 51
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 52
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PART I
Unless the context otherwise requires, references herein to the Company
refer to Avondale Incorporated and its subsidiaries and any reference to a
"fiscal" year of the Company refers to the Company's fiscal year ending on the
last Friday in August in such year.
ITEM 1. BUSINESS
GENERAL
The Company's predecessor was founded in 1895 by the family of G. Stephen
Felker, the Company's Chairman, President and Chief Executive Officer. Prior to
1986, the Company's predecessor primarily manufactured and marketed greige
fabrics. In July 1986, the Company's predecessor, together with Mr. Felker and
certain other investors, acquired Avondale Mills, Inc., now a wholly owned
subsidiary of the Company ("Avondale Mills"). The acquisition of Avondale Mills
expanded the Company's product line to include yarns and finished fabrics and
significantly increased the Company's revenue base.
In April 1996, pursuant to an asset purchase agreement with Triarc
Companies, Inc. and Graniteville Company, the Company acquired the assets of the
textile business of Graniteville Company and its subsidiaries ("Graniteville").
The acquisition of Graniteville, founded in 1845, enhanced the Company's
manufacturing and marketing of cotton and cotton-blend finished fabrics. The
Company acquired Graniteville for aggregate consideration of $242.8 million in
cash plus the assumption of certain liabilities other than long-term debt (the
"Graniteville Acquisition").
DESCRIPTION OF THE BUSINESS
Products
Apparel fabrics. The Company's apparel fabrics consist of cotton and
cotton-blend fabrics used in the manufacture of jeans, sportswear, utility wear
and other apparel.
The Company is a leading manufacturer of indigo-dyed denim fabrics used in
the production of branded and private label men's, women's and children's
fashion apparel as well as casual jeans, sportswear and outerwear. The Company
develops and manufactures new and innovative colors, textures, weaves and
finishes for its customers, which has helped make the Company's denim fabrics a
leader in the branded and private label, fashion-oriented segment of the apparel
market. Denim sales accounted for 37%, 36% and 34%, respectively, of the
Company's net sales in fiscal 1996, 1997 and 1998.
The Company is one of the largest domestic manufacturers and marketers of
fabrics used in the manufacture of utility wear (principally uniforms and other
occupational apparel) for the U.S. rental and retail markets. The Company's
utility wear fabric customers require durable fabrics characterized by long wear
and easy care. The Company works closely with customers to develop fabrics with
these and other enhanced performance characteristics. Utility wear fabric sales
accounted for 11%, 21% and 21%, respectively, of the Company's net sales in
fiscal 1996, 1997 and 1998, reflecting the Company's entry into this market as a
result of the Graniteville Acquisition in April 1996.
The Company is a leading manufacturer and marketer of woven cotton
piece-dyed fabrics used in the manufacture of men's, women's and children's
sportswear, casual wear and outerwear. Fabrics are produced for customers in a
wide variety of styles, colors, textures and weights according to individual
customer specifications. The Company's product design staff develops fabric
designs that are presented to customers and, once approved, are produced into
fabrics to meet customers' specifications.
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Sportswear fabric sales accounted for 7%, 12% and 12%, respectively, of the
Company's net sales in fiscal 1996, 1997 and 1998, reflecting the impact of the
Graniteville Acquisition in April 1996.
Greige Fabrics. The Company produces undyed, unfinished cotton and
cotton-blend fabrics that are marketed to apparel, home furnishing and
industrial products manufacturers. The Company capitalizes on its manufacturing
flexibility by altering its overall product mix to meet changing customer needs
while maintaining high production efficiencies. The Company's product design
staff works with greige fabric customers to create new fabric styles and
constructions.
Specialty Fabrics. The Company produces a variety of fabrics that are
marketed to recreational, industrial and military products manufacturers. The
Company's specialty products include coated fabrics for awnings, tents, boat
covers and life vests. The Company also finishes customers' fabrics on a
commission basis, which enables customers to meet short delivery schedules while
minimizing inventories.
Yarns. The Company is one of the largest domestic producers and marketers
of cotton and cotton-blend yarns, which are used internally in the production of
woven fabrics or marketed to outside customers in the knitting and weaving
industries. The Company's yarns are used in the manufacture of a broad range of
items, including apparel (primarily T-shirts, underwear, hosiery, knitted
outerwear, denim, and woven and fleece sportswear) and home furnishings. Yarn
sales accounted for approximately 37%, 25% and 26%, respectively, of the
Company's net sales in fiscal 1996, 1997 and 1998.
Sales and Marketing
The Company sold apparel fabrics (including denim, utility wear fabrics and
sportswear fabrics), greige and specialty fabrics, and yarns to approximately
1,500, 200 and 500 customers, respectively, in fiscal 1998. The Company believes
it is the leading supplier of denim to V.F. Corporation (the maker of Lee(R),
Rider(R), Wrangler(R), Rustler(R) and HealthTex(R) brand jeans), with total
sales of denim, other fabrics and yarns to V.F. Corporation accounting for 16%
of the Company's net sales in fiscal 1998. The Company believes that it has a
strong working relationship with V.F. Corporation. Other than V.F. Corporation,
none of the Company's customers accounted for 10% or more of the Company's net
sales in fiscal 1998.
The Company targets customers who demand a high level of customer service.
The Company's five yarn sales offices are located geographically to be close to
customers' manufacturing facilities, and its eight fabrics sales offices are
generally located near the headquarters of key customers. Sales associates visit
their customers on a regular basis and are primarily responsible for
interpreting customers' needs, processing customer orders and interacting with
the Company's production scheduling personnel. The Company's sales associates
are paid a base salary plus sales incentives to the extent certain performance
targets are met. The Company's independent sales representatives are paid on a
commission basis.
Manufacturing
The Company is a vertically integrated manufacturer of yarns and fabrics.
Through modernizing its manufacturing facilities, the Company has sought to
reduce lead times, lower costs, minimize inventory levels and maximize
flexibility to respond to changes in customer demand.
Manufacturing Process. The Company's manufacturing processes involve
producing yarn, dyeing yarn, weaving yarn into fabrics and dyeing and finishing
fabrics. The Company's manufacturing plants employ computer control systems to
monitor the manufacturing process and computer product testing equipment to
measure the quality of the Company's yarns and fabrics.
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The Company's yarn manufacturing operations involve spinning raw cotton and
synthetic fibers into cotton and cotton-blend yarns. The Company uses advanced
carding, drawing, combing and open-end spinning equipment. The Company maintains
ring spinning capability and offers a full line of yarns to respond to varied
customer demand. Yarn produced by the Company is either sold to outside
customers or used internally in the production of woven fabrics.
Yarn to be used in the manufacture of apparel fabrics may be dyed using
either "range" or "vat" dyeing techniques. The Company weaves dyed or undyed
yarn into fabric. Woven fabrics may be piece-dyed and finished according to
customer specifications. The Company uses modern, high-speed looms in its
weaving plants which enable the Company to manufacture fabrics that have a
variety of widths and weaves. The Company's dyeing and finishing facilities use
a wide range of technologies, including sophisticated computer monitoring and
control systems. These systems allow the Company to continuously monitor and
control each phase of the dyeing and finishing process, which helps to improve
productivity, efficiency, consistency and quality.
Manufacturing Facilities. The Company currently operates 26 manufacturing
facilities in the U.S. Of the Company's manufacturing facilities, fifteen
produce yarn, six manufacture fabrics, six are dyeing facilities and four are
engaged in fabric finishing.
Expansion and Modernization. The Company has expanded its operations
through acquisitions, an ongoing capital improvements program and management's
efforts to optimize the productive output of the Company's manufacturing
facilities. As part of its expansion and modernization efforts, the Company has
also redeployed capital by closing certain manufacturing facilities and, in some
cases, moving manufacturing equipment to other locations. The Company's
expansion and modernization efforts over the past seven fiscal years have
included, among others, the following principal initiatives:
- 1992 and 1993 -- Replaced earlier generation open-end spinning
equipment (which generally was less than 10 years old) with
technologically advanced open-end spinning equipment;
- 1992 and 1993 -- Replaced all remaining fly shuttle looms with
state-of-the art rapier looms, replaced some earlier generation
projectile looms with technologically advanced, high speed projectile
looms, and began construction of a new state-of-the-art indigo dyeing
range;
- 1994 -- Completed construction of the additional indigo-dyeing range,
continued replacement of earlier generation projectile looms with
technologically advanced projectile looms, and installed a caustic
recovery system;
- 1995 -- Replaced earlier generation drawing systems and open-end
spinning equipment with state-of-the art drawing and open-end
spinning equipment, and installed a fiber reclamation system;
- 1996 -- Replaced carding equipment in two plants with modern carding
and drawing systems and earlier generation winders in a third plant
with fully automated winders;
- 1996 -- Acquired Graniteville, which consisted of four integrated
yarn and fabric weaving plants, three indigo-dyeing facilities, one
piece-dyeing and finishing facility, one fabric coating and finishing
facility, and one garment dyeing facility;
- 1996 and 1997 -- Replaced earlier generation projectile looms with
new, high speed air jet looms and installed two new integrated
finishing ranges;
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- 1997 -- Purchased additional computer controlled cleaning and
blending equipment for one plant, replaced earlier generation
open-end spinning equipment with technologically advanced spinning
equipment at a second plant, and replaced opening and carding
equipment at a third plant;
- 1997 and 1998 -- Constructed a new denim weaving facility, completed
in April 1998, housing technologically advanced slashing equipment
and high speed air jet looms, upgraded fabric finishing equipment,
and executed a lease for a new distribution center which began
operating in December 1997;
- 1998 -- Began expansion of an existing weaving facility, to be
operational by the end of November 1998, which will include the
installation of technologically advanced slashing equipment and high
speed air jet looms for the production of additional greige fabrics
to be piece-dyed for sportswear and utility wear end uses; and
- 1998 -- Began construction of a new piece-dyeing range, to be
completed by November 1998, and installation of technologically
advanced fabric inspection equipment for piece-dyed fabrics, to be
operational by March 1999.
Raw Materials
The Company believes that it is one of the largest U.S. consumers of raw
cotton, the principal raw material used in the Company's manufacturing
processes. Consequently, the Company's results of operations may be impacted
significantly due to fluctuations in the price of cotton. Since cotton is an
agricultural product, its supply and quality, which affect prevailing prices,
are subject to forces of nature. Significant increases in cotton prices due to
any material shortage or interruption in the supply or variations in the quality
of cotton by reason of weather, disease or other factors could have a material
adverse effect on the Company's results of operations.
Because the importation of cotton into the U.S. has generally been
prohibited, historically imbalances between the domestic and world price of
cotton have occurred. In recent years, Congress has passed a series of
legislative initiatives to ensure that U.S. cotton was priced competitively with
world markets. The Food, Agriculture, Conservation and Trade Act of 1990 (the
"1990 Trade Act") and the regulations promulgated thereunder established a
three-step competitiveness program designed to make domestic cotton prices
approximate world cotton prices. This program includes a mechanism that triggers
tariff free quotas for the importation of cotton if U.S. prices exceed world
prices for an extended period of time. This legislation and the increased
availability of cotton worldwide has reduced the imbalance between world and
domestic cotton prices, but there can be no assurance that this will continue to
be the case.
In addition, the Federal Agricultural Improvement and Reform Act of 1996
established certain support programs that, among other things, continue through
the year 2002 the three-step competitiveness program established under the 1990
Trade Act. In fiscal 1997 and 1998, the Company received payments from the U.S.
Department of Agriculture under these support programs representing the
differential between domestic cotton prices and world cotton prices. Should such
price differentials continue, the Company would receive additional payments in
fiscal 1999. Based on published reports from the U.S. Department of Agriculture,
it is anticipated that financing for the program will be exhausted by early
calendar 1999. When funds are depleted, tariff-free quotas for the importation
of cotton will open.
The Company closely monitors the cotton market and manages its
cotton-buying practices. The Company's Chief Executive Officer is an officer of
the National Cotton Council, a trade organization that spearheads initiatives to
implement U.S. cotton industry policy, which helps the Company stay abreast of
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developments in the cotton market. The Company generally purchases cotton in
sufficient quantities to achieve planned manufacturing schedules. Such purchases
may be short of, or in excess of, the quantities needed to satisfy customers'
orders depending upon such factors as the Company's outlook for the cotton
market.
The Company generally enters into cotton purchase contracts several months
in advance of the scheduled date of delivery. Prices for such purchases are
fixed either on the date of the contract or thereafter on a date prior to
delivery and, as a result, the Company may be favorably or adversely affected if
cotton prices fluctuate during the contract period. Periodically, the Company
also purchases cotton futures and options contracts to hedge exposure to price
fluctuations in cotton acquired from various suppliers.
The principal man-made fiber purchased by the Company is polyester. The
Company currently purchases substantially all of the man-made fibers used in its
products from one supplier, but such fibers are readily available from other
suppliers. The Company maintains a limited supply of such fibers in inventory.
The Company has never experienced difficulty in obtaining sufficient quantities
of man-made fibers. The Company also purchases dyes and chemicals used in its
dyeing and finishing processes, and these dyes and chemicals normally have been
available in adequate supplies through a number of suppliers. In connection with
the Graniteville Acquisition, the Company entered into a 10-year supply
agreement (the "Supply Agreement") with C.H. Patrick & Co., Inc. ("Patrick").
The Supply Agreement generally stipulates that Patrick will have the opportunity
to provide certain dyes and chemicals utilized by the Company if Patrick meets
certain conditions, including competitive pricing and the ability to provide the
applicable dyes and chemicals in accordance with the Company's specifications
and delivery requirements. The Supply Agreement is terminable by the Company
prior to the end of the 10-year term in the event of a pattern of repeated,
material failures by Patrick to satisfy its obligations with respect to product
specifications, delivery schedules or other material terms.
Competition
The textile industry is highly competitive, and no single company is
dominant. Management believes that the Company is one of the largest domestic
manufacturers of indigo-dyed denims, piece-dyed fabrics for utility wear and
sportswear, and cotton and cotton-blend yarns. The Company's competitors include
large, vertically integrated textile companies and numerous smaller companies.
In recent years there has been a trend toward consolidation within certain
markets of the textile industry and, within the Company's markets, increases in
manufacturing capacity. The primary competitive factors in the textile industry
are price, product styling and differentiation, quality, manufacturing
flexibility, delivery time and customer service. The importance of these factors
is determined by the needs of particular customers and the characteristics of
particular products. The failure of the Company to compete effectively with
respect to any of these key factors or to keep pace with rapidly changing
markets could have a material adverse effect on the Company's results of
operations and financial condition.
Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically account for significant shares of U.S. imports.
Although imported apparel represents a significant portion of the U.S. apparel
market, in recent years, a significant portion of import growth has been
attributable to imports of apparel products manufactured outside the U.S. of (or
using) domestic textile components. During fiscal 1998, imports of certain
textile products into the U.S. increased primarily as a result of declines in
consumer demand within Asia, hightened liquidity requirements of Asian textile
producers and devaluation of Asian currencies vis-a-vis the U.S.
dollar.
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The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable
domestic political deliberation and foreign considerations. In January 1995, a
new multilateral trade organization, the World Trade Organization (the
"WTO"), was formed by the members of the General Agreement on Tariffs and Trade
("GATT") to replace GATT. This new body has set forth the mechanisms by which
world trade in textiles and clothing will be progressively liberalized with the
elimination of quotas and the reduction of duties. The implementation began in
January 1995 with the phasing-out of quotas and the reduction of duties to take
place over a 10-year period. The selection of products at each phase is made by
each importing country and must be drawn from each of the four main textile
groups: yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which generally are exporters of textile products) that
are members of the WTO for the purpose of reducing their tariffs on imports of
textiles and apparel. The elimination of quotas and reduction of tariffs under
the WTO may result in increased imports of certain textile products and apparel
into North America. These factors could make the Company's products less
competitive against low cost imports from third world countries.
The North American Free Trade Agreement ("NAFTA") among the United States,
Canada and Mexico, which became effective on January 1, 1994, has created the
world's largest free-trade zone. The agreement contains safeguards sought by the
U.S. textile industry, including a rule of origin requirement that products be
processed in one of the three countries in order to benefit from NAFTA. In
addition, NAFTA requires merchandise to be made from yarns and fabrics
originating in North America in order to avoid trade restrictions. Thus, not
only must apparel be made from North American fabric but the fabric must be
woven from North American spun yarn. Based on experience to date, NAFTA has had
a favorable impact on the Company's business.
In 1986, the United States initiated the Special Access Program with the
Caribbean Basin Initiative ("CBI"). The program provided that apparel made,
using U.S. fabrics, by the 24 Caribbean and Central American countries,
excluding Cuba, would not be subject to quotas but only to tariffs. There has
been subsequent U.S. legislation proposed to grant CBI nations trade status
equal to the NAFTA countries, but such legislation has not been adopted to date.
Management believes that NAFTA parity for the CBI region would be favorable for
the Company as it would provide greater access to lower cost labor for apparel
assembly, making the U.S. a more attractive location for textile sourcing.
Backlog
The Company's order backlog was approximately $375 million at August 28,
1998, as compared to approximately $337 million at August 29, 1997. Orders on
hand are not necessarily indicative of total future sales. Substantially all of
the orders outstanding at August 28, 1998 are expected to be filled by the end
of fiscal 1999.
Governmental Regulation
The Company is subject to various federal, state and local environmental
laws and regulations limiting the discharge, storage, handling and disposal of a
variety of substances and wastes used in or resulting from its operations and
potential remediation obligations thereunder, particularly the Federal Water
Pollution Control Act, the Clean Air Act, the Resource Conservation and Recovery
Act (including amendments relating to underground storage tanks) and the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
referred to as "Superfund" or "CERCLA". The Company has obtained, and is in
compliance in all material respects with, all material permits required to be
issued by federal, state or local law in connection with the operation of the
Company's business as described herein.
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The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Safety and
Health Act and regulations thereunder which, among other things, establish
cotton dust, formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. The Company uses resins containing
formaldehyde in processing some of its products. Although the Company does not
use asbestos in the manufacture of its products, some of its facilities contain
some structural asbestos that management believes is properly contained.
Many of the Company's manufacturing facilities have been in operation for
several decades. Historical waste disposal and hazardous substance releases and
storage practices may have resulted in on-site and off-site remediation
liability for which the Company may be responsible. In addition, certain
wastewater treatment facilities and air emission sources may have to be upgraded
to meet more stringent environmental requirements in the future. The Company
cannot with certainty assess at this time the impact of future emission
standards or enforcement practices under the foregoing environmental laws and
regulations and, in particular, under the 1990 Clean Air Act, upon its
operations or capital expenditure requirements. The Company believes it is
currently in compliance in all material respects with the foregoing
environmental and health and safety laws and regulations.
In 1987, Graniteville Company was notified by the South Carolina Department
of Health and Environmental Control ("DHEC") that it had discovered certain
contamination of a pond near Graniteville, South Carolina and that Graniteville
may be one of the responsible parties. In 1990 and 1991, Graniteville provided
reports to DHEC summarizing its required study and investigation of the alleged
pollution and its sources which concluded that pond sediments should be left
undisturbed and that other remediation alternatives either provided no
significant benefit or themselves involved adverse effects. In 1995,
Graniteville submitted a proposal regarding periodic monitoring of the site, to
which DHEC responded with a request for additional information. Graniteville
provided such information to DHEC in February 1996. The Company is unable to
predict at this time whether any further actions will be required with respect
to the site or what the cost thereof may be. The Company has provided a reserve
for management's estimate of the cost of monitoring the site and believes the
ultimate outcome of this matter will not have a material adverse effect on its
results of operations or financial condition.
As a result of the Graniteville Acquisition, the Company owns a nine acre
site in Aiken County, South Carolina, which was operated jointly by Graniteville
and Aiken County as a landfill from approximately 1950 through 1973. DHEC
conducted a site screening investigation in 1990. The United States
Environmental Protection Agency conducted a site investigation in 1991 and an
Expanded Site Inspection in January 1994. Graniteville conducted a groundwater
quality investigation in 1992 and a supplemental site assessment in 1994. Based
on these investigations, DHEC requested that Graniteville enter into a consent
agreement providing for comprehensive assessment of the nature and extent of
soil and groundwater contamination at the site, if any, and an evaluation of
appropriate remedial alternatives. DHEC and the Company entered into a consent
agreement in December 1997. The cost of the comprehensive assessment required by
the consent agreement is estimated to be between $200,000 and $400,000. Because
this investigation has not concluded, the Company is currently unable to predict
what further actions, if any, will be necessary to address the landfill. The
Company has provided a reserve for management's estimate of the cost of
investigating and remediating the site and believes the ultimate outcome of this
matter will not have a material adverse effect on its results of operations or
financial condition.
The Company is currently defending three environmentally related lawsuits,
described under Item 3, legal proceedings.
Associates
At August 28, 1998, the Company had approximately 7,000 associates. None of
the Company's associates is covered by a collective bargaining agreement, and
management believes that the Company's relations with its associates are good.
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ITEM 2. PROPERTIES
The Company currently operates 26 manufacturing facilities in the U.S., of
which nine are located in Alabama, three are located in North Carolina, five are
located in Georgia and nine are located in South Carolina. The Company owns 24
of these facilities and leases two facilities in connection with its prior
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
fifteen produce yarn, six manufacture fabrics, six are dyeing facilities, and
four are engaged in fabric finishing. Additionally, the Company operates six
warehouses.
The Company's plants generally operate 24 hours a day, seven days a week
throughout the year. The Company considers its plants and equipment to be in
good condition and adequate for its current operations. The Company's principal
executive offices are located in Monroe, Georgia in a building owned by the
Company. The Company also has executive offices in Sylacauga, Alabama, and
Graniteville, South Carolina, which are located in buildings owned by the
Company. All of the Company's sales offices are leased from unrelated third
parties.
ITEM 3. LEGAL PROCEEDINGS
On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould
against the Alabama Power Company, the Company and certain other parties. The
complaint alleges that the Company and such other parties negligently or
willfully discharged industrial wastewater containing hazardous materials, which
allegedly damaged the plaintiffs' real properties and caused mental anguish to
the plaintiffs. The complaint seeks an award of compensatory and punitive
damages. After two years and eleven months of litigation, the plaintiffs amended
their complaint to include class action claims and treatment. Although the Trial
Court granted class certification, the Supreme Court of Alabama reversed the
class certification order, and the case will proceed as to the individual claims
of the four plaintiff families. The Company is vigorously defending this case in
a trial that began October 19, 1998 and believes that it has a number of
defenses available to it. The Company cannot currently predict whether the
plaintiffs will prevail on their claims or the magnitude of their potential
recovery, if any.
Avondale Mills, along with Russell Corporation and the municipality of
Alexander City, Alabama, was named during fiscal 1998 in two almost identical
citizen suits. The first suit, filed on May 18, 1998, was brought pursuant to
the federal Clean Water Act ("CWA"). The second suit, filed on August 28, 1998,
was brought pursuant to both the CWA and the federal Resource Conservation and
Recovery Act ("RCRA"). In both lawsuits, the plaintiff has alleged that Avondale
Mills' permitted discharges of wastewater from its facility in Alexander City
into the waste water treatment plant of Alexander City have indirectly caused
the wastewater treatment plant to exceed the effluent limitation imposed upon
the plant's discharges into a local body of water, thereby violating the CWA.
The plaintiff repeated that claim in the second lawsuit, but also alleged that
Avondale Mills also violated RCRA by contributing to the disposal of a hazardous
waste in such a manner as to endanger human health or the environment. Avondale
Mills has filed motions to dismiss in each case which it believes are
meritorious. As of this date, the court has not ruled on the motions to dismiss,
although the two complaints have been consolidated into one lawsuit by the
court. Concurrently, the United States Environmental Protection Agency ("EPA")
is investigating the possibility of CWA violations at Avondale Mills' facility.
The EPA, however, has stated that, to date, no violations have been determined.
Avondale Mills believes these citizen suits to be without merit and intends to
continue its vigorous defense of that litigation.
Although there can be no assurance, based on currently available
information, the Company does not believe that these cases will have a material
adverse effect on its results of operations or financial condition. The Company
is also a party to litigation incidental to its business from time to time. The
Company is not currently a party to any litigation that management believes, if
determined adversely to the Company, would have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's Class A
Common Stock or Class B Common Stock (collectively, "Common Stock"). As of
August 28, 1998 there were 123 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$3.7 million and $5.3 million in respect of its outstanding Common Stock during
fiscal 1997 and 1998, respectively. During fiscal 1998, approximately 592,000
shares of Class A Common Stock were repurchased pursuant to a tender offer
distributed by the Company to all shareholders and vested stock option holders
of Class A Common Stock.
The Company has issued and outstanding $125 million aggregate principal
amount of 10 1/4% Senior Subordinated Notes due 2006 (the "Notes") under an
Indenture dated as of April 23, 1996 among the Company, Avondale Mills and The
Bank of New York, as trustee (the "Indenture"). The Indenture contains certain
covenants that could indirectly restrict the Company's ability to pay dividends.
The Company maintains a $200 million revolving credit facility under a loan
agreement among Avondale Mills and a syndicate of banks (the "Credit Facility").
The Credit Facility contains certain covenants that could indirectly restrict
the Company's ability to pay dividends.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of income
data and selected consolidated balance sheet data of the Company for each of the
five fiscal years in the period ended August 28, 1998. Such data were derived
from the audited Consolidated Financial Statements of the Company. The audited
Consolidated Financial Statements and Notes thereto of the Company for each of
the three fiscal years in the period ended August 28, 1998 are included
elsewhere in this Annual Report. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales .................................................. $ 481.6 $ 538.7 $ 706.2 $ 1,049.5 $ 1,056.1
Gross profit ............................................... 51.0 71.2 76.9 126.2 137.3
Facility restructuring ..................................... -- -- -- -- 2.7
Operating income ........................................... 28.9 47.6 44.9 79.0 86.6
Interest expense, net ...................................... 6.5 14.3 18.5 26.2 23.3
Discount and expenses on sale of receivables ............... -- -- 3.7 6.6 7.3
Loss attributable to investment in Oneita .................. -- -- -- 7.5 --
Other (income) expense, net ................................ (0.2) (0.8) -- 0.8 0.5
Income before income taxes ................................. 22.6 34.0 22.7 37.9 55.4
Provision for income taxes ................................. 8.5 13.1 9.0 15.0 21.1
Net income ................................................. 14.0 20.9 13.6 22.9 34.3
Per Share Data:
Net income - basic ......................................... $ .85 $ 1.89 $ 1.16 $ 1.73 $ 2.62
Net income - diluted ....................................... .85 1.88 1.15 1.70 $ 2.58
Dividends declared ......................................... .28 .28 .28 .28 .40
Weighted average number of shares outstanding - basic ...... 16.6 11.1 11.8 13.3 13.0
Weighted average number of shares outstanding - diluted .... 16.6 11.1 11.9 13.5 13.3
Balance Sheet Data (at period end):
Total assets ............................................... $ 267.6 $ 257.4 $ 493.1 $ 461.2 $ 463.6
Long-term debt, including current portion .................. 200.0 169.9 303.1 251.3 246.8
Shareholders' equity ....................................... 0.1 18.0 67.5 86.4 100.0
Other Data:
Capital expenditures ....................................... $ 17.6 $ 15.8 $ 33.4 $ 32.0 $ 66.3
Depreciation and amortization .............................. 23.3 23.8 30.4 40.8 39.9
EBITDA(1) .................................................. 57.8 75.1 73.4 113.3 126.6
Ratio of EBITDA to interest expense, net and discount
and expenses on sale of receivables ...................... 8.9x 5.2x 3.3x 3.2x 4.1x
Ratio of earnings to fixed charges(2) ...................... 4.5x 3.4x 2.0x 2.1x 2.8x
</TABLE>
- ------------
(1) EBITDA is defined as net income plus (i) provision for income taxes, (ii)
interest expense, net, (iii) discount and expenses on sale of receivables,
(iv) depreciation and amortization, (v) loss attributable to investment in
Oneita, (vi) facility restructuring charges and (vii) plus or minus, as the
case may be, adjustments to cost of goods sold made under the LIFO
inventory valuation method. EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but because it
is a widely accepted financial indicator of a company's ability to incur
and service debt.
(2) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include income before income
taxes plus fixed charges. Fixed charges include interest, whether expensed
or capitalized, amortization of deferred financing costs, discount and
expenses on sale of receivables and the portion of rental expense that is
representative of the interest factor in these rentals.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales ........................................ 100.0% 100.0% 100.0%
Apparel fabric sales ........................... 55.1 68.4 67.4
Greige and specialty fabric sales .............. 7.5 6.5 6.6
Yarn sales ..................................... 37.4 25.1 26.0
Cost of goods sold:
Raw materials .................................. 50.4 47.2 46.3
Conversion costs ............................... 34.4 36.9 37.0
Total ...................................... 84.8 84.1 83.3
Depreciation ................................... 4.3 3.9 3.7
Selling and administrative expenses ............ 4.5 4.5 4.5
Facility restructuring ......................... -- -- .3
Operating income ............................... 6.4 7.5 8.2
Interest expense, net .......................... 2.6 2.5 2.2
Discount and expenses on sale of receivables ... 0.5 0.6 .7
Loss attributable to investment in Oneita ...... -- 0.7 --
Provision for income taxes ..................... 1.4 1.4 2.0
Net income ..................................... 1.9 2.2 3.3
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales increased 0.6% to $1,056.1 million for fiscal 1998
from $1,049.5 million for fiscal 1997, primarily as a result of improved yarn
sales.
Apparel fabric sales decreased 0.9% to $711.4 million for fiscal 1998 from
$717.7 million for fiscal 1997. This decrease in sales reflected a 4.3% increase
in yards sold, which was offset by a 5.0% decline in average selling prices. The
decline in average selling prices resulted from softening market prices caused
by excess inventories of fabric and garments within the industry, as well as
increased production capacity of domestic and international suppliers.
Greige and specialty fabric sales increased 1.2% to $69.3 million for
fiscal 1998 from $68.5 million for fiscal 1997. This increase in sales reflected
strong demand for greige fabrics by the apparel, home furnishing, luggage and
shoe industries.
Yarn sales increased 4.6% to $275.4 million for fiscal 1998 from $263.3
million for fiscal 1997. This increase reflected a 7.1% increase in pounds sold
to outside customers, which was offset in part by a 2.4% decrease in average
selling prices for those pounds. Market prices for sales yarns remained very
12
<PAGE> 14
competitive, reflecting continued excess production capacity within the industry
and increased imports of yarn and knitted apparel from Asia during fiscal 1998.
Cost of Goods Sold. Cost of goods sold decreased 0.4% to $879.3 million for
fiscal 1998 from $882.8 million for fiscal 1997. Cost of goods sold as a
percentage of net sales decreased to 83.3% for fiscal 1998 from 84.1% for fiscal
1997, primarily due to improved capacity utilization and lower raw material
costs, which mitigated the impact of generally lower selling prices.
Selling and Administrative Expenses. Selling and administrative expenses
increased 1.7% to $48.1 million for fiscal 1998 from $47.2 million for fiscal
1997, reflecting increased accrual of certain associate benefit expenses and
compensation expense related to the redemption of stock options by certain
current and former associates of the Company. Selling and administrative
expenses as a percentage of net sales remained constant at 4.5% for fiscal 1998
and for fiscal 1997.
Interest Expense, Net. Interest expense, net decreased 11.0% to $23.3
million for fiscal 1998 from $26.2 million for fiscal 1997. This decrease
reflected lower interest rates and a lower average balance of outstanding
borrowings during fiscal 1998.
Discount and Expenses on Sale of Receivables. Discount and expenses on sale
of receivables were $7.3 million for fiscal 1998 compared to $6.6 million for
fiscal 1997. This increase was primarily attributable to the payment of bank
fees relating to the receivables securitization facility as well as a net
increase in the amount of accounts receivable sold under the facility.
Facility Restructuring. Charges incurred to consolidate facilities and
dispose of certain inefficient equipment in the Company's Graniteville, South
Carolina operations were $2.7 million for fiscal 1998.
Provision for Income Taxes. Provision for income taxes increased to $21.1
million for fiscal 1998 from $15.0 million for fiscal 1997, reflecting the
increase in income before income taxes. The Company's effective tax rate was
38.1% for fiscal 1998 compared to 39.5% for fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased 48.6% to $1,049.5 million for fiscal 1997
from $706.2 million for fiscal 1996, primarily as a result of the Company's
acquisition of Graniteville in April 1996.
Apparel fabric sales increased 84.4% to $717.7 million for fiscal 1997 from
$389.1 million for fiscal 1996. This increase in sales reflected a 96.0%
increase in yards sold, which was partially offset by a 5.9% decline in average
selling prices. The increase in yards sold was primarily attributable to the
acquisition of Graniteville and expansion of the Company's denim manufacturing
operations. The decline in average selling prices resulted from the inclusion of
a full year of net sales attributable to Graniteville, which generally were at
lower average selling prices than the Company's other apparel fabric sales, and
softening market prices for certain denim fabrics caused by excess inventories
of denim fabric and garments within the industry, as well as increased
production capacity of domestic and Mexican fabric suppliers.
Greige and specialty fabric sales increased 30.0% to $68.5 million for
fiscal 1997 from $52.7 million for fiscal 1996. This increase in sales was
primarily the result of an increase in yards sold due to the inclusion of a full
year of net sales attributable to Graniteville.
13
<PAGE> 15
Yarn sales decreased 0.4% to $263.3 million for fiscal 1997 from $264.4
million for fiscal 1996. This decrease reflected a 2.0% increase in pounds sold
to outside customers offset by a 2.4% decrease in average selling prices for
those pounds. During this same period, yarn production was increased to satisfy
the yarn requirements of the Company's fabric operations. Market prices for
sales yarns remained very competitive, reflecting continued excess production
capacity within the industry during fiscal 1997.
Cost of Goods Sold. Cost of goods sold increased 47.4% to $882.8 million
for fiscal 1997 from $599.1 million for fiscal 1996. Cost of goods sold as a
percentage of net sales decreased to 84.1% for fiscal 1997 from 84.8% for fiscal
1996, primarily due to lower raw material costs. The Company was able to achieve
cost savings to offset the impact of generally higher production costs of
certain Graniteville products.
Selling and Administrative Expenses. Selling and administrative expenses
increased 47.6% to $47.2 million for fiscal 1997 from $32.0 million for fiscal
1996, primarily due to additional expenses attributable to Graniteville. Selling
and administrative expenses as a percentage of net sales remained constant at
4.5% for fiscal 1997 and fiscal 1996.
Interest Expense, Net. Interest expense, net increased 41.6% to $26.2
million for fiscal 1997 from $18.5 million for fiscal 1996. This increase
reflected a higher level of outstanding borrowings during fiscal 1997, primarily
as a result of the acquisition of Graniteville.
Discount and Expenses on Sale of Receivables. Discount and expenses on sale
of receivables were $6.6 million for fiscal 1997 compared to $3.7 million for
fiscal 1996. These expenses were related to the Receivables Securitization
Facility (as hereinafter defined) established by the Company in April 1996.
Loss Attributable to Investment in Oneita. During fiscal 1997, the Company
recorded a loss of approximately $7.5 million attributable to its investment in
Oneita Industries, Inc. ("Oneita"), a yarn customer of the Company, reducing the
carrying value of its investment to zero. Such loss represented the Company's
prorata share of the net loss incurred by Oneita for its four fiscal quarters
ended June 28, 1997, limited to the Company's original investment.
Provision for Income Taxes. Provision for income taxes increased to $15.0
million for fiscal 1997 from $9.0 million for fiscal 1996, reflecting the
increase in income before income taxes. The Company's effective tax rate was
39.5% for fiscal 1997 compared to 39.8% for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its Credit
Facility, proceeds received in connection with sales of trade receivables and
proceeds received in connection with the issuance of equity and debt securities.
At August 28, 1998, the Company had borrowings of $111.3 million outstanding
under the Credit Facility and $88.7 million of borrowing availability
thereunder. Such borrowings bore interest at a weighted average rate of 6.8% per
annum at August 28, 1998. In addition, at August 28, 1998, $125 million
aggregate principal amount of the Notes (which are fully and unconditionally
guaranteed by the Company) issued by Avondale Mills during fiscal 1996 was
outstanding.
14
<PAGE> 16
Credit Facility
The Credit Facility consists of a five-year revolving line of credit of up
to $200 million. Borrowings under the Credit Facility include revolving loans to
be provided by the lenders ("Revolver Loans") and up to $5 million of revolving
swing loans ("Swing Revolver Loans") to be provided by Wachovia Bank, N.A.
("Wachovia"). Interest accrues on Revolver Loans (i) at the Company's option at
either LIBOR (adjusted for reserves) plus a specified number of basis points or
the base rate, which is the higher of Wachovia's prime rate and the overnight
federal funds rate plus 0.5%, or (ii) if the Company and the lenders under the
Credit Facility (the "Lenders") agree, at the "set" rate, which shall be an
interest rate agreed to by the Company and the Lenders at the time such Revolver
Loan is made. In addition, the Company is required to pay certain structuring,
administration and funding fees under the Credit Facility. The Credit Facility
is secured by substantially all of the Company's assets. The Credit Facility
contains customary covenants, including requirements to maintain certain
financial ratios.
Swap Agreements
The Company has used interest rate swap agreements to effectively fix the
interest rate with respect to a portion of the borrowings outstanding under the
Credit Facility, which otherwise bear interest at floating rates. Such
agreements involve the receipt of floating rate amounts in exchange for fixed
rate interest payments during the term of such agreements without an exchange of
the underlying principal amounts. The differential to be paid or received is
accrued as interest rates change and recognized as an adjustment to interest
expense related to the borrowings outstanding under the Credit Facility. The
related amount payable to or receivable from counterparties is included in other
liabilities or assets. At August 28, 1998, the Company had swap agreements with
notional amounts aggregating $105.0 million, providing an effective interest
rate of 6.9% on that equivalent portion of the outstanding Revolver Loans.
Receivables Securitization Facility
Pursuant to an agreement between Avondale Mills and The First National Bank
of Chicago ("First Chicago"), First Chicago has provided to the Company, through
a special purpose vehicle administered by it, a securitization facility
("Receivables Securitization Facility") of up to $120 million for the
securitization of certain trade receivables (the "Receivables") originated by
the Company. The Company acts as the servicer for the Receivables.
Under the Receivables Securitization Facility, the Company transfers
Receivables to a wholly owned, limited-purpose subsidiary of the Company (the
"Receivables Company"), which sells the Receivables to a trust (the "Trust").
The Trust issues variable funding certificates to lending or financial
institutions or other investors evidencing undivided interests in the assets of
the Trust (the "Certificates"). The Receivables Securitization Facility permits
draws and repayments on a revolving basis prior to November 15, 2002 or such
earlier time as certain events occur (the "Amortization Commencement Date"). The
Certificates, which represent beneficial interests in the Trust, entitle the
holders thereof to (i) receipt of collections from the Receivables, (ii) all
rights of the Company or the Receivables Company in goods, the sale of which
gave rise to the Receivables, (iii) all collateral and other arrangements
supporting the Receivables, (iv) all rights to proceeds of any of the foregoing
held in lock-boxes and bank accounts of the Company or the Receivables Company,
(v) rights and interests of the Receivables Company under the documents for the
Receivables Securitization Facility and (vi) all collections and other proceeds
of the assets described above. The Certificates represent beneficial interests
in the Trust only, and do not represent obligations of, or interests in, and are
not guaranteed or insured by, the Receivables Company or the Company. At August
28, 1998, certificates of $112.0 million were outstanding.
The rate of interest on the Receivables Securitization Facility is the
Eurodollar rate (adjusted for any reserves) plus 0.40% or First Chicago's
alternate base rate. The final maturity of the Certificates is
15
<PAGE> 17
expected to occur six months after the Amortization Commencement Date. All
collections attributable to the Certificates will be set aside commencing on the
Amortization Commencement Date to repay the Certificates in full. Amounts set
aside will be applied on a monthly basis to repay the Certificates in full.
The Receivables Securitization Facility contains covenants, representations
and warranties customary for such facilities and consistent with those that
First Chicago reasonably believes are required to obtain an "A" rating from the
rating agencies. Financial covenants are not included in the provisions of the
Receivables Securitization Facility nor are any provisions relating to cross
defaults to any other obligations of the Company.
Capital Expenditures and Cash Flows Analysis
The Company's capital expenditures aggregated $66.3 million for fiscal
1998. These expenditures were primarily to complete the construction of a new
denim weaving facility, begin the expansion of an existing greige weaving
facility, upgrade fabric finishing ranges and purchase other equipment.
Management estimates that capital expenditures for fiscal 1999 will be
approximately $60.0 million, and that such amounts will be used primarily to
complete the greige weaving expansion and improve fabric finishing facilities.
Net cash provided by operating activities was $81.7 million in fiscal 1998.
Principal working capital changes included a $5.2 million decrease in accounts
receivable, a $6.2 million decrease in inventories and an $8.3 million decrease
in accounts payable and accrued expenses. The Company's investing activities
were primarily the capital improvements described above. Net cash used in
financing activities aggregated $15.1 million, including $5.2 million used to
pay dividends on Common Stock, $15.4 million used to repurchase approximately
592,000 shares of Class A Common Stock pursuant to a tender offer distributed by
the Company to all shareholders and vested stock option holders of Class A
Common Stock, and receipt of $10.0 million from the sale of additional accounts
receivable under the securitization facility.
Net cash provided by operating activities was $83.2 million in fiscal 1997.
Principal working capital changes included an $8.7 million decrease in accounts
receivable, a $6.8 million decrease in inventories and a $6.9 million decrease
in accounts payable and accrued expenses. The Company's investing activities
were primarily expenditures for capital improvements and the receipt of the $7.3
million due from Triarc upon finalization of the Graniteville Acquisition
purchase price. Net cash used in financing activities aggregated $57.9 million,
including $51.8 million used to repay long-term indebtedness and $3.7 million
used to pay dividends on Common Stock.
Net cash provided by operating activities was $25.5 million in fiscal 1996.
Principal working capital changes included a $21.9 million increase in accounts
receivable, a $1.9 million decrease in inventories (net of the Graniteville
Acquisition) and a $7.4 million increase in accounts payable and accrued
expenses. The changes in working capital were primarily attributable to the
substantial increase in net sales resulting from the Graniteville Acquisition
and an increase in raw material inventories. The Company's investing activities
included the Graniteville Acquisition, capital improvements of $33.4 million,
the sale of certain real estate for an aggregate purchase price of $12.1 million
and a $7.5 million subordinated loan to Oneita. Pursuant to an agreement with
Oneita, on August 27, 1996, the Company converted the Oneita note (principal
plus accrued interest), which bore interest at 10% per annum and would have
matured in February 1999, into 2,270,833 shares of common stock of Oneita
(representing a conversion price of $3.50 per share, which approximated fair
market value). On such date, such shares represented approximately 24.8% of
Oneita's outstanding common stock. Net cash provided by financing activities
aggregated $264.2 million, which was used primarily to finance the Graniteville
Acquisition.
16
<PAGE> 18
In April 1996, in connection with the Graniteville Acquisition, the Company
completed an equity private placement of 2,222,223 shares of Class A Common
Stock for an aggregate purchase price of $40 million (the "1996 Private
Placement"). Such shares were purchased by affiliates of Clipper Capital
Partners, L.P. ("Clipper"). In connection with the 1996 Private Placement, the
Company paid a closing fee of $600,000 to Clipper. In addition, Avondale Mills
issued $125 million aggregate principal amount of Notes in April 1996 in
connection with the Graniteville Acquisition. The Notes were issued under the
Indenture, which contains certain covenants that, among other things, restrict
the ability of Avondale Mills to incur debt, pay dividends on or redeem or
retire capital stock, make certain investments, enter into transactions with
affiliates, sell assets or consummate certain business combinations. The Company
fully and unconditionally guaranteed the Notes.
Management believes that cash generated from operations, together with
borrowings available under the Credit Facility and proceeds received in
connection with sales of trade receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs in the foreseeable
future. The Company will also continue to consider other options available to it
in connection with future working capital and capital expenditure needs,
including the issuance of additional debt and equity securities.
SEASONALITY
The Company's sales are broadly distributed over markets with staggered
seasonality and, therefore, generally do not exhibit significant seasonal
trends.
YEAR 2000
The Company utilizes computer systems and related software which process
dates using two digits to define specific years. Such systems may not be able to
distinguish the year 2000 from the year 1900, resulting in system failures or
miscalculations which may disrupt operations and other activities. During the
past two years, the Company has identified those systems which are not Year 2000
compliant and developed plans to modify or replace them. Execution of these
plans is ongoing and the Company expects to complete its remediation of all
business applications by December 31, 1998, and all process control and
manufacturing systems by June 30, 1999.
Costs associated with remediation of the affected systems are being
expensed as incurred. The Company estimates that it has incurred costs of
approximately $3 million through fiscal 1998 to achieve Year 2000 compliant
systems and will incur additional costs of approximately $2.5 million in fiscal
1999 to complete the remediation.
The Company has conducted limited surveys of its major suppliers and
customers and found that those contacted are aware of the Year 2000 problem and
their own remediation requirements. However, the Company has no means of
assuring that its suppliers and customers will be Year 2000 compliant, and their
inability to complete required remediations in a timely manner could have an
adverse effect on the Company.
To date, the Company has not established a contingency plan for possible
Year 2000 issues. It is anticipated that a contingency plan will be implemented
by August 31, 1999 based upon actual remediation achievements and an assessment
of outside risks at that point in time.
17
<PAGE> 19
While management believes that its estimates of the costs to achieve Year
2000 compliance and the related completion dates are reasonable and achievable,
there can be no assurance that actual results will not differ significantly from
management's plans.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which generally requires that companies report segment information for operating
segments which are revenue producing components for which separate financial
information is produced internally. The Company plans to adopt Statement No. 131
in the first quarter of fiscal 1999, but has not yet completed its analysis of
the impact, if any, Statement No. 131 may have on disclosures in its financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value, and changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company plans to adopt Statement No. 133 in fiscal 1999. Management
does not believe the adoption of this statement will have a material effect on
the consolidated financial position or results of operations of the Company.
FORWARD LOOKING STATEMENTS
Statements herein regarding the Company's anticipated capital expenditures,
Year 2000 compliance and anticipated performance in future periods constitute
forward looking statements within the meaning of the Securities Act of 1993 and
Securities Act of 1934. Such statements are subject to certain risks and
uncertainties that could cause actual amounts to differ materially from those
projected. With respect to anticipated capital expenditures, management has made
certain assumptions regarding, among other things, maintenance of existing
facilities and equipment, availability and desirability of new, technologically
advanced equipment, installation and start up times, cost estimates and
continued availability of financial resources. The estimated amount of capital
expenditures is subject to certain risks, including, among other things, the
risk that unexpected capital expenditures will be required and unexpected costs
and expenses will be incurred. With respect to Year 2000 compliance, management
has performed certain assessments to identify remediation needs of the Company's
computer systems and related software and contacted major suppliers and
customers to assess the impact of the Year 2000 problem on their operations. The
Company's expectations regarding the impact of the Year 2000 problem and its
estimate of the costs to achieve Year 2000 compliance are subject to certain
risks, including, among other things, the risk that the assessments have not
identified all required system modifications, system modifications can not be
completed in a timely manner, unexpected costs and expenses will be incurred in
connection with system modifications, and major suppliers and customers will not
successfully achieve Year 2000 compliance in a timely manner. Further,
statements herein regarding the Company's performance in future periods are
subject to risks relating to, among other things, the cyclical and competitive
nature of the textile industry in general, pressures on sales prices due to
competitive and economic conditions, deterioration of relationships with, or
loss of, significant customers, availability, sourcing and pricing of cotton and
other raw materials, technological advancements, employee relations, continued
availability of financial resources, difficulties integrating acquired
businesses and possible changes in governmental policies affecting raw material
costs. Management believes these forward looking statements are reasonable;
however, undue reliance should not be placed on such forward looking statements,
which are based on current expectations.
18
<PAGE> 20
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Upward or downward changes in market interest rates and their impact on the
reported interest expense of the Company's variable rate borrowings may affect
the Company's earnings. However, the Company's use of interest rate swap
agreements will limit the negative impact of higher interest rates. Assuming the
revolving credit facility and interest rate swap agreements at August 28, 1998
remain in effect throughout fiscal 1999, a 10% change in the effective average
interest rate would not have a material effect on the Company's pretax earnings
for fiscal 1999. In addition, a 10% change in interest rates would not have a
material effect on the fair value of the Company's interest rate swap agreements
and senior subordinated notes.
Increases or decreases in the market price of cotton may affect the
valuation of the Company's inventories and fixed purchase commitments and,
accordingly, the Company's earnings. The potential decline in fair value of
these inventories and fixed purchase commitments resulting from a 10% decline in
market prices is estimated to be approximately $15 to $22 million.
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 28, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants .............. 24
Consolidated Balance Sheets ........................... 26
Consolidated Statements of Income ..................... 27
Consolidated Statements of Shareholders' Equity ....... 28
Consolidated Statements of Cash Flows ................. 29
Notes to Consolidated Financial Statements ............ 30
</TABLE>
20
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Avondale Incorporated:
We have audited the accompanying consolidated balance sheet of Avondale
Incorporated as of August 28, 1998, and the related consolidated statements of
income, shareholders' equity and cash flows for the fiscal year then ended.
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 schedule based on our audit. The
consolidated balance sheet of Avondale Incorporated as of August 29, 1997, and
the related consolidated statements of income, shareholders' equity, cash flows
and the schedule referred to below for each of the two fiscal years in the
period ended August 29, 1997, were audited by other auditors whose report dated
October 7, 1997, expressed an unqualified opinion on those statements and
schedule.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avondale
Incorporated at August 28, 1998, and the consolidated results of its operations
and its cash flows for the fiscal year then ended in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index at Item
14 (a) 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
Atlanta, Georgia
October 5, 1998
21
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Avondale Incorporated
We have audited the accompanying consolidated balance sheet of Avondale
Incorporated as of August 29, 1997, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the two fiscal years in
the period ended August 29, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14 (a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avondale
Incorporated at August 29, 1997, and the consolidated results of its operations
and its cash flows for each of the two fiscal years in the period ended August
29, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
October 7, 1997
22
<PAGE> 24
AVONDALE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 29, AUGUST 28,
1997 1998
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash .................................................................... $ 8,517 $ 9,259
Accounts receivable, less allowance for doubtful accounts of $5,518
in 1997 and $2,533 in 1998 ............................................ 77,698 62,497
Inventories ............................................................. 120,860 114,684
Prepaid expenses ........................................................ 1,561 742
--------- ---------
Total current assets .............................................. 208,636 187,182
Property, plant and equipment
Land .................................................................... 8,510 8,510
Buildings ............................................................... 71,155 82,366
Machinery and equipment ................................................. 379,434 430,629
--------- ---------
459,099 521,505
Less accumulated depreciation ........................................... (230,117) (267,791)
--------- ---------
228,982 253,714
Other assets ............................................................ 23,604 22,686
--------- ---------
$ 461,222 $ 463,582
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ......................................................... $ 41,884 $ 34,839
Accrued compensation, benefits and related expenses ...................... 22,514 24,665
Other accrued expenses ................................................... 22,416 18,970
Long-term debt due in one year ........................................... 3,250 2,250
Income taxes payable ..................................................... 4,804 1,345
--------- ---------
Total current liabilities ......................................... 94,868 82,069
Long-term debt ........................................................... 248,075 244,575
Deferred income taxes and other long-term liabilities .................... 31,917 36,894
Commitments and contingencies
Shareholders' equity
Preferred Stock
$.01 par value; 10,000 shares authorized ............................... -- --
Common Stock
Class A, $.01 par value; 100,000 shares authorized; issued and
outstanding -- 12,290 shares in 1997 and 11,698 shares in 1998 ........ 123 117
Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding -- 979 shares in 1997 and 1998 ............................ 10 10
Capital in excess of par value .......................................... 41,478 39,835
Retained earnings ....................................................... 44,751 60,082
--------- ---------
Total shareholders' equity ........................................ 86,362 100,044
--------- ---------
$ 461,222 $ 463,582
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 25
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
AUGUST 30, AUGUST 29, AUGUST 28,
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................................. $706,232 $1,049,474 $1,056,103
Operating costs and expenses
Cost of goods sold .................................. 599,149 882,760 879,263
Depreciation ........................................ 30,139 40,508 39,497
Selling and administrative expenses ................. 32,018 47,243 48,067
Facility restructuring .............................. -- -- 2,699
-------- ---------- ----------
Operating income ................................ 44,926 78,963 86,577
Interest expense ...................................... 18,512 26,158 23,280
Discount and expenses on sale of receivables .......... 3,718 6,617 7,342
Loss attributable to investment in Oneita ............. -- 7,500 --
Other expense, net .................................... 13 801 517
-------- ---------- ----------
Income before income taxes .......................... 22,683 37,887 55,438
Provision for income taxes ............................ 9,035 14,950 21,125
-------- ---------- ----------
Net income ...................................... $ 13,648 $ 22,937 $ 34,313
======== ========== ==========
Per share data
Net income - basic .............................. $ 1.16 $ 1.73 $ 2.62
======== ========== ==========
Net income - diluted ............................ $ 1.15 $ 1.70 $ 2.58
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 26
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED CAPITAL IN
--------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance at August 25, 1995 ............................ 11,069 $ 111 $ 2,566 $ 15,297
Net income .......................................... -- -- -- 13,648
Cash dividends ($0.28 per share) .................... -- -- -- (3,410)
Shares issued in connection with the acquisition
of the Textile Business ........................... 2,222 22 39,278 --
------- ----- -------- --------
Balance at August 30, 1996 ............................ 13,291 133 41,844 25,535
Net income .......................................... -- -- -- 22,937
Cash dividends ($0.28 per share) .................... -- -- -- (3,721)
Purchase and retirement of treasury stock ........... (22) -- (366) --
------- ----- -------- --------
Balance at August 29, 1997 ............................ 13,269 133 41,478 44,751
Net income .......................................... -- -- -- 34,313
Cash dividends ($0.40 per share) .................... -- -- -- (5,249)
Purchase and retirement of treasury stock ........... (592) (6) (1,643) (13,733)
------- ----- -------- --------
Balance at August 28, 1998 ............................ 12,677 $ 127 $ 39,835 $ 60,082
======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 27
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
AUGUST 30, AUGUST 29, AUGUST 28,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income ................................................. $ 13,648 $ 22,937 $ 34,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................. 30,411 40,822 39,887
Loss attributable to investment in Oneita ................. -- 7,500 --
Provision for (benefit of) deferred income taxes .......... (5,632) (318) 6,452
Interest expense on payment-in-kind notes ................. 2,671 -- --
Loss (gain) on sale of equipment .......................... (696) (681) 1,877
Changes in operating assets and liabilities:
Accounts receivable ...................................... (21,898) 8,730 5,201
Inventories .............................................. 1,888 6,838 6,173
Prepaid expenses ......................................... (2,380) 1,230 819
Other assets and liabilities, net ........................ 310 (1,672) (1,119)
Accounts payable and accrued expenses .................... 7,401 (6,943) (8,339)
Income taxes payable ..................................... (265) 4,716 (3,459)
--------- -------- --------
Net cash provided by operating activities .............. 25,458 83,159 81,805
Investing activities
Acquisition of Textile Business of Graniteville ............ (247,956) -- --
Sale of real estate ........................................ 11,484 -- --
Due from Triarc ............................................ (7,250) 7,250 --
Investment in Oneita securities ............................ (7,500) -- --
Purchase of property, plant and equipment .................. (33,439) (32,046) (66,335)
Proceeds from sale of property, plant and equipment ........ 904 763 403
--------- -------- --------
Net cash used in investing activities .................. (283,757) (24,033) (65,932)
Financing activities
Principal payments on long-term debt ....................... (4,000) (3,250) (3,250)
Net borrowings (payments) on revolving line of credit ...... 54,525 (48,525) (1,250)
Issuance of subordinated notes ............................. 125,000 -- --
Deferred financing costs ................................... (6,184) -- --
Sale of accounts receivable, net ........................... 104,000 (2,000) 10,000
Issuance of common stock ................................... 39,300 -- --
Retirement of subordinated notes ........................... (45,014) -- --
Purchase and retirement of treasury stock .................. -- (366) (15,382)
Dividends paid ............................................. (3,410) (3,721) (5,249)
--------- -------- --------
Net cash provided by (used in) financing activities .... 264,217 (57,862) (15,131)
--------- -------- --------
Increase in cash ........................................... 5,918 1,264 742
Cash and cash equivalents at beginning of year ............. 1,335 7,253 8,517
--------- -------- --------
Cash and cash equivalents at end of year ............... $ 7,253 $ 8,517 $ 9,259
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 28, 1998
1. Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Avondale Incorporated and its wholly owned
subsidiaries, Avondale Mills, Inc. ("Avondale Mills") and Avondale Receivables
Company (collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Certain prior year financial statement
amounts have been reclassified to conform with the current year's presentation.
Unless otherwise stated, all references to years relate to the Company's fiscal
year, which ends on the last Friday in August, rather than calendar years.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Avondale Incorporated is a holding company and has no operations,
liabilities or assets other than those related to its investment in Avondale
Mills, Inc.
The Company operates in a single business segment, manufacturing cotton and
cotton-blend yarns and fabrics, which are marketed primarily to the apparel
market and, to a lesser extent, the home furnishings and industrial products
markets.
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market value.
Except for certain supply inventories valued on an average cost basis, cost is
determined on a last-in, first-out ("LIFO") basis.
Periodically, the Company purchases cotton futures and options contracts to
hedge exposure to price fluctuations in the cotton acquired from various
suppliers. Gains and losses on these hedging contracts, which are immaterial,
are deferred as an adjustment to the carrying value of inventories and
recognized when these inventories are sold.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost and depreciated over the estimated useful lives of the related assets.
Depreciation is calculated primarily using the straight-line method. Capital
lease amortization is included with depreciation expense in the consolidated
financial statements.
Associate Benefit Plans: The Company has a discretionary profit sharing
plan covering substantially all associates. Annual contributions by the Company
are made to the plan in amounts determined by the board of directors. In
addition, the plan has 401(k) savings options that are available to all
associates. The Company matches 25% of the first 3% of compensation contributed
by each associate. The Company also has a deferred compensation plan for certain
key personnel. The related expense for these profit sharing and deferred
compensation plans is charged to operations currently and totaled $6.0 million,
$6.9 million and $8.1 million for fiscal 1996, 1997 and 1998, respectively.
Other Assets and Other Long-Term Liabilities: Other assets consist
primarily of unamortized loan fees, goodwill, cash surrender value of life
insurance, deposits on machinery and equipment
27
<PAGE> 29
purchases, and investments in securities. Other long-term liabilities consist of
accrued postretirement and workers' compensation benefits and deferred
compensation for certain key management personnel.
Fair Value of Financial Instruments: The carrying values of cash, accounts
receivable, certain other assets, accounts payable and accrued expenses
approximate reasonable estimates of their fair values at August 29, 1997 and
August 28, 1998. See Note 8 for disclosures related to the fair values of
long-term debt and interest rate swap agreements.
Earnings Per Share: During 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." In accordance with Statement
128, basic and diluted earnings per share are reported for all periods
presented, replacing the previously reported primary and fully diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options and similar items. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share.
Earnings per share is calculated by dividing the reported net income for
the period by the appropriate weighted average number of shares of common stock
outstanding, as shown below (amounts in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding -
Basic 11,811 13,289 13,090
Effect of employee and director stock options 108 180 215
------ ------ ------
Weighed average shares outstanding -
Diluted 11,919 13,469 13,305
====== ====== ======
</TABLE>
Stock Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related Interpretations in accounting for its employee and
director stock options and adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("FAS 123"). The Company grants stock options for a fixed number
of shares to employees and directors with an exercise price equal to the fair
value of the shares at the date of grant and, accordingly, recognizes no
compensation expense for the stock option grants.
Recent Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which generally requires that companies
report segment information for operating segments which are revenue producing
components for which separate financial information is produced internally.
The Company plans to adopt Statement No. 131 in the first quarter of fiscal
1999, but has not yet completed its analysis of the impact, if any, Statement
No. 131 may have on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value, and changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company plans to adopt Statement No. 133 in the first quarter of fiscal
2000. Management does not believe the adoption of this statement will have a
material effect on the consolidated financial statements of the Company.
28
<PAGE> 30
Revenue Recognition: The Company records revenues principally when products
are shipped to customers. Consistent with recognized practice in the textile
industry, the Company also records revenues to a lesser extent throughout the
year (14%, 10% and 10% of total revenues in 1996, 1997 and 1998, respectively)
on a bill and hold basis, invoicing goods that have been produced, packaged and
made ready for shipment. These goods are effectively segregated from inventory
which is available for sale, the risks of ownership of the goods have passed to
the customer, and the remittance terms and collection experience on the related
invoicing is consistent with all other sales by the Company.
The credit status of each customer is approved and monitored by the
Company. Sales to V.F. Corporation and its affiliates represented 20% of net
sales for fiscal 1996, 18% of net sales for fiscal 1997, and 16% of net sales
for fiscal 1998.
2. Facility Restructuring: During the third quarter of fiscal 1998, the
Company recorded pretax charges of $2.7 million to consolidate manufacturing
facilities and dispose of certain inefficient equipment in its Graniteville,
South Carolina operations.
3. Purchase of the Textile Business of Graniteville Company: On April 29,
1996, the Company acquired substantially all of the textile assets (the "Textile
Business") of Graniteville Company from Triarc Companies, Inc. ("Triarc"), for
cash consideration of $242.8 million plus the assumption of certain liabilities
other than long term-debt.
The funds used to acquire the Textile Business were provided by the
issuance of senior subordinated notes, the sale of accounts receivable under a
securitization facility, the sale of the Company's Class A Common Stock and
borrowings against the Company's amended revolving credit facility.
The acquisition was accounted for as a purchase; accordingly, the results
of operations of the Textile Business have been included in the Company's
operating results since the date of acquisition. The excess of the aggregate
purchase price, including acquisition related expenses, over the fair market
value of tangible assets acquired and liabilities assumed of approximately $6.7
million, has been recognized as goodwill and is being amortized over 20 years.
4. Receivables Securitization Facility: On November 21, 1997, the Company
executed a 5-year amendment to its April 29, 1996 agreement with a bank (the
"Agreement") under which it may sell an undivided interest in a defined pool of
revolving trade accounts receivable (the "Receivables") held by Avondale
Receivables Company. Under the facility, the Receivables are transferred to a
trust at a discount. The trust sells variable funding certificates to lending
institutions or other investors representing undivided ownership interests in a
defined portion of the Receivables. Such certificates do not represent
obligations of or interests in, and are not guaranteed or insured by, the
Company. The proceeds from the issuance of the certificates are remitted to the
Company.
The Company retains a residual interest in the Receivables in an amount
equal to the excess of the Receivables over the certificates sold. Such residual
interest is included in accounts receivable in the Consolidated Balance Sheets.
All losses, credits or other adjustments relating to the Receivables constitute
deductions applicable to the Company's residual interest in the Receivables.
Accordingly, the Company maintains an allowance for such deductions based upon
the expected collectibility of the Receivables. At August 29, 1997 and August
28, 1998, an allowance of $7.6 million and $4.5 million, respectively, related
to the Receivables is included in other accrued expenses in the Consolidated
Balance Sheets.
The Agreement requires the Company to maintain sufficient levels of
Receivables to collateralize the outstanding certificates. The Agreement also
contains various covenants, representations and warranties customary to the
operation of such securitization programs, but does not include financial
29
<PAGE> 31
covenants or cross defaults to any other obligations of the Company. The
Company, as agent for the trust, is responsible for the collection and
administrative processing of the Receivables.
Under the Agreement, the trust may issue certificates of up to $120
million. Certificates of $102 million and $112 million, respectively, were
outstanding at August 29, 1997 and August 28, 1998. Accounts receivable in the
Consolidated Balance Sheets have been reduced by approximately $103 million and
$113 million, respectively, representing the face amount of the outstanding
receivables sold at those dates.
For the fiscal years ended August 30, 1996, August 29, 1997 and August 28,
1998, discounts of $3.7 million, $6.6 million and $6.8 million, respectively, on
sales of Receivables have been included in discount and expenses on sale of
receivables in the Consolidated Statements of Income. The Company sells the
Receivables as an alternative to incurring additional debt. Viewed on this
basis, the Company's ongoing cost of the facility at August 28, 1998 is equal to
the Eurodollar rate (adjusted for any reserves) plus 0.40% or the bank's base
rate of interest.
5. Inventories: Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 29, AUGUST 28,
1997 1998
---------- ----------
<S> <C> <C>
Finished goods ........................................... $ 32,907 $ 28,744
Work in process .......................................... 51,345 49,434
Raw materials ............................................ 24,556 23,279
Dyes and chemicals ....................................... 6,518 6,084
--------- --------
Inventories at FIFO ...................................... 115,326 107,541
Less allowance to reduce carrying value to LIFO basis .... (2,027) --
--------- --------
113,299 107,541
Supplies at average cost ................................. 7,561 7,143
--------- --------
$ 120,860 $114,684
========= ========
</TABLE>
6. Investment in Securities: In January 1996, the Company purchased a $7.5
million subordinated note due February 26, 1999, having convertible features,
from Oneita Industries, Inc. ("Oneita"). On August 27, 1996, the Company
converted the subordinated note plus accrued interest into 2,270,833 shares of
common stock of Oneita, representing ownership of 24.8% of Oneita's outstanding
shares.
The following summarizes the results of operations reported by Oneita for
its four fiscal quarters ended June 28, 1997 (amounts in thousands):
<TABLE>
<S> <C>
Net sales............................................ $136,672
=========
Loss from operations......................... $(27,562)
=========
Net loss............................................. $(35,659)
=========
</TABLE>
During the fiscal year ended August 29, 1997, the Company recorded a loss
of $7.5 million attributable to its investment in Oneita, reducing the carrying
value of its investment to zero. Such loss represented the Company's pro rata
share of the net loss incurred by Oneita for its four fiscal quarters noted
above, limited to the Company's original investment. Oneita has continued to
report net losses since that time.
30
<PAGE> 32
7. Income Taxes: Provision for income taxes is composed of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal ......................... $ 12,784 $ 13,232 $13,578
State ........................... 1,883 2,036 1,095
-------- -------- -------
14,667 15,268 14,673
Deferred:
Federal ......................... (4,870) (275) 5,506
State ........................... (762) (43) 946
-------- -------- -------
(5,632) (318) 6,452
-------- -------- -------
$ 9,035 $ 14,950 $21,125
======== ======== =======
</TABLE>
The following table shows the reconciliation of federal income tax expense
at the statutory rate on income before income taxes to reported income tax
expense (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ ------
<S> <C> <C> <C>
Federal income taxes ............................ $ 7,939 $13,261 $19,403
State income taxes, net of federal tax benefit .. 729 1,276 1,407
Other ........................................... 367 413 315
------- ------- -------
$ 9,035 $14,950 $21,125
======= ======= =======
</TABLE>
The Company made income tax payments of $14.3 million, $10.4 million and
$11.5 million during fiscal 1996, 1997 and 1998, respectively.
Deferred income taxes are provided for temporary differences in financial
and income tax reporting. Significant components of the Company's year-end
deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 29, AUGUST 28,
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation ...................... $21,784 $25,084
Inventory valuation ............... 7,395 6,989
Goodwill .......................... 2,638 2,496
Other ............................. 1,414 1,804
------- -------
Deferred tax liabilities ....... 33,231 36,373
Deferred tax assets:
Employee benefit programs ......... 8,015 8,948
Receivable reserves ............... 5,285 2,842
Other ............................. 3,364 1,564
------- -------
Deferred tax assets ............ 16,664 13,354
------- -------
Net deferred tax liabilities ........ $16,567 $23,019
======= =======
</TABLE>
31
<PAGE> 33
8. Long-Term Debt: Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 29, AUGUST 28,
1997 1998
---------- ----------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
alternative rates, 6.4% - 8.5% in 1998, due April 2000 .................. $ 112,575 $ 111,325
Industrial revenue bonds, floating rate, 3.0% - 4.5% in 1998, due in
various installments through 2004 ....................................... 13,750 10,500
Senior subordinated notes, 10.25%, due May 1, 2006 ...................... 125,000 125,000
--------- ---------
251,325 246,825
Less current portion .................................................... (3,250) (2,250)
--------- ---------
$ 248,075 $ 244,575
========= =========
</TABLE>
The Company maintains a secured revolving credit facility with a group of
banks which provides aggregate borrowing availability of a maximum of $200
million through April 2001. Under the terms of this agreement, the Company can
designate an interest rate tied to the banks' base rate or alternative rates
negotiated with the banks, for specified time periods. A commitment fee of 0.25%
per annum is payable quarterly on the average daily unused portion of the
revolving credit commitment. The revolving credit facility is secured by
substantially all of the Company's assets. Covenants of the credit agreement
require the Company to maintain certain cash flow ratios and debt to equity
ratios, and contain restrictions on payment of dividends. Under the most
restrictive of these covenants, $16.2 million of retained earnings was available
for payment of dividends at August 28, 1998.
The Company uses interest rate swap agreements to effectively convert a
portion of its outstanding revolving credit facility to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. These agreements
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments over the lives of the agreements without an exchange of the underlying
principal amounts. The differential to be paid or received is accrued as
interest rates change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. At August 28, 1998,
the Company had interest rate swap agreements with notional amounts aggregating
$105 million providing an effective interest rate of 6.9% on that equivalent
portion of the revolving credit facility. These interest rate swap agreements
had no significant market value at August 29, 1997, and an unrealized loss of
approximately $1 million at August 28, 1998. The Company does not anticipate
realization of this loss as the interest rate swap agreements are anticipated to
remain outstanding through maturity.
Two of the industrial revenue bonds which were issued to acquire property,
plant and equipment represent capital lease obligations. These lease obligations
plus the other industrial revenue bonds are secured by letter of credit
agreements with a bank. The letter of credit agreements are, in turn, secured by
the property, plant and equipment at three plant locations, which had a carrying
value of approximately $24.6 million at August 28, 1998. Covenants of the letter
of credit agreements substantially adopt the restrictive covenant provisions of
the revolving credit facility.
In conjunction with the acquisition discussed in Note 3, Avondale Mills
issued $125 million of 10.25% senior subordinated notes which mature on May 1,
2006. The notes are unsecured and the guarantee of these notes by the Company is
subordinated to all existing and future senior indebtedness of the Company.
Interest on the notes is due on May 1 and November 1 of each year. At August 30,
1996, the quoted market value of the notes approximated their carrying value. At
August 29, 1997 and August 28, 1998, the market value of the notes was
approximately $133 million and $131 million, respectively.
32
<PAGE> 34
The Company does not anticipate settlement of the notes at fair value and
currently expects the notes to remain outstanding through maturity.
The senior subordinated notes contain a redemption feature allowing the
Company, at any time prior to May 1, 1999, to redeem up to an aggregate of $25
million of the principal amount of the notes with the proceeds of one or more
public equity offerings, at a redemption price of 110% plus accrued interest to
the redemption date, provided that at least $100 million aggregate principal
amount of the notes remains outstanding after such redemption. On or after May
1, 2001, the notes will be redeemable at the Company's option, in whole or in
part, at a scheduled redemption price of 105.125% in 2001 declining to 100% in
2004 and thereafter.
The indenture under which the senior subordinated notes were issued
contains, among other things, certain restrictive covenants which apply to
Avondale Mills on issuance of additional debt, payment of dividends, retirement
of capital stock or indebtedness, purchase of investments, sales or transfers of
assets, certain consolidations or mergers and certain transactions with
affiliates.
At August 28, 1998, the Company was in compliance with the covenants of the
revolving credit facility, subordinated note indenture and letter of credit
agreements.
The carrying value of the Company's revolving credit facility and
industrial revenue bonds approximates fair value.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999 .................................. $ 2,250
2000 .................................. 3,250
2001 .................................. 113,825
2002 .................................. 500
2003 .................................. 1,000
Thereafter through 2006 ............... 126,000
--------
$246,825
========
</TABLE>
In connection with the Company's borrowings, no interest has been
capitalized. The Company paid interest on revolving credit, long-term debt and
interest rate swap agreements of approximately $15.1 million , $25.4 million and
$23.5 million in 1996, 1997 and 1998, respectively.
9. Common Stock: Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to 20 votes with respect to
matters submitted to a vote of shareholders. Each share of the Class B Common
Stock is convertible at any time, at the option of its holder, into one share of
Class A Common Stock. The Class B Common Stock will convert automatically into
Class A Common Stock, and thereby lose its special voting rights, if such Class
B Common Stock is sold or otherwise transferred to any person or entity other
than certain designated transferees.
To finance a portion of the purchase price for the Textile Business, the
Company sold 2.2 million shares of Class A Common Stock to investors for $40
million, less fees and expenses of $700,000. In connection with the sale, the
Company entered into shareholder and registration rights agreements which, among
other matters, grant the investors certain preemptive rights with respect to
future sales of common stock and certain registration rights with respect to the
investors' shares.
During fiscal 1998, the Company repurchased approximately 592,000 shares of
Class A Common Stock for an aggregate purchase price of $15.4 million. These
shares were repurchased
33
<PAGE> 35
pursuant to a tender offer, distributed to all shareholders and vested stock
option holders of the Company's Class A Common Stock, to purchase for cash up to
$18.0 million worth of Class A Common Stock. All shares repurchased have been
canceled and reinstated as authorized but unissued shares of Class A Common
Stock.
The Company maintains an employee Stock Option Plan that allows for the
grant of non-qualified and incentive stock options. Under this Stock Option
Plan, options to purchase up to 1,081,250 shares of Class A Common Stock may be
granted to full-time employees, including executive officers of the Company.
Activity under the plan is summarized as follows (option shares in thousands):
<TABLE>
<CAPTION>
Grant Price Per Share
---------------------
<S> <C> <C>
$12.50 $18.00
------ ------
Stock Options outstanding at August 25, 1995 .......... 640 --
Options granted .................................... -- 390
Options forfeited .................................. (50) --
---- ----
Stock Options outstanding at August 30, 1996 .......... 590 390
Options forfeited .................................. -- (25)
---- ----
Stock Options outstanding at August 29, 1997 .......... 590 365
Options redeemed at $24.00 to $28.00 per share ..... (85) (10)
Options forfeited .................................. -- (30)
---- ----
Stock Options outstanding at August 28, 1998 .......... 505 325
==== ====
Stock Options Exercisable at August 28, 1998 .......... 269 127
==== ====
</TABLE>
The exercise prices of the options granted approximated the fair market
value of the Company's Common Stock on the dates of grant. In conjunction with
the stock repurchase described above, certain participants in the Company's
Stock Option Plan redeemed options in exchange for an aggregate cash payment of
$1.2 million. The Company recorded the cost of the redemption as compensation
expense, which is included in selling and administrative expenses. Options
forfeited by employees leaving the Company are reinstated as available for
grant. All options granted vest ratably over five years and may be exercised for
a period of ten years. At August 28, 1998, there were 156,000 stock options
available for grant.
The Company adopted a Stock Option Plan for Non-employee Directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, each director will
automatically be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. Options granted are exercisable for a period of
ten years, subject to certain limitations. During 1998, 12,000 non-qualified
options were granted and remain outstanding and exercisable at August 28, 1998.
Pro forma information regarding the effect on the Company's results of
operations, assuming employee and non-employee director stock options had been
accounted for under the fair value method of FAS 123, was calculated using the
"minimum value" method which is permitted for companies with nonpublic equity.
The following weighted average assumptions were used in these calculations for
options granted in fiscal 1996 and 1998:
<TABLE>
<S> <C>
Risk free interest rate......................... 4.6%
Expected dividend yield......................... 2.2%
Expected lives.................................. 8 years
</TABLE>
34
<PAGE> 36
The total value of the options granted during fiscal 1996 and 1998 was
computed as approximately $669,000 and $21,000, respectively, which would be
amortized over the vesting period of the options. If the Company had accounted
for these plans in accordance with FAS 123, the reported net income and net
income per share would have decreased by the following pro forma amounts (in
thousands, except per share data):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net income:
As reported................................ $13,648 $22,937 $34,313
Pro forma.................................. 13,603 22,815 34,191
Net income per share:
Basic
As reported.............................. $ 1.16 $ 1.73 $ 2.62
Pro forma................................ 1.15 1.72 2.61
Diluted
As reported.............................. $ 1.15 $ 1.70 $ 2.58
Pro forma................................ 1.14 1.69 2.57
</TABLE>
Because the accounting provisions of FAS 123 only apply to options granted
after fiscal 1995, the pro forma compensation cost presented may not be
representative of that to be expected in future years.
10. Commitments and Contingencies: The Company is involved in certain
environmental matters and claims. The Company has provided reserves to cover
management's estimates of the cost of investigating, monitoring and remediating
these and other environmental conditions. If more costly remediation measures
are necessary than those believed to be probable based on current facts and
circumstances, actual costs may exceed the reserves provided. However, based on
the information currently available, management does not believe that the
outcome of these matters will have a materially adverse effect on its future
results of operations or financial position.
The Company is also a party to litigation incidental to its business from
time to time. The Company is not currently a party to any litigation that
management, in consultation with legal counsel, believes, if determined
adversely to the Company, would have a materially adverse effect on the
Company's financial condition or results of operations.
The Company leases certain of its facilities and equipment, primarily a
warehouse, several sales offices and computer equipment. Future minimum rental
payments required under such leases that have lease terms in excess of one year
are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................ $ 1,567
2000............................................ 1,531
2001............................................ 1,525
2002............................................ 1,158
2003............................................ 1,016
Thereafter...................................... 3,852
-------
$10,649
=======
</TABLE>
35
<PAGE> 37
Rent expense for operating leases totaled $2.1 million, $3.5 million and
$2.6 million for fiscal 1996, 1997 and 1998, respectively.
Commitments for future additions to plant and equipment were approximately
$14.0 million at August 28, 1998. Commitments for the purchase of raw materials
for fiscal 1999 and 2000 were approximately $170 million and $4 million,
respectively, at August 28, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required by Item 9 was previously reported by the Company
as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
Please see the Company's report on Form 8-K filed on April 22, 1998.
36
<PAGE> 38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and its wholly owned
subsidiary, Avondale Mills, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ----- --- --------------
<S> <C> <C>
G. Stephen Felker........... 46 Chairman of the Board, President and Chief
Executive Officer of the Company and
Avondale Mills
Jack R. Altherr, Jr......... 49 Vice Chairman, Chief Financial Officer,
Secretary and Director of the Company
and Avondale Mills
T. Wayne Spraggins.......... 61 Vice President of Avondale Mills and President,
Manufacturing Operations
Keith M. Hull............... 45 Vice President of Avondale Mills and
President, Apparel Fabrics
Robert G. Nelson............ 50 Vice President of Avondale Mills and
President, Avondale Yarns
Craig S. Crockard........... 56 Vice President, Planning and Development of
Avondale Mills
Bill W. Henry............... 64 Vice President, Raw Material Purchasing of
Avondale Mills
M. Delen Boyd............... 42 Vice President, Controller of Avondale
Mills, and Assistant Secretary of the Company
and Avondale Mills
J. Elliott Woodward......... 46 Vice President, Treasurer of Avondale
Mills, and Assistant Secretary of the Company
and Avondale Mills
Sharon L. Rodgers........... 42 Vice President, Human Resources of Avondale
Mills
Kenneth H. Callaway(1)...... 43 Director of the Company and Avondale Mills
Robert B. Calhoun(1)(2)(3).. 56 Director of the Company and Avondale Mills
Harry C. Howard(2).......... 69 Director of the Company and Avondale Mills
C. Linden Longino, Jr.(2)... 62 Director of the Company and Avondale Mills
Dale J. Boden(1)............ 41 Director of the Company and Avondale Mills
John P. Stevens(1).......... 69 Director of the Company and Avondale Mills
</TABLE>
- -----------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Mr. Calhoun has been elected a director of the Company pursuant to that
certain shareholder's agreement dated as of April 29, 1996 by and among the
Company and certain shareholders of the Company.
G. Stephen Felker has served as Chairman of the Board of the Company since
1992, President and Chief Executive Officer of the Company since 1980, and in
various other capacities since 1974. Mr. Felker has served as Chairman of the
Board and Chief Executive Officer of Avondale Mills since 1986, when the Company
acquired Avondale Mills, and President of Avondale Mills since 1995. Mr. Felker
serves as Chairman of the Georgia State Advisory Board of Wachovia Bank, N.A.
and as a director of Oneita Industries, Inc.
37
<PAGE> 39
Jack R. Altherr, Jr. has served as Vice Chairman of the Company and
Avondale Mills since May 1996, Chief Financial Officer and a director of the
Company since December 1989, Chief Financial Officer and Secretary of Avondale
Mills since October 1988 and a director of Avondale Mills since 1993. With the
exception of fiscal 1995, he has served as Secretary of the Company and
Avondale Mills since August 1993. Mr. Altherr has served the Company and
Avondale Mills in various other capacities since July 1982. Mr. Altherr serves
as a director of Oneita Industries, Inc.
T. Wayne Spraggins has served as Vice President of Avondale Mills and
President, Manufacturing Operations since May 1996. Mr. Spraggins joined
Avondale Mills as a standards engineer in August 1961 and has served Avondale
Mills in various other capacities, including Vice President, Manufacturing of
Avondale Mills, since that time.
Keith M. Hull has served as President, Apparel Fabrics, the apparel fabrics
division of Avondale Mills following the Graniteville Acquisition, since May
1996. Mr. Hull has served as Vice President of Avondale Mills since April 1989,
and has served the Company in various other capacities, including Vice
President, Marketing since 1977. Mr. Hull serves as a director of Cherokee, Inc.
Robert G. Nelson has served as President, Avondale Yarns, the yarns
division of Avondale Mills, since March 1996 and Vice President of Avondale
Mills since August 1993. Mr. Nelson has served the Company in various other
capacities, including Vice President, Walton Fabrics, since 1988.
Craig S. Crockard has served as Vice President, Planning and Development
of Avondale Mills since September 1983. Mr. Crockard has served Avondale Mills
in various other capacities, including Vice President, Corporate Services,
since September 1966.
Bill W. Henry has served as Vice President, Raw Material Purchasing of
Avondale Mills since July 1987. Mr. Henry has served Avondale Mills in various
other capacities, including Manager of the Cotton Department, since January
1969.
M. Delen Boyd has served as Vice President, Controller of Avondale Mills
and Assistant Secretary of the Company and Avondale Mills since May 1996. Mr.
Boyd has served as Controller of Avondale Mills since 1987. Mr. Boyd joined
Avondale Mills in 1982 and has served in various capacities, including Assistant
Controller and Corporate Director of Accounting and Taxes.
J. Elliott Woodward has served as Vice President, Treasurer of Avondale
Mills since May 1996. Mr. Woodward served as Vice President and Controller of
Graniteville Company from November 1993 to May 1996. Mr. Woodward joined
Graniteville Company in 1984 and served in various capacities from 1984 to May
1996, including Manager of General Accounting and Controller.
Sharon L. Rodgers has served as Vice President, Human Resources of
Avondale Mills since May 1996. Ms. Rodgers served as Vice President, Legal and
Assistant Secretary of Graniteville Company from 1993 to May 1996. Ms. Rodgers
joined Graniteville Company in 1980 and served in various other capacities at
Graniteville Company during the thirteen years ended in 1993.
Kenneth H. Callaway has served as a director of the Company since November
1987 and of Avondale Mills since August 1993. Mr. Callaway has been President of
Calgati Chemical Company, a specialty chemical manufacturer, since December
1991. From 1987 through 1991, Mr. Callaway served as president of three
privately-owned retail computer businesses.
Robert B. Calhoun has served as a director of the Company since August 1993
and of Avondale Mills since November 1991. He is presently a Managing Director
and Co-founder of Monitor Clipper Partners. Mr. Calhoun is also President of
Clipper Asset Management Corporation, the sole general
38
<PAGE> 40
partner of The Clipper Group, L.P., a private investment firm, since January
1991, and of Clipper Capital Corporation, the sole general partner of Clipper,
an affiliated private investment firm, since 1993. From 1975 to 1991, Mr.
Calhoun was a Managing Director of CS First Boston Corporation, an investment
banking firm. Mr. Calhoun is also a director of Interstate Bakeries Corporation,
Travel Centers of America, Inc., HVIDE Marine, Inc., Long John Silver's Corp.
and David's Bridal.
Harry C. Howard has served as a director of the Company since August 1993
and of Avondale Mills since July 1986. Mr. Howard retired from the law firm of
King & Spalding, where he had practiced law since 1956, as of December 31,
1992. Mr. Howard serves as a director of Crescent Banking Company, a bank
holding company.
C. Linden Longino, Jr. has served as a director of the Company since
November 1975 and of Avondale Mills since August 1993. Mr. Longino served as
Senior Vice President of SunTrust Bank, Atlanta from December 1978 until his
retirement in July 1996. During his 34-year career with SunTrust Bank, Atlanta,
Mr. Longino served in various management capacities.
Dale J. Boden has served as a director of the Company and Avondale Mills
since November 1994. Mr. Boden has served as President and Chief Executive
Officer of B.F. Capital, Inc., a private investment company, since January
1993.
John P. Stevens has served as a director of the Company since January 1970
and of Avondale Mills since July 1986. Mr. Stevens served as Executive Vice
President of Wachovia Bank, N.A. from April 1981 until his retirement in
January 1994 and was responsible for managing the Government Banking and Public
Finance Department. Mr. Stevens served as a consultant to Wachovia Bank, N.A.
from February 1994 to February 1996. In addition, from February 1994 until the
present time, Mr. Stevens has been a partner in The Stevens Group, a consulting
firm specializing in providing assistance in a wide range of business and
governmental affairs.
During fiscal 1998, the Company paid each non-employee director a quarterly
fee of $5,250 plus reimbursement of out-of-pocket expenses.
The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, each director will
automatically be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. Options granted are exercisable for a period of
ten years, subject to certain limitations. During 1998, 12,000 non-qualified
options were granted, and remained outstanding and exercisable at August 28,
1998.
The directors of the Company are elected annually by the shareholders of
the Company. All executive officers of the Company are elected annually by and
serve at the discretion of the Board of Directors.
39
<PAGE> 41
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table. The table below sets forth certain information
concerning the compensation earned during fiscal 1998, 1997 and 1996 by the
Company's Chief Executive Officer and its four other most highly compensated
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3)
- ---------------------------- ------ --------- ----------- ------------------
<S> <C> <C> <C> <C>
G. Stephen Felker............. 1998 800,016 914,326 7,039
Chairman of the Board, 1997 800,016 1,073,601 16,783
President and Chief 1996 795,516 918,587 14,076
Executive Officer
Jack R. Altherr, Jr........... 1998 308,340 174,731 10,413
Vice Chairman, Chief 1997 291,668 197,470 8,769
Financial Officer and 1996 248,008 153,925 7,304
Secretary
T. Wayne Spraggins............ 1998 258,348 140,016 15,999
Vice President and 1997 241,260 162,157 12,783
President, Manufacturing 1996 196,268 120,797 10,654
Operations
Keith M. Hull................. 1998 258,348 134,940 9,036
Vice President and 1997 240,008 160,418 7,329
President, Apparel Fabrics 1996 187,508 101,835 6,232
Robert G. Nelson.............. 1998 152,500 72,160 8,243
Vice President and 1997 150,000 68,285 7,072
President, Avondale Yarns 1996 133,758 32,379 5,988
</TABLE>
- ---------------
(1) The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(2) Amounts shown include cash bonuses earned under the Company's management
incentive plan, payments received in the Company's distribution of cash
profit sharing to all eligible associates of the Company, payments received
in lieu of profit sharing contributions under the Company's Associate
Profit Sharing and Savings Plan on compensation in excess of qualified plan
limits, and such other payments as the Compensation Committee of the Board
of Directors elects to make based upon the Company's and respective
officer's performance.
(3) Amounts shown reflect, for fiscal 1996, (i) matching 401(k) contributions
made by the Company to the Company's Associate Profit Sharing and Savings
Plan of $1,125 on behalf of each Named Executive Officer, (ii) profit
sharing contributions made by the Company to the Company's Associate Profit
Sharing and Savings Plan of $3,560 on behalf of each Named Executive
Officer and (iii) life insurance premiums of $9,391, $2,619, $5,969, $1,547
and $1,303 paid by the Company on behalf of Messrs. Felker, Altherr,
Spraggins, Hull and Nelson, respectively. Amounts shown reflect, for fiscal
1997, (i) matching 401(k) contributions made by the Company
40
<PAGE> 42
to the Company's Associate Profit Sharing and Savings Plan of $1,125 on
behalf of each Named Executive Officer, (ii) profit sharing contributions
made by the Company to the Company's Associate Profit Sharing and Savings
Plan of $4,456 on behalf of each Named Executive Officer and (iii) life
insurance premiums of $11,202, $3,188, $7,202, $1,748 and $1,491 paid by
the Company on behalf of Messrs. Felker, Altherr, Spraggins, Hull and
Nelson, respectively. Amounts shown reflect, for fiscal 1998, (i) matching
401(k) contributions made by the Company to the Company's Associate Profit
Sharing and Savings Plan of $1,200 on behalf of each Named Executive
Officer, (ii) profit sharing contributions made by the Company to the
Company's Associate Profit Sharing and Savings Plan of $5,032 on behalf of
each Named Executive Officer and (iii) life insurance premiums of $4,181,
$9,767, $2,804 and $2,011 paid by the Company on behalf of Messrs. Altherr,
Spraggins, Hull and Nelson, respectively and taxable income of $807 to Mr.
Felker, in conjunction with a split dollar insurance agreement.
Aggregated Options Table. The table below sets forth certain information
with respect to options held at the end of fiscal 1998 by each Named Executive
Officer. No options were granted to employees during fiscal 1998.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE(2)
----------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
G. Stephen Felker.... -- -- 154,000/111,000 $1,408,000/ $972,000
Jack R. Altherr, Jr.. -- -- 70,000/ 55,000 610,000/ 440,000
T. Wayne Spraggins... 30,000 $345,000 10,000/ 35,000 40,000/ 250,000
Keith M. Hull........ 3,999 61,985 36,001/ 35,000 287,010/ 250,000
Robert G. Nelson..... 2,399 37,185 11,601/ 16,000 66,210/ 86,000
</TABLE>
- -----------------
(1) The values shown are based on the amount paid by the Company to repurchase
shares of its Class A Common Stock on May 10, 1998 in connection with a
tender offer made to all holders of Class A Common Stock.
(2) All options are options to purchase Class A Common Stock of Avondale
Incorporated. There is no existing public market for the Class A Common
Stock. The values shown are based on management's estimate of the fair
market value of the Class A Common Stock at August 28, 1998.
Long-Term Incentive Plans. The table below sets forth certain information
with respect to phantom units held at the end of fiscal 1998 by each Named
Executive Officer. No phantom units were awarded during fiscal 1998.
41
<PAGE> 43
LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 28, 1998
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED FUTURE
PHANTOM UNITS PERIOD UNTIL PAYOUTS FOR ALL
NAME HELD(1) PAYOUT (YEARS) PHANTOM UNITS HELD(2)
---- ------------- -------------- ---------------------
<S> <C> <C> <C>
G. Stephen Felker..... 150 18 $1,293,278
Jack R. Altherr, Jr... 90 16 775,967
T. Wayne Spraggins.... 50 4 431,093
Keith M. Hull......... 90 19 775,967
Robert G. Nelson...... -- -- --
</TABLE>
- ----------------
(1) Each phantom unit equals 398.606 phantom shares. The value of each phantom
share is equal to the result obtained by dividing (i) five times Avondale's
earnings before depreciation, amortization, LIFO inventory adjustments,
interest and income taxes for the 10 fiscal quarters immediately preceding
such date divided by 2.5, plus (ii) certain "balance sheet adjustments" by
the sum of (i) the aggregate number of outstanding phantom shares plus (ii)
the aggregate number of outstanding shares of Class A Common Stock and
Class B Common Stock of the Company. Phantom units vest at the rate of 5.0%
per year for each full and uninterrupted year that the Named Executive
Officer remains employed by the Company after August 31, 1989, and vest
fully if the Named Executive Officer dies before his employment is
terminated. The value of vested phantom units is payable beginning on the
later of the date on which the Named Executive Officer reaches the age of
65 or the date on which the employment of such Named Executive Officer
terminates (the "Normal Payment Date"), in 10 equal annual installments,
with interest equal to the one-year U.S. Treasury Bill rate in effect on
the Normal Payment Date. If the Named Executive Officer dies before his
employment with the Company is terminated, the value of his phantom units
on the date of death is payable to his beneficiary as described above. If
the Named Executive Officer dies after his Normal Payment Date, the present
value of the balance of the annual installments is payable in a lump sum to
his beneficiary. A Named Executive Officer will forfeit all interest in his
Phantom Stock Units (whether or not vested) if he violates certain
non-compete covenants applicable during such Named Executive Officer's
employment and for a period of five years after termination of such
employment.
(2) There are no threshold, target or maximum amounts payable with respect to
phantom unit awards made by the Company. The amounts shown reflect the
future value, excluding interest payable during the installment payment
period, as of September 1, 1998, of vested and non-vested phantom units
held at the end of fiscal 1998 based on the results of the Company for the
10 fiscal quarters ended August 28, 1998.
42
<PAGE> 44
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors during fiscal 1998
consisted of John P. Stevens, Chairman of the Compensation Committee, Dale J.
Boden, Robert B. Calhoun and Kenneth H. Callaway. None of the members of the
Compensation Committee is an employee of the Company. During fiscal 1998, the
Compensation Committee was responsible for (i) establishing the compensation
for the Company's Named Executive Officers and (ii) administering the Company's
Stock Option Plan.
Compensation Policy. The Company's executive compensation policy is
designed to attract, retain and motivate executive officers to maximize the
Company's performance and shareholder value by:
- providing base salaries that are market-competitive;
- rewarding the achievement of the Company's business plan goals and
earnings objectives; and
- creating stock ownership opportunities to align the interests of
executive officers with those of shareholders.
In light of the Company's compensation policy, the primary components of
its executive compensation program for fiscal 1998 included base salaries, cash
bonuses and stock options.
Base Salary. Each executive officer's base salary, including the Chief
Executive Officer's base salary, is determined based upon a number of factors
including the executive officer's responsibilities, contribution to the
achievement of the Company's business plan goals, demonstrated leadership skills
and overall effectiveness, and length of service. Base salaries are also
designed to be competitive with those offered in the various markets in which
the Company competes for executive talent and are analyzed with a view towards
desired base salary levels over a three-year to five-year time period. Each
executive officer's salary is reviewed annually and although these and other
factors are considered in setting base salaries, no specific weight is given to
any one factor. During fiscal 1998, the base salary of each Named Executive
Officer other than the Chief Executive Officer was increased by 2% to 4% over
each such executive officer's fiscal 1997 base salary. Mr. Felker's base salary
has not been adjusted since November 1, 1995.
Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive an annual cash bonus under the management
incentive plan. The Company's management incentive plan is designed to motivate
key managers and sales people as well as executive officers and reward the
achievement of specific business plan goals. Under the Company's management
incentive plan, in fiscal 1998, certain executive officers were eligible to earn
a cash bonus in an amount from 12.5% up to 125% of their respective base
salaries depending on a number of factors including, without limitation, the
Company's financial performance. In addition, the executive officers may receive
additional cash bonuses at the discretion of the Compensation Committee of the
Board of Directors based upon the Company's and the respective officer's
performance, including payments in lieu of profit sharing contributions under
the Company's Associate Profit Sharing and Savings Plan on compensation in
excess of qualified plan limits. During fiscal 1998, the Named Executive
Officers other than the Chief Executive Officer earned bonuses ranging from 47%
to 57% of their respective base salaries. Mr. Felker's bonus was equal to 114%
of his base salary.
Stock Options. The grant of stock options is designed to align the
interests of executive officers with those of shareholders in the Company's
long-term performance. Stock options granted have exercise prices equal to the
fair market value of the underlying shares on the date of grant so that
compensation is earned only through long-term appreciation in the fair market
value of the underlying shares. Stock
43
<PAGE> 45
options are granted from time to time if warranted by the Company's growth and
profitability and individual grants are based on, among other things, the
executive officer's responsibilities and individual performance. To encourage an
executive officer's long-term performance, stock options generally vest over
five years and terminate ten years after the date of grant. The creation of
opportunities to own stock is considered the most significant component in an
executive officer's compensation package. During fiscal 1998, the Named
Executive Officers did not receive any stock option grants.
John P. Stevens
Dale J. Boden
Robert B. Calhoun
Kenneth H. Callaway
THE FOREGOING REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS ANNUAL REPORT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE
ACT OF 1934 (TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACTS.
44
<PAGE> 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of November 9, 1998, by (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding Class A Common Stock or Class B Common Stock, (ii) each of the
Named Executive Officers, (iii) each of the directors of the Company and (iv)
all directors and executive officers of the Company as a group. Except as set
forth below, the shareholders named below have sole voting and investment power
with respect to all shares of Common Stock shown as being beneficially owned by
them.
<TABLE>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF CLASS A OF CLASS B PERCENTAGE
COMMON STOCK COMMON STOCK OF
NUMBER PERCENT NUMBER PERCENT COMBINED
NAME OF BENEFICIAL OWNER(1) OF SHARES OF CLASS OF SHARES OF CLASS VOTING POWER
- --------------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
G. Stephen Felker(2)................. 4,274,689 33.2% 978,939 100% 72.7%
Jack R. Altherr, Jr.(3).............. 197,199 1.7% -- -- *
T. Wayne Spraggins(4)................ 90,000 * -- -- *
Keith M. Hull(5)..................... 96,001 * -- -- *
Robert G. Nelson(6).................. 15,051 * -- -- *
Dale J. Boden(7)..................... 105,000 * -- -- *
Kenneth H. Callaway(8)............... 12,000 * -- -- *
Robert B. Calhoun(9)(10)(11)......... 2,302,823 19.7% -- -- 7.4%
Harry C. Howard(12).................. 47,000 * -- -- *
C. Linden Longino, Jr.(13)........... 27,250 * -- -- *
John P. Stevens(14).................. 105,000 * -- -- *
The Clipper Group(10)(11)(15)........ 2,277,523 19.5% -- -- 7.3%
Grayward Company(16)................. 3,497,740 29.9% -- -- 11.2%
Felker Investments, Ltd.(17)......... 2,093,750 17.9% -- -- 6.7%
Avondale Mills, Inc. Associate Profit
Sharing and Savings Plan(18)......... 600,000 5.1% -- -- 1.9%
All directors and executive officers
as a group (16 persons).............. 7,310,791 55.9% 978,939 100% 81.8%
</TABLE>
- ----------------
* Less than 1%
(1) Except as otherwise noted, the address of each person who is an officer or
a director of the Company is c/o Avondale Mills, Inc., 506 South Broad
Street, Monroe, Georgia 30655.
(2) Includes (i) 2,093,750 shares of Class A Common Stock held of record by
Felker Investments, Ltd., a partnership of which Mr. Felker is the general
partner (as the general partner, Mr. Felker is deemed to beneficially own
such shares under Rule 13d-3 under the Exchange Act), (ii) 978,939 shares
of Class A Common Stock issuable upon conversion of the 978,939 shares of
Class B Common Stock beneficially owned by Mr. Felker and (iii) 202,000
shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Felker, which shares are deemed beneficially
owned by Mr. Felker under Rule 13d-3 under the Exchange Act.
(3) Includes 90,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Altherr, which shares are deemed
beneficially owned by Mr. Altherr under Rule 13d-3 under the Exchange Act.
(4) Includes 20,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Spraggins, which shares are deemed
beneficially owned by Mr. Spraggins under Rule 13d-3 under the Exchange
Act.
45
<PAGE> 47
(5) Includes 46,001 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Hull, which shares are deemed
beneficially owned by Mr. Hull under Rule 13d-3 under the Exchange Act.
(6) Includes 13,601 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Nelson, which shares are deemed
beneficially owned by Mr. Nelson under Rule 13d-3 under the Exchange Act.
(7) Reflects (i) 2,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Boden, which shares are deemed
beneficially owned by Mr. Boden under Rule 13d-3 under the Exchange Act,
and (ii) 3,000 shares beneficially owned by Textile Capital Partners,
and (iii) 100,000 shares beneficially owned by The Sterling Trust;
Hilliard Lyons Trust Co. Trustee, with respect to which Mr. Boden is a
beneficiary and has shared voting and investment power. Mr. Boden is the
majority shareholder of Textile Capital Partners and, consequently is
deemed to beneficially own under Rule 13d-3 under the Exchange Act all of
the shares beneficially owned by these entities.
(8) Includes 2,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Callaway, which shares are deemed
beneficially owned by Mr. Callaway under Rule 13d-3 under the Exchange Act.
(9) The address of Mr. Calhoun is c/o Clipper Capital Partners, L.P., 650
Madison Avenue, New York, New York 10022.
(10) Includes (i) 2,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Calhoun, which shares are deemed
beneficially owned by Mr. Calhoun under Rule 13d-3 under the Exchange Act,
(ii) shares beneficially owned by Clipper Capital Associates, L.P. ("CCA"),
Clipper/Merchant Partners, L.P., Clipper Equity Partners I, L.P.,
Clipper/Merban L.P. ("Merban"), Clipper/European Re, L.P. and CS First
Boston Merchant Investments 1995/96, L.P. ("Merchant"), (whose address is
650 Madison Avenue, 9th Floor, New York, New York 10022).
(11) CCA is the general partner of all of the Clipper Group partnerships other
than Merchant. The general partner of CCA is Clipper Capital Associates,
Inc. ("CCI"), and Mr. Calhoun is the sole stockholder and a director of
CCI. Clipper, an affiliate of Mr. Calhoun, has sole voting and investment
power with respect to the shares of Class A Common Stock beneficially owned
by Merchant. As a result, each of Mr. Calhoun, CCA and CCI is deemed to
beneficially own all shares of Class A Common Stock beneficially owned by
the Clipper Group (other than Merchant), and Mr. Calhoun is deemed to
beneficially own the shares of Class A Common Stock beneficially owned by
Merchant. It is anticipated that Merban will beneficially own shares of
Class A Common Stock representing approximately 5.9% of the outstanding
Class A Common Stock and Clipper/Merchant Partners, L.P., will beneficially
own shares of Class A Common Stock representing approximately 5.0% of the
outstanding Class A Common Stock. Each of the other members of the Clipper
Group will beneficially own less than 5.0% of the outstanding Class A
Common Stock.
(12) Includes 2,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Howard, which shares are deemed
beneficially owned by Mr. Howard under Rule 13d-3 under the Exchange Act.
(13) Includes (i) 14,500 shares beneficially owned by Mr. Longino's spouse, and
(ii) 2,000 shares of Class A Common Stock issuable upon exercise of stock
options beneficially owned by Mr. Longino, which shares are deemed
beneficially owned by Mr. Longino under Rule 13d-3 under the Exchange Act.
(14) Includes (i) 13,000 shares beneficially owned by Mr. Stevens' spouse, for
which Mr. Stevens shares neither voting nor investment power, and (ii)
2,000 shares of Class A Common Stock issuable upon exercise of stock
options beneficially owned by Mr. Stevens, which shares are deemed
beneficially owned by Mr. Stevens under Rule 13d-3 under the Exchange Act.
(15) Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First
Boston Corporation, is the general partner of Merchant and the 99% limited
partner of Clipper/Merchant Partners, L.P. CS
46
<PAGE> 48
Holding, an affiliate of CS First Boston Corporation, is the indirect 99%
limited partner of Merban. None of Merchant, Merchant Capital, CS First
Boston Corporation and CS Holding is an affiliate of Clipper or CCA.
(16) Grayward Company's address is c/o SunTrust Bank, Nashville, N.A., P.O. Box
305110, Nashville, Tennessee 37230. Grayward Company is a trust of which
SunTrust Bank, Nashville, N.A. serves as trustee. As trustee, SunTrust
Bank, Nashville, N.A. is deemed to beneficially own under Rule 13d-3 under
the Exchange Act all of the shares beneficially owned by Grayward Company.
(17) The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506 South
Broad Street, Monroe, Georgia 30655.
(18) The address of the Avondale Mills, Inc. Associate Profit Sharing and
Savings Plan (the "Plan") is c/o Wachovia Bank, N.A., P.O. Box 3099,
Winston-Salem, N.C. 27150. Wachovia Bank, N.A., serves as trustee for the
Plan and, as such, is deemed to beneficially own under Rule 13d-3 under the
Exchange Act all of the shares beneficially owned by the Plan.
47
<PAGE> 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
48
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following Consolidated Financial Statements of the Company and its
consolidated subsidiaries and the Report of the Independent Auditors, included
in the Registrant's Annual Report to Shareholders for the year ended August 28,
1998 are included in Part II, Item 8.
Report of Independent Auditors
Consolidated Balance Sheets as of August 29, 1997 and August 28, 1998
Consolidated Statements of Income -- Fiscal Years Ended August 30, 1996,
August 29, 1997 and August 28, 1998
Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended
August 30, 1996, August 29, 1997 and August 28, 1998
Consolidated Statements of Cash Flows -- Fiscal Years Ended August 30,
1996, August 29, 1997 and August 28, 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules of the Company.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C> <C>
2.1 -- Asset Purchase Agreement, dated March 31, 1996 among Avondale
Incorporated, Avondale Mills, Inc., Graniteville Company and
Triarc Companies, Inc. (incorporated by reference to Exhibit
2.1 to the Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01).
3.1 -- Restated and Amended Articles of Incorporation of Avondale
Incorporated (incorporated by reference to Exhibit 3.1 to
Avondale Incorporated's Registration Statement on Form S-4,
File No. 333-5455-01).
3.2 -- Bylaws of Avondale Incorporated (incorporated by reference to
Exhibit 3.2 to Avondale Incorporated's Registration Statement
on Form S-4, File No. 333-5455-01).
4.1 -- Indenture for the Notes between Avondale Incorporated,
Avondale Mills, Inc. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
4.2 -- Amended and Restated Credit Agreement, dated as of April 29,
1996, among Avondale Mills, Inc., the Banks listed therein and
Wachovia Bank, N.A., as Agent (incorporated by reference to
Exhibit 4.3 to Avondale Incorporated's Registration Statement
on Form S-4, File No. 333-5455-01).
4.3 -- Amended and Restated Security Agreement, dated April 29, 1996,
between Avondale Mills, Inc. and Wachovia Bank, N.A., as Agent
for the Banks which are parties to the Amended and Restated
Credit Agreement (incorporated by reference to Exhibit 4.4 to
Avondale Incorporated's Registration Statement on Form S-4,
File No. 333-5455-01).
4.4 -- Amended and Restated Parent Guaranty, dated April 29, 1996,
executed by Avondale Incorporated in favor of Wachovia Bank,
N.A., as Agent for the Banks which are parties to the Amended
and Restated Credit Agreement (incorporated by
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C> <C>
reference to Exhibit 4.5 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
4.5 -- Amended and Restated Stock Pledge Agreement, dated April 29,
1996, between Wachovia Bank, N.A., as Agent for the Banks
which are parties to the Amended and Restated Credit
Agreement, and Avondale Incorporated (incorporated by
reference to Exhibit 4.6 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
4.6 -- Agreement to Provide Certain Debt Instruments to the
Commission upon Request (incorporated by reference to Exhibit
4.7 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.1 -- Receivables Purchase Agreement, dated April 29, 1996, among
Avondale Mills, Inc., as Servicer, and Avondale Receivables
Company (incorporated by reference to Exhibit 10.1 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.2 -- Pooling and Servicing Agreement, dated April 29, 1996, among
Avondale Receivables Company, Avondale Mills, Inc. and
Manufacturers and Traders Trust Company (incorporated by
reference to Exhibit 10.2 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.3 -- Amendment No. 1 to Pooling and Service Agreement and
Receivables Purchase Agreement; dated November 21, 1997, among
Avondale Receivables Company, Avondale Mills, Inc., and
Manufacturers and Traders Trust Company.
10.4 -- Amended and Restated Series 1996-1 Supplement to the Pooling
and Servicing Agreement, dated November 21, 1997, among
Avondale Receivables Company, Avondale Mills, Inc. and
Manufacturers and Traders Trust Company.
10.5 -- Amended and Restated Certificate Purchase Agreement, dated
November 21, 1997, among Avondale Receivables Company,
Avondale Mills, Inc., the purchasers described therein and
First National Bank of Chicago, as Agent.
10.6 -- Registration Rights Agreement, dated April 29, 1996 between
Avondale Incorporated and the Persons listed therein
(incorporated by reference to Exhibit 10.8 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.7 -- Shareholders Agreement, dated April 29, 1996 among Avondale
Incorporated, the Investors listed therein, the Shareholders
listed therein and Clipper Capital Partners, L.P., in its
capacity as Purchaser Representative under the Agreement
(incorporated by reference to Exhibit 10.9 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.8 -- Post-Merger Stock Transfer and Repurchase Agreement, dated
August 27, 1993 by and among Avondale Incorporated,
Metropolitan Life Insurance Company, 1985 Merchant Investment
Partnership, Merchant LBO, Inc., G. Stephen Felker, John F.
Maypole and Jack R. Altherr, Jr. (incorporated by reference to
Exhibit 10.10 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.9 -- Post-Merger Stock Transfer and Repurchase Agreement, dated
August 27, 1993 by and among Avondale Incorporated,
Metropolitan Life Insurance Company, 1985 Merchant Investment
Partnership, Merchant LBO, Inc., G. Stephen Felker, John F.
Maypole and T. Wayne Spraggins (incorporated by reference to
Exhibit 10.11 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.10 -- Avondale Incorporated Stock Option Plan (incorporated by
reference to Exhibit 10.12 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.11 -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan
(incorporated by reference to Exhibit 10.13 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
10.12 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
G. Stephen Felker.
10.13 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive
Plan for Jack R. Altherr, Jr.
10.14 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
T. Wayne Spraggins.
10.15 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
Keith Hull.
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C> <C>
10.16 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
Robert G. Nelson.
10.17 -- Phantom Unit Awards to G. Stephen Felker (incorporated by
reference to Exhibit 10.19 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.18 -- Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by
reference to Exhibit 10.21 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.19 -- Phantom Unit Awards to T. Wayne Spraggins (incorporated by
reference to Exhibit 10.23 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.20 -- Phantom Unit Awards to Keith M. Hull (incorporated by
reference to Exhibit 10.19 to Avondale Incorporated 's 1996
Annual Report on Form 10-K,File No. 33-68412).
10.21 -- Supply Agreement dated March 31, 1996 between the Company and
C.H. Patrick & Co., Inc. (incorporated by reference to Exhibit
10.24 to Avondale Incorporated's Registration Statement on
Form S-4, File No. 33-5455-01).
10.22 -- Avondale Incorporated Stock Option Plan for Non-Employee
Directors, Dated April 10, 1997 (incorporated by reference to
Exhibit 10.23 to Avondale Incorporated's 1997 Annual Report on
Form 10-K, File No. 33-68412).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
27.1 -- Financial Data Schedule (for SEC use only).
27.2 -- Restated Financial Data Schedule (for SEC use only).
</TABLE>
- -------------
(b) Reports on Form 8-K
Not applicable.
(c) See Item 14(a)(3) and separate Index to Exhibits attached hereto.
51
<PAGE> 53
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.
AVONDALE INCORPORATED
By: /s/ G. STEPHEN FELKER
------------------------------------
Name: G. Stephen Felker
Title: Chairman of the Board,
President and
Chief Executive Officer
Date: November 11, 1998
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 the dates indicated:
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ G. STEPHEN FELKER Chairman of the Board, November 11, 1998
- ---------------------- President and Chief Executive
G. Stephen Felker Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ JACK R. ALTHERR, JR. Vice Chairman, Chief November 11, 1998
- ------------------------- Financial Officer and
Jack R. Altherr, Jr. Director
DIRECTORS:
/s/ DALE J. BODEN Director November 11, 1998
- ------------------
Dale J. Boden
/s/ ROBERT B. CALHOUN Director November 11, 1998
- ----------------------
Robert B. Calhoun
/s/ KENNETH H. CALLAWAY Director November 11, 1998
- ------------------------
Kenneth H. Callaway
/s/ HARRY C. HOWARD Director November 11, 1998
- --------------------
Harry C. Howard
/s/ C. LINDEN LONGINO, JR. Director November 11, 1998
- ---------------------------
C. Linden Longino, Jr.
/s/ JOHN P. STEVENS Director November 11, 1998
- --------------------
John P. Stevens
</TABLE>
52
<PAGE> 54
SCHEDULE II
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
ACQUIRED (B)
BALANCE AT IN BALANCE
BEGINNING CHARGED TO COSTS GRANITEVILLE (A) AT END OF
DESCRIPTION OF PERIOD AND EARNINGS ACQUISITION DEDUCTIONS PERIOD
----------- --------- --------------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Year Ended August 30, 1996 Allowance for $ 2,239 $1,629 $8,907 $(1,615) $11,160
doubtful accounts
Year Ended August 29, 1997 Allowance for 11,160 3,473 -- (1,550) 13,083
doubtful accounts
Year Ended August 28, 1998 Allowance for doubtful 13,083 1,532 -- (7,572) 7,043
Accounts
</TABLE>
- ----------------------------
(A) Deductions represent customer account balances written off during the
period.
(B) At August 29, 1997 and August 28, 1998, the Balance at end of period
includes $7,565 and $4,510, respectively, related to accounts
receivable sold. These amounts are included in other accrued expenses
in the Consolidated Balance Sheets.
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C> <C>
2.1 -- Asset Purchase Agreement, dated March 31, 1996 among Avondale
Incorporated, Avondale Mills, Inc., Graniteville Company and Triarc
Companies, Inc. (incorporated by reference to Exhibit 2.1 to the
Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
3.1 -- Restated and Amended Articles of Incorporation of Avondale Incorporated
(incorporated by reference to Exhibit 3.1 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
3.2 -- Bylaws of Avondale Incorporated (incorporated by reference to Exhibit
3.2 to Avondale Incorporated's Registration Statement on Form S-4,
File No. 333-5455-01).
4.1 -- Indenture for the Notes between Avondale Incorporated, Avondale
Mills, Inc. and The Bank of New York, as Trustee (incorporated by reference
to Exhibit 4.1 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
4.2 -- Amended and Restated Credit Agreement, dated as of April 29, 1996,
among Avondale Mills, Inc., the Banks listed therein and Wachovia
Bank, N.A., as Agent (incorporated by reference to Exhibit 4.3 to
Avondale Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
4.3 -- Amended and Restated Security Agreement, dated April 29, 1996, between
Avondale Mills, Inc. and Wachovia Bank, N.A., as Agent for
the Banks which are parties to the Amended and Restated Credit
Agreement (incorporated by reference to Exhibit 4.4 to Avondale
Incorporated's Registration Statement on Form S-4, File No.
333-5455-01).
4.4 -- Amended and Restated Parent Guaranty, dated April 29, 1996, executed
by Avondale Incorporated in favor of Wachovia Bank, N.A., as
Agent for the Banks which are parties to the Amended and
Restated Credit Agreement (incorporated by reference to
Exhibit 4.5 to Avondale Incorporated's Registration Statement
on Form S-4, File No. 333-5455-01).
4.5 -- Amended and Restated Stock Pledge Agreement, dated April 29, 1996,
between Wachovia Bank, N.A., as Agent for the Banks which
are parties to the Amended and Restated Credit Agreement, and Avondale
Incorporated (incorporated by reference to Exhibit 4.6 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
4.6 -- Agreement to Provide Certain Debt Instruments to the Commission upon
Request (incorporated by reference to Exhibit 4.7 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
10.1 -- Receivables Purchase Agreement, dated April 29, 1996, among Avondale
Mills, Inc., as Servicer, and Avondale Receivables Company
(incorporated by reference to Exhibit 10.1 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.2 -- Pooling and Servicing Agreement, dated April 29, 1996, among Avondale
Receivables Company, Avondale Mills, Inc. and Manufacturers and Traders
Trust Company (incorporated by reference to Exhibit 10.2 to Avondale
Incorporated's Registration Statement on Form S-4, File No. 333-5455-01).
</TABLE>
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C> <C>
10.3 -- Amendment No. 1 to Pooling and Service Agreement and
Receivables Purchase Agreement, dated November 21, 1997, among
Avondale Receivables Company, Avondale Mills, Inc.,
and Manufacturers and Traders Trust Company.
10.4 -- Amended and Restated Series 1996-1Supplement to the Pooling
and Servicing Agreement, dated November 21, 1997, among
Avondale Receivables Company, Avondale Mills, Inc. and
Manufacturers and Traders Trust Company.
10.5 -- Amended and Restated Certificate Purchase Agreement, dated
November 21, 1997, among Avondale Receivables Company,
Avondale Mills, Inc., the purchasers described therein and
First National Bank of Chicago, as Agent.
10.6 -- Registration Rights Agreement, dated April 29, 1996 between
Avondale Incorporated and the Persons listed therein
(incorporated by reference to Exhibit 10.8 to Avondale
Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01).
10.7 -- Shareholders Agreement, dated April 29, 1996 among Avondale
Incorporated, the Investors listed therein, the Shareholders
listed therein and Clipper Capital Partners, L.P., in its
capacity as Purchaser Representative under the Agreement
(incorporated by reference to Exhibit 10.9 to Avondale
Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01).
10.8 -- Post-Merger Stock Transfer and Repurchase Agreement, dated
August 27, 1993 by and among Avondale Incorporated,
Metropolitan Life Insurance Company, 1985 Merchant Investment
Partnership, Merchant LBO, Inc., G. Stephen Felker, John F.
Maypole and Jack R. Altherr, Jr. (incorporated by reference to
Exhibit 10.10 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.9 -- Post-Merger Stock Transfer and Repurchase Agreement, dated
August 27, 1993 by and among Avondale Incorporated,
Metropolitan Life Insurance Company, 1985 Merchant Investment
Partnership, Merchant LBO, Inc., G. Stephen Felker, John F.
Maypole and T. Wayne Spraggins (incorporated by reference to
Exhibit 10.11 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.10 -- Avondale Incorporated Stock Option Plan (incorporated by reference to
Exhibit 10.12 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.11 -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan
(incorporated by reference to Exhibit 10.13 to Avondale Incorporated's
Registration Statement on Form S-4, File No. 333-5455-01).
10.12 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
G. Stephen Felker.
10.13 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
Jack R. Altherr, Jr.
10.14 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for
T. Wayne Spraggins.
</TABLE>
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C> <C>
10.15 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for Keith Hull.
10.16 -- Avondale Mills, Inc. Fiscal 1998 Management Incentive Plan for Robert G. Nelson.
10.17 -- Phantom Unit Awards to G. Stephen Felker (incorporated by reference to
Exhibit 10.19 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.18 -- Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by reference
to Exhibit 10.21 to Avondale Incorporated's Registration Statement on
Form S-4, File No. 333-5455-01).
10.19 -- Phantom Unit Awards to T. Wayne Spraggins (incorporated by reference to
Exhibit 10.23 to Avondale Incorporated's Registration Statement on Form
S-4, File No. 333-5455-01).
10.20 -- Phantom Unit Awards to Keith M. Hull (incorporated by
reference to Exhibit 10.19 to Avondale Incorporated's
1996 Annual Report on Form 10-K, File No.33-68412).
10.21 -- Supply Agreement dated March 31, 1996 between the Company
and C.H. Patrick & Co., Inc. (incorporated by reference to
Exhibit 10.24 to Avondale Incorporated's Registration
Statement on Form S-4, File No. 333-5455-01).
10.22 -- Avondale Incorporated Stock Option Plan for Non-Employee
Directors, dated April 10, 1997 (incorporated by reference to
Exhibit 10.23 to Avondale Incorporated's 1997 Annual Report on
Form 10-K, File No. 33-68412).
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
27.1 -- Financial Data Schedule (for SEC use only).
27.2 -- Restated Financial Data Schedule (for SEC use only).
</TABLE>
- ----------
(b) Reports on Form 8-K
Not applicable.
(c) See Item 14(a)(3) and separate Index to Exhibits attached hereto.
(d) Not applicable.
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1
TO POOLING AND SERVICING AGREEMENT
AND
RECEIVABLES PURCHASE AGREEMENT
dated as of November 21, 1997
among
AVONDALE RECEIVABLES COMPANY,
AVONDALE MILLS, INC.,
and
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
<PAGE> 2
This AMENDMENT No. 1 dated as of November 21, 1997 (this "Amendment")
is made among AVONDALE RECEIVABLES COMPANY, a Delaware corporation, as
transferor ("ARC"), AVONDALE MILLS, INC., a Delaware corporation, as the Seller
and initial Servicer ("Avondale"), and MANUFACTURERS AND TRADERS TRUST COMPANY,
a New York banking corporation, as Trustee (in that capacity, together with any
successor in that capacity, the "Trustee").
BACKGROUND
1. Avondale, ARC and the Trustee (together, the "Original Parties")
have entered into the Pooling and Servicing Agreement, dated as of April 29,
1996 (the "Pooling Agreement"); and Avondale and ARC have entered into the
Receivables Purchase Agreement, dated as of the same date and amended prior to
the date hereof (as so amended, the "Purchase Agreement"), pursuant to which
Avondale agreed to sell and contribute, and ARC agreed to purchase and receive,
certain Receivables.
2. Avondale and ARC wish to amend the Pooling Agreement and the
Purchase Agreement as provided herein, and the Trustee is willing to consent (by
its execution hereof) to such amendments subject to the conditions specified
herein.
NOW, THEREFORE, for good and valuable consideration (the receipt of
which is acknowledged) the parties agree as follows:
ARTICLE I
AMENDMENTS
SECTION 1.01 Definitions. Capitalized terms used but not otherwise
defined herein have the meanings set forth in Appendix A to the Pooling
Agreement.
SECTION 1.02 New Definitions. The following new defined terms are added
to Appendix A to the Pooling Agreement and the Purchase Agreement, each in the
proper alphabetical spot:
"Seller Security Document" means each security document, in form and
substance acceptable to the Buyer, delivered from time to time pursuant to any
provision of the Purchase Agreement, including Section 1.6, as each such
document may be amended, supplemented or otherwise modified from time to time.
"Transferor Assignment" means an assignment, in form and substance
acceptable to the Trustee, evidencing the transfer of the Transferred Assets by
the Transferor to the Trustee thereunder, as it may be amended, supplemented or
otherwise modified from time to time.
"Transferor Security Document" means each security document, in form
and substance acceptable to the Trustee, delivered from time to time pursuant to
any provision of the Pooling Agreement, including Section 2.1(e), as each such
document may be amended, supplemented or otherwise modified from time to time.
SECTION 1.03 Changes to Definitions. (a) The definitions of "Domestic
Person", "Receivable" "Seller Assignment Certificate", "Seller Transaction
Documents" and "Transaction Documents", in Appendix A to the Pooling Agreement
and the Purchase Agreement, are amended and restated to read as follows:
"Domestic Person" means, with respect to a Receivable, any Person that
has a place of business located in the United States of America, Puerto Rico, or
the Canadian provinces of Alberta, British Columbia, Manitoba, Ontario and
Quebec; provided that such place of business is the billing location for such
Receivables.
<PAGE> 3
"Receivable" means any right of any Seller to payment, whether
constituting an account, chattel paper, instrument, general intangible or
otherwise, arising from the sale of goods or services (including rights under
Bill and Hold arrangements) by such Seller or Graniteville Company (and
including the right to payment of any interest or finance charges and other
obligations with respect thereto).
"Seller Assignment Certificates" means assignments by a Seller,
substantially in the form of Exhibit B-1 and B-2 to the Purchase Agreement,
evidencing Transferor's acquisition of the Purchased Assets generated by the
Seller, as they may be amended, supplemented or otherwise modified from time to
time.
"Seller Transaction Documents" means the Purchase Agreement, the Seller
Assignment Certificates, the Seller Security Documents and the Account
Agreements.
"Transaction Documents" means each Seller Transaction Document, the
Pooling Agreement, the Seller Guaranty, each Supplement, each PI Agreement, each
agreement to purchase Investor Certificates, each Intercreditor Agreement, the
Transferor Security Documents, the Transferor Assignment and each other
agreement designated as a Transaction Document in any Supplement or PI
Agreement, as any of the same from time to time may be amended, supplemented,
amended and restated or otherwise modified in accordance with the terms thereof.
(b) The definition of "Excluded Receivable" shall be deleted in its
entirety.
SECTION 1.04 Changes to Purchase Agreement. (a) The second paragraph of
Section 1.6 of the Purchase Agreement is amended in its entirety to read as
follows:
It is, further, not the intention of Buyer or any Seller that
the conveyance of the Specified Assets by a Seller be deemed a grant of
a security interest in the Specified Assets by such Seller to Buyer to
secure a debt or other obligation of such Seller. However, in the event
that, notwithstanding the intent of the parties, any Specified Assets
are property of any Seller's estate, then (i) this Agreement also shall
be deemed to be and hereby is a security agreement under applicable
law, and (ii) the conveyance by such Seller provided for in this
Agreement shall be deemed to be a grant by such Seller to Buyer of, and
such Seller hereby grants to Buyer, a security interest in and to all
of such Seller's right, title and interest in, to and under the
Specified Assets to secure (1) the rights of Buyer hereunder and (2) a
loan by Buyer to such Seller in the amount of the related Purchase
Price of the Purchased Assets sold by it or the Unpaid Balance of any
Contributed Receivables and the Related Contributed Assets, as the case
may be. Each Seller and Buyer shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if
this Agreement were found to create a security interest in the
Specified Assets, such security interest would be a perfected security
interest of first priority (subject to Permitted Adverse Claims) in
favor of Buyer under applicable law and will be maintained as such
throughout the term of this Agreement.
(b) Clause (e) of Section 6.3 of the Purchase Agreement is amended
in its entirety to read as follows:
(e) Change in Name. Such Seller will not (i) change its
corporate name or (ii) change the name under or by which it does
business in any manner that would or may make any financing statement
or any instrument similar in effect filed by such Seller in accordance
herewith seriously misleading within the meaning of Section 9-402(7) of
an applicable enactment of the UCC or otherwise ineffective under the
laws of the applicable jurisdiction, in each case unless such Seller
shall have given Buyer, the Servicer, the Trustee and the Rating
Agencies 30 days' prior written notice thereof and unless, prior to any
change in name, such Seller shall have taken and completed all action
required by Section 7.3.
(c) The final paragraph of Section 7.3 of the Purchase Agreement
is amended in its entirety to read as follows:
Each Seller hereby authorizes Buyer or its designee to file
one or more financing or continuation statements, and amendments
thereto and assignments thereof and such other instruments or notices,
<PAGE> 4
relative to all or any of the Receivables and Related Assets of such
Seller, in each case whether now existing or hereafter generated by
such Seller. Except for material performance obligations of such Seller
to any Obligor hereunder or under any of the Contracts, if (i) such
Seller fails to perform any of its agreements or obligations under this
Agreement and does not remedy the failure within the applicable cure
period, if any, and (ii) Buyer in good faith reasonably believes that
the performance of such agreements and obligations is necessary or
appropriate to protect its interests under this Agreement, then Buyer
or its designee may (but shall not be required to) perform, or cause
performance of, such agreement or obligation and the reasonable
expenses of Buyer or its designee or assignee incurred in connection
with such performance shall be payable by such Seller as provided in
Section 9.1.
(d) Each reference in the Purchase Agreement to "Exhibit B" shall
be amended to refer to "Exhibit B-1 and Exhibit B-2".
(e) The Purchase Agreement shall be amended by adding Exhibit B-2
attached hereto as Exhibit B-2 thereto.
SECTION 1.05 Changes to Pooling Agreement.
(a) Clause (b) of Section 2.1 of the Pooling Agreement is amended
in its entirety to read as follows:
(b) In connection with the transfer described in subsection
(a), (i) Transferor will from time to time at its own expense, promptly
execute and deliver such assignments, instruments and documents
(including the Transferor Assignment) that Trustee may reasonably
request in order to perfect, protect and more fully evidence such
transfer and (ii) Transferor and Servicer shall record and file or
cause to be recorded and filed, as an expense of Servicer paid out of
the Servicing Fee, financing statements, assignments and such other
instruments, notices and documents with respect to the Transferred
Assets meeting the requirements of applicable law in such manner and in
such jurisdictions as are necessary to perfect the transfer and
assignment of the Transferred Assets to the Trust. In connection with
the transfer described in subsection (a), Transferor and Servicer
further agree to deliver to Trustee each Transferred Asset (including
any original documents or instruments included in the Transferred
Assets as are necessary to effect such transfer) in which the transfer
of an interest is perfected under the UCC or otherwise by possession.
Transferor or Servicer shall deliver each such Transferred Asset to
Trustee, as an expense of Servicer paid out of the Servicing Fee,
immediately upon the transfer of any such Transferred Asset to Trustee
pursuant to subsection (a).
(b) Clause (g) of Section 7.1 of the Pooling Agreement is amended
in its entirety to read as follows:
(g) Approvals. All authorizations, consents, orders and
approvals of, or other action by, any Governmental Authority or other
Person that are required to be obtained by Transferor, and all notices
to and filings with any Governmental Authority or other Person, that
are required to be made by it, in the case of each of the foregoing in
connection with the transfer of Receivables and Related Transferred
Assets to the Trust or the execution, delivery and performance by it of
this Agreement and any other Transaction Documents to which it is a
party and the consummation of the transactions contemplated by this
Agreement, have been obtained or made and are in full force and effect
(other than the filings referred to in Section 2.3(a)(i)(A), all of
which, at the time required in Section 2.3(a)(i)(A), will be duly
made), except where the failure to obtain or make any such
authorization, consent, order, approval, notice or filing, individually
or in the aggregate for all such failures, would not have a substantial
likelihood of having a Material Adverse Effect.
(c) Clause (f) of Section 8.1 of the Pooling Agreement is amended
in its entirety to read as follows:
(f) Approvals. All authorizations, consents, orders and
approvals of, or other action by, any Governmental Authority or other
Person that are required to be obtained by Servicer, and all notices to
and filings with any Governmental Authority or other Person that are
required to be made by it, in the
<PAGE> 5
case of each of the foregoing in connection with the execution,
delivery and performance by it of this Agreement and any other
Transaction Documents to which it is a party and the consummation of
the transactions contemplated by this Agreement, have been obtained or
made and are in full force and effect, except where the failure to
obtain or make such authorization, consent, order, approval, notice or
filing, individually or in the aggregate for all such failures, is not
likely to have a Material Adverse Effect.
SECTION 1.06 Changes to Both Purchase Agreement and Pooling Agreement.
The Purchase Agreement and Pooling Agreement shall each be amended as follows:
(a) Each reference to "perfected" shall be amended to refer to
"perfected and protected".
(b) Each reference to "financing statement" shall be amended to
refer to "financing statement or any instrument similar in effect".
(c) Each occurrence of the phrase "within the meaning of the UCC"
shall be amended to read "under applicable law".
(d) Each reference to "continuation statements" shall be amended
to refer to "continuation statements or any instrument similar in effect".
(e) Each reference to "state law" shall be amended to refer to
"state or foreign law"; provided that such amendment shall not be made to
Exhibit A of the Purchase Agreement.
(f) Each reference to "perfection" with respect to the perfection
or protection of a security interest shall be amended to refer to "perfection or
protection".
<PAGE> 6
ARTICLE II
CONDITIONS, REPRESENTATIONS AND WARRANTIES
SECTION 2.01 Conditions Precedent. This Amendment shall be effective
from and after the later of (a) November 21, 1997 or (b) the date upon which all
of the conditions precedent specified below have been satisfied (the "Effective
Date"). The conditions precedent are:
(i) The Trustee shall have received from each of Avondale and
ARC a certificate, dated as of the date hereof, of an Authorized
Officer as to:
(A) resolutions of its board of directors then in
full force and effect authorizing the execution, delivery and
performance of this Amendment,
(B) the incumbency and signature of those of its
officers authorized to act with respect to this Amendment,
upon which certificate the Trustee may conclusively rely.
(ii) The Trustee shall have received an opinion of counsel to
Avondale and ARC that the modifications to the Pooling Agreement and
the Purchase Agreement made pursuant to this Amendment are legal, valid
and binding upon each of Avondale and ARC and that such amendments are
permitted under the terms of the Pooling Agreement and the Purchase
Agreement.
(iii) The representations and warranties of Avondale and ARC
as set forth in the Transaction Documents shall continue to be true and
correct, and the Trustee shall have received the certificate of an
Authorized Officer of each of Avondale and ARC to the effect that the
representations and warranties continue to be true and correct.
(iv) The Trustee shall have received an original counterpart
of the Seller Assignment Certificate attached hereto as Exhibit B-2.
SECTION 2.02 Representations and Warranties. Each of Avondale and ARC
represents and warrants to the Trustee that:
(a) The execution and delivery by it of this Amendment, and the
performance of its obligations under the Pooling Agreement and the Purchase
Agreement as modified by this Amendment, are within its corporate powers, have
been duly authorized by all necessary corporate action, have received all
necessary governmental approvals other than Assignment of Claims Act filings (if
any shall be required), and other consents or approvals and do not and will not
contravene or conflict with, or create any Adverse Claim under, (i) any
provision of law, (ii) its constituent documents, (iii) any court or
administrative decree applicable to it or (iv) any contractual restriction
binding upon it or its property which conflict or adverse claim would have a
substantial likelihood of having Material Adverse Affect.
(b) This Amendment has been duly executed and delivered by it,
and the Pooling Agreement and the Purchase Agreement, as amended, are
its legal, valid and binding obligations, enforceable against it in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally and by general principles of
equity.
(c) The warranties made by it in the Pooling Agreement and the
Purchase Agreement are true and correct as of the date hereof as though
made on that date, except to the extent that the warranties
specifically relate to an earlier date.
<PAGE> 7
(d) After giving effect to this Amendment, no Early Event or
Unmatured Early Amortization Event shall have occurred and be
continuing.
SECTION 2.03 Representations and Warranties of Trustee2.03
Representations and Warranties of Trustee. The Trustee represents and warrants
that:
(a) it is a banking corporation organized, existing and in
good standing under the laws of the State of New York,
(b) it has full power, authority and right to execute, deliver
and perform this Amendment, and has taken all necessary action to
authorize the execution, delivery and performance by it of this
Amendment, and
(c) this Amendment has been duly executed and delivered by the
Trustee, and is a legal, valid and binding obligation of the Trustee,
enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 Miscellaneous. (a) THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) This Amendment may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, and all of which together shall
constitute one and the same agreement.
(c) Any reference to the Pooling Agreement or the Purchase Agreement
contained in any notice, request, certificate or other document executed
concurrently with or after the Effective Date shall be deemed to be a reference
to the Pooling Agreement or the Purchase Agreement as amended hereby. Except as
expressly modified hereby, the Transaction Documents hereby are ratified and
confirmed by the parties hereto. The amended Pooling Agreement, the amended
Purchase Agreement and the other Transaction Documents remain in full force and
effect.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Amendment as of the day and year first above
written.
AVONDALE RECEIVABLES COMPANY,
As Transferor
By: /s/ J. Elliott Woodward
--------------------------------------------
Title: Assistant Secretary
-------------------------------------------
Address: 506 South Broad Street
Monroe, Georgia 30655
Attention: Treasurer
Telephone: 707/267-2226
Facsimile: 707/267-2543
AVONDALE MILLS, INC., as initial Servicer
By: /s/ J. Elliott Woodward
--------------------------------------------
Title: Vice President, Treasurer and Assistant
-------------------------------------------
Secretary
-------------------------------------------
Address: 506 South Broad Street
Monroe, Georgia 30655
Attention: Chief Financial Officer
Telephone: 707/267-2226
Facsimile: 707/267-2543
The Trustee joins in this Amendment for purposes of
Evidencing its consent thereto.
MANUFACTURERS AND TRADERS TRUST
COMPANY, as Trustee
By: /s/ Russell T. Whitley
--------------------------------------------
Title Assistant Vice President
-------------------------------------------
Address: 1 M&T Plaza, 7th Floor
Buffalo, New York 14203-2399
Attention: Steve Wattie
Corporate Trust Department
Telephone: 716/842-5849
Facsimile: 716/842-4474
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
SERIES 1996-1 SUPPLEMENT
TO POOLING AND SERVICING AGREEMENT
dated as of November 21, 1997
among
AVONDALE RECEIVABLES COMPANY,
as Transferor,
AVONDALE MILLS, INC.,
as Servicer,
and
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS; INCORPORATION OF TERMS...............................1
SECTION 1.1 Definitions.................................................................1
SECTION 1.2 Modification Condition.....................................................12
SECTION 1.3 Incorporation of Terms.....................................................12
SECTION 1.4 Bill and Hold..............................................................12
SECTION 1.5 Agreed Upon Procedures.....................................................12
ARTICLE II
DESIGNATION..........................................12
SECTION 2.1 Designation................................................................12
ARTICLE III
SUBSTITUTE CERTIFICATE.....................................13
SECTION 3.1 Substitution of Certificate.................................................13
ARTICLE IV
PAYMENTS AND ALLOCATIONS....................................13
SECTION 4.1 Interest; Additional Amounts...............................................13
SECTION 4.2 Daily Calculations and Series Allocations..................................13
SECTION 4.3 Allocations of Daily Series Collections (Other Than in an Early
Amortization Period).......................................................14
SECTION 4.4 Allocations of Daily Series Collections During an Early Amortization
Period.....................................................................15
SECTION 4.5 Withdrawals from the Equalization Account..................................16
SECTION 4.6 Available Subordinated Amount..............................................16
SECTION 4.7 Write-Offs and Recoveries..................................................17
SECTION 4.8 Certain Dilution in an Early Amortization Period...........................17
SECTION 4.9 Defeasance.................................................................18
SECTION 4.10 Tax Opinion . ............................................................18
ARTICLE V
DISTRIBUTIONS AND REPORTS...................................18
SECTION 5.1 Distributions..............................................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.2 Special Distributions on the Refinancing Date..............................19
SECTION 5.3 Payments in Respect of Transferor Certificate..............................19
SECTION 5.4 Monthly Reports............................................................19
SECTION 5.5 Annual Tax Information.....................................................19
SECTION 5.6 Periodic Perfection Certificate............................................20
ARTICLE VI
EARLY AMORTIZATION EVENTS...................................20
SECTION 6.1 Early Amortization Events..................................................20
SECTION 6.2 Early Amortization Period..................................................22
ARTICLE VII
OPTIONAL REDEMPTION; INDEMNITIES................................22
SECTION 7.1 Optional Redemption of Investor Interests..................................22
SECTION 7.2 Indemnification by Transferor..............................................23
SECTION 7.3 Indemnification by Servicer................................................24
ARTICLE VIII
MISCELLANEOUS.........................................24
SECTION 8.1 Governing Law.............................................................24
SECTION 8.2 Counterparts..............................................................24
SECTION 8.3 Severability of Provisions................................................24
SECTION 8.4 Amendment, Waiver, Etc....................................................24
SECTION 8.5 Trustee...................................................................24
SECTION 8.6 Instructions in Writing...................................................24
SECTION 8.7 Rule 144A.................................................................25
SECTION 8.8 Original Supplement........................................................25
</TABLE>
<PAGE> 4
EXHIBITS AND SCHEDULES
Schedule I Agreed Upon Procedures
EXHIBIT A Form of Series 1996-1 Certificate
EXHIBIT B Form of Daily Report
Part 1. For Use other than in Early Amortization Period
Part 2. For Use in Early Amortization Period
EXHIBIT C Form of Cash Flow Report
EXHIBIT D Form of Monthly Report
Part 1. For Use other than in Early Amortization Period
Part 2. For Use in Early Amortization Period
EXHIBIT E Form of Seller Guaranty
<PAGE> 5
This AMENDED AND RESTATED SERIES 1996-1 SUPPLEMENT, dated as of
November 21, 1997 (this "Supplement"), is made among AVONDALE RECEIVABLES
COMPANY, a Delaware corporation, as Transferor, AVONDALE MILLS, INC., an Alabama
corporation, as the Initial Servicer, and MANUFACTURERS AND TRADERS TRUST
COMPANY, a New York banking corporation, as Trustee.
WHEREAS, the parties to this Supplement entered into a Series 1996-1
Supplement dated as of April 29, 1996 (the "Original Supplement") pursuant to
which a Series of Certificates ("Series 1996-1") was created;
WHEREAS, pursuant to the Pooling and Servicing Agreement, dated as of
April 29, 1996 (as it may be amended, supplemented or otherwise modified from
time to time, and as supplemented hereby, the "Pooling Agreement"), among
Transferor, Servicer and Trustee, Transferor has issued and may from time to
time issue, and direct Trustee to authenticate, on behalf of the Trust, one or
more Series of Certificates representing undivided interests in the Transferred
Assets. Certain terms applicable to a Series are to be set forth in a
Supplement. This Supplement is a "Supplement" as that term is defined in the
Pooling Agreement;
WHEREAS, the Transferor, the Initial Servicer and the Trustee wish to
amend and restate the Original Supplement in its entirety effective upon the
date hereof to read as set forth in this Supplement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
DEFINITIONS; INCORPORATION OF TERMS
SECTION I.1 Definitions. (a) Capitalized terms used and not otherwise
defined herein are used as defined in Appendix A to the Pooling Agreement. This
Supplement shall be interpreted in accordance with the conventions set forth in
Part B of that Appendix A.
(b) Each reference in this Supplement to funds on deposit in the
Carrying Cost Account, the Equalization Account or the Principal Funding Account
(or similar phrase) refers only to funds in the administrative sub-accounts of
those Accounts that are allocated to Series 1996-1. Unless the context otherwise
requires, in this Supplement: (i) each reference to a "Daily Report" or "Monthly
Report" refers to a Daily Report or Monthly Report for the Series 1996-1
Certificates; (ii) each reference to the "Servicing Fee" refers to the Servicing
Fee allocable to Series 1996-1; (iii) each reference to the "Series Collection
Allocation Percentage" or the "Series Loss Allocation Percentage" refers to the
Series Collection Allocation Percentage or Series Loss Allocation Percentage for
the Series 1996-1 Certificates; and (iv) each reference to the Transaction
Documents shall include a reference to the Certificate Purchase Agreement.
(c) Each capitalized term defined below relates only to the Series
1996-1 Certificates and to no other Series of Certificates. Whenever used in
this Supplement, the following words and phrases shall have the following
meanings:
"Acquisition Amount" means, on any day, the Invested Amount plus the
Deferred Portion (it being understood that the Acquisition Amount may vary from
day to day); provided that the Acquisition Amount shall be fixed on the last day
of the Revolving Period.
"Additional Amounts" means amounts payable pursuant to Sections 4.2,
4.3, 4.5, 4.6 and 10.5 of the Certificate Purchase Agreement.
1
<PAGE> 6
"Adjusted Eligible Receivables" means, on any Business Day, the result
of (a) the aggregate Unpaid Balance of Eligible Receivables held by the Trust on
that day, minus (b) the Unapplied Cash held by the Trust on that day, plus (c)
the Aggregate Retained Balances.
"Aged Receivables Ratio" means, as calculated in each Monthly Report as
of the Cut-Off Date for the related Calculation Period, a fraction (expressed as
a percentage) having (a) a numerator that is the sum of (i) the aggregate Unpaid
Balance of Receivables that remained outstanding 61 to 90 days after their
respective due dates, as determined as of the Cut-Off Date for such Calculation
Period, plus (ii) the aggregate Unpaid Balance of Receivables that were written
off as uncollectible during the most recently ended Calculation Period and that,
if not so written off, would have been outstanding not more than 60 days after
their respective due dates, as determined as of that Cut-Off Date and (b) a
denominator that is the aggregate amount payable pursuant to invoices giving
rise to Receivables that were generated by the Sellers during the Calculation
Period that occurred three Calculation Periods prior to the most recently ended
Calculation Period, as determined as of the Cut-Off Date for such prior
Calculation Period.
"Agent" means The First National Bank of Chicago ("FNBC"), in its
capacity as Agent under the Certificate Purchase Agreement, together with its
successors in that capacity. The Agent is an "Agent" for purposes of the Pooling
Agreement.
"Aggregate Retained Balances" means, on any Business Day, the aggregate
of the balances retained in Lockbox Accounts or Concentration Accounts for items
in the process of collection but for which funds have not been made available by
the related Lockbox Bank or Concentration Account Bank, provided that (i) no
notice of insufficient funds or similar situation shall exist with respect
thereto and (ii) the Unpaid Balance of Receivables shall have been reduced by an
amount equal to such balances.
"Amortization Period" means the period (x) beginning on the earlier of
(i) the date on which a termination notice is given by the Sellers pursuant to
Section 8.1 of the Purchase Agreement and (ii) November 15, 2002, and (y) ending
on the earlier of (i) the Expected Final Payment Date and (ii) the date, if any,
on which an Early Amortization Period commences.
"Applicable Margin" shall mean (i) with respect to any LIBOR Tranche
funded by the issuance of Notes, 0%, and (ii) with respect to any other LIBOR
Tranche, 0.50%.
"Applicable Ratings Factor" means 2.00.
"Applicable Reserve Ratio" means, during any Distribution Period, the
greater of (a) the Minimum Required Reserve Ratio and (b) the Required Reserve
Ratio, in each case as calculated in the Monthly Report required to be delivered
on the Report Date immediately prior to the start of that Distribution Period.
"Approval Condition" means, with respect to any specified event or
change in the terms applicable to this Supplement or the Series 1996-1
Certificates, such event or change shall have been approved in writing, prior to
becoming effective, by the Agent.
"ASA Measuring Period" means, for any Cut-Off Date falling in an Early
Amortization Period, the Calculation Period ending on that Cut-Off Date (or the
portion thereof falling after the Early Amortization Calculation Date, in the
case of the first Cut-Off Date falling in the Early Amortization Period).
"Available Subordinated Amount" means, at any time during an Early
Amortization Period, the amount calculated pursuant to Section 4.6.
"Avondale Credit Agreement" means the Amended and Restated Credit
Agreement dated as of April 29, 1996 among Avondale, the financial institutions
named therein, Wachovia Bank of Georgia, N.A., as Agent, and FNBC, as
Documentation Agent.
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<PAGE> 7
"BA Box" is defined in Section 1.5.
"BofA" is defined in Section 1.5.
"Base Amount" means, on any Business Day, the result of the following
formula:
[NER x SCAP x (100%-ARR)] - CCRR
where:
ARR = the Applicable Reserve Ratio in effect for that Business Day;
CCRR = the Carrying Cost Receivables Reserve for that Business Day;
NER = the Net Eligible Receivables for that Business Day; and
SCAP = the Series Collection Allocation Percentage for that Business
Day;
provided that: from and after the date upon which Transferor gives notice of
prepayment of the Series 1996-1 Certificates pursuant to Section 4.9, the Base
Amount shall equal the lower of (i) the Base Amount as calculated above and (ii)
the Base Amount as calculated for purposes of any Series of Certificates being
issued in connection with that prepayment.
"CBR Tranche" means, at any time, the portion of the Invested Amount
that is designated by Transferor in accordance with the Certificate Purchase
Agreement to accrue interest based on the Corporate Base Rate.
"Carrying Cost Cash Required Amount" means, on any Business Day, an
amount equal to the Current Carrying Costs.
"Carrying Cost Receivables Reserve" means, on any Business Day, the
result of:
(a) the Current Carrying Costs; plus
(b) the product of (i) the Invested Amount, multiplied by (ii)
1.50 times the Certificate Rate, multiplied by (iii) a fraction the
numerator of which is the product of 2 and the number of Turnover Days
and the denominator of which is 360; plus
(c) the product of (i) the Series Collection Allocation
Percentage on the next preceding Distribution Date, multiplied by (ii)
the aggregate Unpaid Balance of Receivables held by Trustee on the next
preceding Distribution Date, multiplied by (iii) 1.25%, multiplied by
(iv) a fraction the numerator of which is the product of 2 multiplied
by the number of Turnover Days and the denominator of which is 360;
minus
(d) the balance on deposit in the Carrying Cost Account at the
beginning of that Business Day.
"Cash Flow Report" means a report of the type described in Section
4.2(b).
"Certificate Purchase Agreement" means, that certain Amended and
Restated Certificate Purchase Agreement dated as of November 21, 1997 among
Transferor, Servicer, the Purchaser of the Series 1996-1 Certificates, and the
Agent. The Certificate Purchase Agreement is designated a "Transaction Document"
for the purposes of the Pooling Agreement.
"Certificate Rate" means, at any time, the interest rate on the Series
1996-1 Certificates.
"Closing Date" means April 29, 1996.
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<PAGE> 8
"Concentration Factor" means, as of any Cut-Off Date, the greatest of:
(i) the "Benchmark Percentage" for purposes of clause (c) of
the definition of "Excess Concentration Balances,"
(ii) two times the "Benchmark Percentage" for purposes of
clause (d) of that definition, and
(iii) four times the "Benchmark Percentage" for purposes of
clause (e) of that definition.
"Corporate Base Rate" means, on any day, a fluctuating rate of interest
per annum equal to the higher of:
(a) the rate of interest announced, from time to time, by the
Agent as its prime commercial rate for United States dollar loans made
in the United States for any day, and
(b) the Federal Funds Rate.
Any change in the interest rate resulting from a change in the prime commercial
rate announced by the Agent shall become effective without prior notice to
Transferor or Servicer as of 12:01 a.m., New York City time, on the Business Day
on which each change in the prime commercial rate is announced by the Agent. The
prime commercial rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged by the Agent to any customer. The Agent may
make commercial loans or other loans at rates of interest at, above or below the
prime commercial rate.
"Current Carrying Costs" means, at any time, the amount of interest on
the Series 1996-1 Certificates and the amount of the Servicing Fee that will be
payable on the next Distribution Date.
"Daily Series Collections" is defined in Section 4.2.
"Deferred Portion" means, on any day the portion of the Acquisition
Amount as to which payment is deferred, which portion shall equal the sum of the
following amounts; (i) the Excess Concentration Balances, plus (ii) the
aggregate unpaid balance of Receivables that are not Eligible Receivables, plus
(iii) the Excess Bill and Hold Balance, plus (iv) the Carrying Cost Receivables
Reserve, plus (v) the Applicable Reserve Ratio times the Net Eligible
Receivables (it being understood that the Deferred Portion may vary from day to
day); provided that the Deferred Portion shall be fixed as of the last day of
the Revolving Period.
"Dilution Horizon Variable" means, at any time, a fraction having (a) a
numerator equal to the sum of the aggregate amounts payable pursuant to invoices
giving rise to Receivables and generated by the Sellers during the three
Calculation Periods ending on the most recent Cut-Off Date (as of that Cut-Off
Date) and (b) a denominator equal to the Net Eligible Receivables as of the most
recent Cut-Off Date.
"Dilution Ratio" means, as calculated in each Monthly Report as of the
most recent Cut-Off Date, a fraction (expressed as a percentage) having (a) a
numerator equal to the aggregate amount of Dilution on the Receivables occurring
during the Calculation Period ending on the most recent Cut-Off Date, and (b) a
denominator equal to the aggregate amounts payable pursuant to invoices giving
rise to Receivables that were generated by the Seller during the third preceding
Calculation Period (so that, for example, if the Calculation Period specified in
clause (a) corresponded to the March fiscal month, the Calculation Period in
this clause (b) would be the one corresponding to the December fiscal month);
provided that if such third preceding Calculation Period is of a shorter
duration than the Calculation Period ending on the most recent Cut-Off Date, the
amount determined pursuant to clause (b) will be multiplied by five and divided
by four; and provided further that if such third preceding Calculation Period is
of a longer duration than the Calculation Period ending on the most recent
Cut-Off Date, the amount determined pursuant to clause (b) will be multiplied by
four and divided by five.
4
<PAGE> 9
"Dilution Reserve Ratio" means, as calculated in each Monthly Report,
the result (expressed as a percentage) calculated in accordance with the
following formula:
{(ARF x ADR) + [(HDR-ADR) x (HDR/ADR)]} x DHV
where:
ADR = the average of the Dilution Ratios during the period of 12
consecutive Calculation Periods ending on the related Cut-Off
Date;
ARF = the Applicable Ratings Factor;
DHV = the Dilution Horizon Variable; and
HDR = the highest average of the Dilution Ratios for any three
consecutive Calculation Periods that occurred during the 12
consecutive Calculation Periods ending on the related Cut-Off
Date.
"Early Amortization Calculation Date" means the day before an Early
Amortization Period begins.
"Early Amortization Period" means the period beginning on the date (if
any) specified in Section 6.2 and ending on the day on which the Invested Amount
has been reduced to zero.
"Excess Bill and Hold Balance" means, for any Test Period, an amount
(if positive) equal to: (a) the aggregate Unpaid Balance of Eligible Receivables
arising from Bill and Hold arrangements, as shown in the Daily Report for the
related Test Date, minus (b) 20% of the Adjusted Eligible Receivables, as shown
in such Daily Report.
"Excess Concentration Balances" means, on any day and with respect to
an Obligor, the aggregate Unpaid Balances of Eligible Receivables it owes that,
expressed as a percentage of the Adjusted Eligible Receivables, exceeds the
following percentages for the following Obligors:
(a) 100% for any Tier-1 Obligor;
(b) 100% for any Tier-2 Obligor;
(c) 20% for any Tier-3 Obligor;
(d) 10% for any Tier-4 Obligor; and
(e) 5% for any Tier-5 Obligor.
For purposes of placing Obligors in each of the tiers specified above, (i) all
Obligors that are Affiliates of each other shall be treated as a single Obligor,
and (ii) if an Obligor does not have either a commercial paper rating or a
senior actual or implied debt rating from the Specified Rating Agency, but is
the wholly-owned direct or indirect Subsidiary of a Person that has either such
rating, such Obligor shall be placed in the same tier as such Person would be
placed if it was an Obligor. Each of the percentages above is called a
"Benchmark Percentage." Transferor may from time to time, by notice in any
Monthly Report (and, in each case, after satisfying the Approval Condition)
increase or decrease any Benchmark Percentage. Any such change shall also be
given effect for purposes of the definition of "Concentration Factor" and
consequently may result in a change to the Concentration Factor.
"Expected Final Payment Date" means the Distribution Date in May 2003.
"FALCON" means Falcon Asset Securitization Corporation, a Delaware
corporation.
5
<PAGE> 10
"Federal Funds Rate" means (a) 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 the day (or, if the day is
not a Business Day, the immediately preceding Business Day) by the Federal
Reserve Bank of New York; provided that if the rate is not so published for any
Business Day, the rate for purposes of this clause will be the average of the
quotations for the day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it, plus (b) 50 basis
points.
"Final Scheduled Payment Date" means the Distribution Date in November,
2003.
"First Issuance Date" means April 29, 1996.
"Fully Funded Date" means the first date falling in the Amortization
Period or an Early Amortization Period on which: (a) Servicer has delivered a
Daily Report to Trustee and the Agent and (b) there are funds on deposit in the
Carrying Cost Account and the Principal Funding Account that, in the aggregate,
equal or exceed the Investor Repayment Amount and any Servicing Fee payable to
anyone other than a Related Person on the first Distribution Date falling after
that date.
"Guarantor" means Avondale, in its capacity as the guarantor under the
Seller Guaranty.
"Holdback Account Termination Date" is defined in Section 4.4.
"Holder" means a Holder (as defined in the Pooling Agreement) of a
Certificate.
"Intercreditor Provisions" means: (a) the Intercreditor Agreements, and
(b) the provisions of the Avondale Credit Agreement that permit the transactions
contemplated by the Transaction Documents to be consummated (including without
limitation the definitions of Receivables, Receivables Documents, Receivables
Program Assets, Receivables Program Obligations, Receivables Related Assets,
Receivables Securitization Program and Receivables Subsidiary), as such
provisions are in effect on the Closing Date.
"Interest Period" means:
(a) as to the CBR Tranche from time to time, (i) the period
from the Closing Date to the first subsequent Distribution Date and
(ii) each Distribution Period thereafter; and
(b) as to a LIBOR Tranche from time to time, each period from
the date upon which that LIBOR Tranche was first designated as such
pursuant to the Certificate Purchase Agreement (or the end date of the
next preceding Interest Period for such LIBOR Tranche, if there has
been one) to the date that is one month, two months or three months, at
the option of Transferor, thereafter; and if any Interest Period for
the LIBOR Tranche would otherwise end on a day that is not a Business
Day, the LIBOR Tranche shall instead end on the next Business Day (or,
if the next Business Day falls in the next calendar month, then on the
next preceding Business Day).
"Invested Amount" means, at any time, the sum of the purchase prices
paid for Purchases made pursuant to (and as defined in) the Certificate Purchase
Agreement at or prior to that time, reduced (but not below zero) by (a) the
aggregate amount of all distributions that have been made to the Holders of the
Series 1996-1 Certificates on account of principal, and (b) the amount of all
Investor Write-Offs that have been applied to reduce the Invested Amount (net of
Investor Allocable Recoveries and Investor Allocable Dilution Adjustments that
have been applied to reinstate the Invested Amount).
"Investor Allocable Dilution" means, for any ASA Measuring Period, the
product of the aggregate amount of Dilution for that ASA Measuring Period as to
which neither the applicable Seller nor the Guarantor has made any payment
required by Sections 3.1 and 3.5 of the Purchase Agreement, multiplied by the
Series Loss Allocation
6
<PAGE> 11
Percentage as of the beginning of that ASA Measuring Period, multiplied by the
Investor Allocation Percentage as of the first Business Day of that ASA
Measuring Period.
"Investor Allocable Dilution Adjustments" is defined in Section 4.8.
"Investor Allocable Loss Amount" means, for any ASA Measuring Period,
the product of the Loss Amount for that ASA Measuring Period, multiplied by the
Series Loss Allocation Percentage as of the beginning of that ASA Measuring
Period, multiplied by the Investor Allocation Percentage as of the first
Business Day of that ASA Measuring Period.
"Investor Allocable Recoveries" means, for any ASA Measuring Period,
the product of the Net Recoveries for that ASA Measuring Period, multiplied by
the Series Loss Allocation Percentage as of the beginning of that ASA Measuring
Period, multiplied by the Investor Allocation Percentage as of the first
Business Day of that ASA Measuring Period.
"Investor Allocation Percentage" means:
(x) on any Business Day falling in the Revolving Period, a
fraction (expressed as a percentage, which in any event may not exceed
100%) (a) the numerator of which is the Net Invested Amount as of that
Business Day, and (b) the denominator of which is the Base Amount as of
that Business Day; and
(y) on any Business Day falling in the Amortization Period or
an Early Amortization Period, a fraction (expressed as a percentage,
which in any event may not exceed 100%) (a) the numerator of which is
the Net Invested Amount as of the first day of the Amortization Period
or the Early Amortization Calculation Date, as applicable, and (b) the
denominator of which is the Base Amount as of the first day of the
Amortization Period or the Early Amortization Calculation Date, as
applicable.
"Investor Ownership Percentage" means, on any Business Day, a fraction
(expressed as a percentage, which in any event may not exceed 100%) (x) the
numerator of which is the Acquisition Amount on such day and (y) the denominator
of which is the excess of (i) the Unpaid Balance of Receivables on such day over
(ii) the Unapplied Cash on such day; provided that the Investor Ownership
Percentage shall be fixed on the last day of the Revolving Period.
"Investor Repayment Amount" means, on any Business Day falling in the
Amortization Period or an Early Amortization Period, the sum of (a) the
outstanding principal amount of the Series 1996-1 Certificates, plus (b) the
interest and any Additional Amounts known to be payable on the Series 1996-1
Certificates on the first Distribution Date falling after that date.
"Investor Write-Offs" means, as calculated in any Monthly Report
relating to a Calculation Period falling completely or partially in an Early
Amortization Period:
(a) if the Available Subordinated Amount is greater than zero
at the end of the related ASA Measuring Period, zero; and
(b) if the Available Subordinated Amount is zero at the end of
the related ASA Measuring Period (after taking into account any
reduction in the Available Subordinated Amount shown in such Monthly
Report), the excess (if any) of (x) the sum of the Investor Allocable
Loss Amount and the Investor Allocable Dilution minus the sum of
Investor Allocable Recoveries and Investor Allocable Dilution
Adjustments for the related ASA Measuring Period, over (y) the
Available Subordinated Amount as of the beginning of that ASA Measuring
Period.
"LIBOR" means for any Interest Period, the rate per annum equal to the
average of the rates at which deposits in Dollars having a maturity comparable
to such Interest Period that appear on Telerate Page 3750 as of
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<PAGE> 12
11:00 a.m., London time, two London Business Days prior to the Distribution Date
on which that Interest Period begins. For purposes of the foregoing, "Telerate
Page 3750" means the display page so designated on the Dow Jones Telerate
Service (or such other pages as may replace that page on that service or such
other service or services as may be nominated by the British Banker's
Association for the purpose of displaying London interbank offered rates for
Dollar deposits), and "London Business Day" means a day upon which dealings in
deposits in Dollars are transacted in the London interbank market.
Notwithstanding the foregoing, in the event that no rate for Dollar deposits
appears on Telerate Page 3750 on the applicable date for determining the LIBOR
with respect to any Distribution Date, then the LIBOR shall be determined as the
arithmetic mean (rounded upwards to the nearest one-sixteenth of 1%) of the
rates at which Dollar deposits having a maturity comparable to such Interest
Period are offered to prime banks in the London interbank market by four major
banks in that market selected by the Agent as of the determination date and time
specified above. If fewer than two quotations are provided by such banks, then
the LIBOR shall be determined as the arithmetic mean (rounded upwards as above)
of the rates at which loans in Dollars are offered to leading European banks by
three major banks in New York City selected by the Agent as of 11:00 a.m. New
York City time on the determination date specified above.
"LIBOR Tranche" means, during any Interest Period, the portion of the
Invested Amount that is designated by Transferor in accordance with the
Certificate Purchase Agreement to accrue interest based on the LIBOR.
"Loss Amount" means, with respect to any ASA Measuring Period, an
amount equal to the positive difference (if any) of (a) the amount of
Receivables held by the Trust that became Write-Offs during that ASA Measuring
Period, minus (b) the amount of Recoveries received during that ASA Measuring
Period.
"Loss Reserve Ratio" means, as calculated in each Monthly Report, the
result (expressed as a percentage) of (a) the Applicable Ratings Factor
multiplied by (b) the highest average of the Aged Receivables Ratio for any
three consecutive Calculation Periods that occurred during the preceding 12
consecutive Calculation Periods ending on the most recent Cut-Off Date
multiplied by (c) a fraction having (i) a numerator equal to the sum of the
aggregate amounts payable pursuant to invoices giving rise to Receivables
generated by the Sellers during the three Calculation Periods preceding or
ending on the most recent Cut-Off Date, and (ii) a denominator equal to the Net
Eligible Receivables, as of the most recent Cut-Off Date, multiplied by (d) the
Payment Term Multiplier.
"Loss to Liquidation Ratio" means, as calculated in each Monthly
Report, a fraction (a) the numerator of which is the aggregate Unpaid Balance of
Receivables (net of recoveries) that were written off as uncollectible or
(without duplication) converted into promissory notes during the three preceding
Calculation Periods in accordance with the Credit and Collection Policy of the
applicable Seller, and (b) the denominator of which is the aggregate amount of
Collections on the Receivables received during such three Calculation Periods.
"Minimum Required Reserve Ratio" means the sum, as of any Cut-Off Date,
of (a) the Concentration Factor for the Cut-Off Date plus (b) the product of the
average of the Dilution Ratios for the period of 12 preceding Calculation
Periods ending on the Cut-Off Date, multiplied by the Dilution Horizon Variable
for the Cut-Off Date; provided that in no event shall the Minimum Required
Reserve Ratio be less than 20%.
"Net Eligible Receivables" means, at any time, (a) the Adjusted
Eligible Receivables, minus (b) the then aggregate amount of all Excess
Concentration Balances with respect to all Obligors, minus (c) the Excess Bill
and Hold Balance.
"Net Invested Amount" means, on any Business Day, the Invested Amount,
reduced by the aggregate balance on deposit in the Equalization Account and the
Principal Funding Account.
"Net Recoveries" means, with respect to any ASA Measuring Period, an
amount equal to the positive difference (if any) of (a) the amount of Recoveries
received in that ASA Measuring Period minus (b) the amount of Receivables that
became Write-Offs in that ASA Measuring Period.
8
<PAGE> 13
"Notes" means the U.S. Dollar commercial paper notes issued by FALCON
or another Structured Purchaser, the proceeds of which notes are used to fund
the purchase or maintenance of Structured Purchaser's Series 1996-1 Certificate.
"Payment Term" shall mean, with respect to any Receivable, the number
of days between its invoice date and its due date.
"Payment Term Multiplier" shall mean, with respect to a Receivable, (a)
1.0, if the Payment Term Variable is less than 51, (b) 1.11, if the Payment Term
Variable is equal to or more than 51 but less than 61, (c) 1.22, if the Payment
Term Variable is equal to or more than 61 but less than 71, (d) 1.33, if the
Payment Term Variable is equal to or more than 71 but less than 81, and (e)
1.44, if the Payment Term Variable is equal to or more than 81 but less than 90;
provided, however, that if the Payment Term Variable equals or exceeds 90, the
Payment Term Multiplier for such Receivable shall be determined by calculating
the sum of (x) 1.44, and (y) 0.06, for each 5-day increment by which the Payment
Term Variable exceeds 90, it being understood that the same number shall apply
for all Payment Term Variables that fall within a five-day range.
"Payment Term Variable" shall mean, as calculated in each Monthly
Report as of the most recently ended Cut-Off Date, the quotient of:
(x) the sum of (1) the product of the Unpaid Balance of each
Receivable as of such Cut-Off Date times (2) the Payment Term with
respect to such Receivable; divided by
(y) the aggregate Unpaid Balance of all Receivables as of such
Cut-Off Date.
"Principal Payment Date" means (i) any date on which the Invested
Amount is to be reduced pursuant to Section 3.1 of the Certificate Purchase
Agreement, (ii) any date on which any prepayment is to be made pursuant to
Section 4.9, (iii) the end of each Interest Period in respect of the next
maturing LIBOR Tranche and/or CBR Tranche, in such order as the Agent shall
select so as to minimize "breakage costs," (iv) each Distribution Date falling
in an Early Amortization Period (beginning with the Distribution Date falling in
the Calculation Period after the Calculation Period in which the Early
Amortization Period begins) and (v) any Distribution Date falling on or after
the Expected Final Payment Date.
"Refinancing Date" is defined in Section 4.9.
"Required Purchasers" is defined in Section 9.9 of the Certificate
Purchase Agreement.
"Required Receivables" means, on any Business Day:
(a) So long as an Early Amortization Period has not commenced,
the result of the following formula:
IA + CCRR R
--------- X ---
(1 - ARR) NER
where:
ARR = the Applicable Reserve Ratio in effect for that Business Day;
CCRR = the Carrying Cost Receivables Reserve, as reported in the
Daily Report for that Business Day;
IA = the Invested Amount;
NER = the Net Eligible Receivables; and
R = the aggregate Unpaid Balance of Receivables held by the Trust.
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<PAGE> 14
(b) If an Early Amortization Period has commenced, the result
of the following formula:
AIA + ASA + UCCRR
where:
AIA = the Adjusted Invested Amount, which shall be the Invested
Amount as of the end of the Revolving Period, reduced (but
not below zero) by the amount of all Investor Write-Offs
(net of Investor Allocable Recoveries and Investor Allocable
Dilution Adjustments that have been applied to reinstate the
Invested Amount));
UCCRR = the Unfunded Carrying Cost Receivables Reserve on that
Business Day; and
ASA = the Available Subordinated Amount on that Business Day.
"Required Reserve Ratio" means, as calculated in each Monthly Report,
the Loss Reserve Ratio plus the Dilution Reserve Ratio.
"Required Series Holders" means the Required Purchasers.
"Revolving Period" means the period beginning on the Closing Date and
ending on the day before the first day of the Amortization Period or an Early
Amortization Period.
"Series Allocable Dilution Adjustments" means, for any ASA Measuring
Period, the product of the aggregate amount of payments pursuant to Sections 3.3
and 3.5 of the Purchase Agreement or pursuant to the Seller Guaranty received
during that ASA Measuring Period relating to Dilution that occurred prior to
that ASA Measuring Period, multiplied by the Series Loss Allocation Percentage
as of the beginning of that ASA Measuring Period.
"Series 1996-1" is defined in the preamble.
"Series 1996-1 Certificates" means any of the Series 1996-1
Certificates issued pursuant to this Supplement, each of which shall be
substantially in the form of Exhibit A.
"Specified Rating Agency" means S&P.
"Stated Amount" means as to any Certificate, the initial maximum
principal amount that may be required to be funded by the Holder of such
Certificate, as such amount may be reduced pursuant to Section 2.3 of the
Certificate Purchase Agreement.
"Test Date" means each of: (a) the Closing Date, (b) the Monday of each
calendar week, (c) the Refinancing Date, (d) the first day of the Early
Amortization Period, and (e) any other Business Day on which Servicer has
delivered (or is required to deliver) a Daily Report pursuant to the second
sentence of Section 4.4(a); and provided further that if the Monday of any
calendar week is not a Business Day, then the "Test Date" for such week shall be
the next Business Day. The "related" Test Date for any Test Period shall be the
Test Date that is the first day of such Test Period.
"Test Period" means:
(a) the period from (and including) the Closing Date to (but
excluding) the first Test Date thereafter, and
(b) each subsequent period from (and including) a Test Date to
(but excluding) the next Test Date.
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<PAGE> 15
"Tier-1 Obligor" means any Obligor that has (a) a commercial paper
rating from the Specified Rating Agency of at least "A-1+" (or its equivalent)
or (b) a senior actual or implied debt rating from the Specified Rating Agency
of at least "AAA" (or its equivalent); provided that if such Obligor has both a
commercial paper rating from the Specified Rating Agency and a senior actual or
implied debt rating from the Specified Rating Agency, such Obligor must have a
commercial paper rating from the Specified Rating Agency of at least "A-1+" (or
its equivalent) and a senior actual or implied debt rating from the Specified
Rating Agency of at least "AAA" (or its equivalent) to be a Tier-1 Obligor.
"Tier-2 Obligor" means any Obligor (other than a Tier-1 Obligor) that
has (a) a commercial paper rating from the Specified Rating Agency of at least
"A-1" (or its equivalent) or (b) a senior actual or implied debt rating from the
Specified Rating Agency of at least "AA-" (or its equivalent), provided that if
such Obligor has both a commercial paper rating from the Specified Rating Agency
and a senior actual or implied debt rating from the Specified Rating Agency,
such Obligor must have a commercial paper rating from the Specified Rating
Agency of at least "A-1" (or its equivalent) and a senior actual or implied debt
rating from the Specified Rating Agency of at least "AA-" (or its equivalent) to
be a Tier-2 Obligor.
"Tier-3 Obligor" means any Obligor (other than a Tier-1 Obligor or a
Tier-2 Obligor) that has (a) a commercial paper rating from the Specified Rating
Agency of at least "A-2" (or its equivalent) or (b) a senior actual or implied
debt rating from the Specified Rating Agency of at least "A-" (or its
equivalent), provided that if such Obligor has both a commercial paper rating
from the Specified Rating Agency and a senior actual or implied debt rating from
the Specified Rating Agency, such Obligor must have a commercial paper rating
from the Specified Rating Agency of at least "A-2" (or its equivalent) and a
senior actual or implied debt rating from the Specified Rating Agency of at
least "A-" (or its equivalent) to be a Tier-3 Obligor.
"Tier-4 Obligor" means any Obligor (other than a Tier-1 Obligor, a
Tier-2 Obligor or a Tier-3 Obligor) that has (a) a commercial paper rating from
the Specified Rating Agency of at least "A-3" (or its equivalent) or (b) a
senior actual or implied debt rating from the Specified Rating Agency of at
least "BBB-" (or its equivalent), provided that if such Obligor has both a
commercial paper rating from the Specified Rating Agency and a senior actual or
implied debt rating from the Specified Rating Agency, such Obligor must have a
commercial paper rating from the Specified Rating Agency of at least "A-3" (or
its equivalent) and a senior actual or implied debt rating from the Specified
Rating Agency of at least "BBB-" (or its equivalent) to be a Tier-4 Obligor.
"Tier-5 Obligor" means any Obligor other than a Tier-1 Obligor, a
Tier-2 Obligor, a Tier-3 Obligor or a Tier-4 Obligor.
"Tranche" means each of the CBR Tranche and the LIBOR Tranches.
"Transferor Indemnified Losses" is defined in Section 7.2.
"Transferor Indemnified Party" is defined in Section 7.2.
"Transferor Payment Percentage" means, on any Business Day, the
difference of 100% minus the Investor Allocation Percentage on that Business
Day.
"Unapplied Cash" means, on any Business Day, available funds received
in the Master Collection Account on that day that have not been applied as
Collections on a particular Receivable.
"Unfunded Carrying Cost Receivables Reserve" means, on any Business Day
falling in an Early Amortization Period, the difference (but not less than zero)
of (a) the Carrying Cost Receivables Reserve as of the Early Amortization
Calculation Date, minus (b) the aggregate Collections deposited into the
Carrying Cost Account during the portion of the Early Amortization Period up to
and including that Business Day.
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"Unmatured Early Amortization Event" means an event or condition that,
upon the giving of notice or the passage of time, would become an Early
Amortization Event.
(d) for the purpose of this Series, after the date hereof, "Domestic
Person" will include Persons having a place of business in the Canadian
provinces of Alberta, British Columbia, Manitoba, Ontario or Quebec; provided
that such Persons shall cease to be Domestic Persons unless the Agent shall have
received (within thirty days after the date hereof) an opinion of counsel, in
form and substance satisfactory to the Agent, with respect to the creation and
perfection and protection of the interests of Transferor and the Trustee under
the laws of such province, to the extent such laws apply; provided further that
in any event the aggregate outstanding Unpaid Balance of Receivables owed by
Canadian residents and considered to be Eligible Receivables shall not exceed 5%
of the Net Eligible Receivables at any time.
SECTION I.2 Modification Condition. For so long as the Series 1996-1
Certificates remain outstanding, for purposes of the Transaction Documents the
definition of the term "Modification Condition" shall be as follows:
"Modification Condition" means, with respect to any action, that (i)
each Rating Agency has confirmed in writing that such action will not result in
a reduction or withdrawal of the rating of any outstanding Series or Purchased
Interest that was rated by such Rating Agency, and (ii) if any Series has not
been rated, the Trustee and the Required Series Holders for that Series shall
have consented in writing to such action.
SECTION I.3 Incorporation of Terms. The terms of the Pooling Agreement
are incorporated in this Supplement as if set forth in full herein. As
supplemented by this Supplement, the Pooling Agreement is in all respects
ratified and confirmed and both together shall be read, taken and construed as
one and the same agreement. If the terms of this Supplement and the terms of the
Pooling Agreement conflict, the terms of this Supplement shall control with
respect to the Series 1996-1 Certificates.
SECTION I.4 Bill and Hold. A Receivable that: (x) satisfies the
requirements of the definition of "Eligible Receivable" set forth in Appendix A
to the Pooling Agreement, other than the requirement (set forth in clause (b) of
that definition) that the related goods have been shipped and (y) arises under
an arrangement that satisfies the definition of "Bill and Hold" in such Appendix
A, shall be an "Eligible Receivable" for purposes of this Supplement.
SECTION I.5 Agreed Upon Procedures. For purposes of this Supplement,
Exhibit D to the Pooling Agreement shall be amended to read as set forth in
Schedule I hereto.
ARTICLE II
DESIGNATION
SECTION II.1 Designation. There is hereby created a Series to be known
as the "Series 1996-1 Certificates." Subject to the conditions set forth in
Article III, Trustee shall authenticate and deliver the Series 1996-1
Certificates, to or upon the order of Transferor in an aggregate Stated Amount
equal to $120,000,000. Notwithstanding the terms of Section 6.1 of the Pooling
Agreement, the Series 1996-1 Certificates shall be in minimum denominations of
$2,000,000 and in integral multiples of $1,000,000 in excess of that amount. The
amount payable on any day by the Holders of such Certificates for the undivided
interests evidenced by the Certificates shall equal the Acquisition Amount.
The Series 1996-1 Certificates represent an undivided interest in the
portion of the Transferred Assets allocable to this Series, which undivided
interest (expressed as a percentage) shall equal the Investor Ownership
Percentage.
The Deferred Portion of the Acquisition Amount shall be subject to a
holdback and shall be paid to the extent (and only to the extent) Daily Series
Collections are not required to pay amounts described in clauses first
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through fourth of Section 4.3 or Section 4.4 (as applicable), it being
understood that the Holders of Series 1996-1 Certificates shall not be liable to
pay any portion of the Deferred Portion not paid out of Daily Series
Collections.
ARTICLE III
SUBSTITUTE CERTIFICATE
SECTION III.1 Substitution of Certificatee. Concurrently with the
execution and delivery hereof, the holder of the Series 1996-1 Certificate
issued pursuant to the Original Supplement shall surrender it to the Trustee,
and the Trustee shall issue, authenticate and deliver to such holder (in
substitution for such surrendered certificate) a new Series 1996-1 Certificate,
substantially in the form of Exhibit A hereto and in the same maximum principal
amount as the certificate being surrendered.
ARTICLE IV
PAYMENTS AND ALLOCATIONS
SECTION IV.1 Interest; Additional Amounts. (a) Subject to Section 4.1
of the Certificate Purchase Agreement, Transferor may from time to time allocate
the outstanding principal amount under the Series 1996-1 Certificates to one CBR
Tranche and/or up to four LIBOR Tranches. Interest on each Tranche shall be
payable on the last day of each Interest Period therefor, except that interest
on the amount of any principal repaid on any other date shall be payable on the
date of the repayment. If any such day is not a Business Day, interest shall
instead be due on the next Business Day (or, if the next Business Day falls in
the next calendar month, then on the next preceding Business Day).
(b) Except as provided in clauses (d) and (e) below, interest on each
LIBOR Tranche shall accrue during any Interest Period therefor at a rate per
annum equal to the LIBOR Rate plus the Applicable Margin and shall be calculated
on the basis of actual days over a year of 360 days.
(c) Except as provided in clauses (d) and (e) below, interest on the
CBR Tranche shall accrue at a rate per annum equal to the Corporate Base Rate in
effect from time to time and shall be calculated on the basis of actual days
over a year of 365 or 366 days, as the case may be.
(d) Interest with respect to the Series 1996-1 Certificates not paid
when due will be due on the next Distribution Date or last day of the next
Interest Period with additional interest on the amount at 2% per annum above the
Corporate Base Rate to the extent permitted by law; provided, however, that
Transferor may direct any such overdue interest to be paid on any Business Day
prior to such next Distribution Date from funds on deposit in the Carrying Cost
Account.
(e) Following the occurrence of a Servicer Default, interest on each
Tranche shall accrue at a rate per annum equal to the Corporate Base Rate plus
2.0%.
(f) Additional Amounts shall also be payable with respect to the Series
1996-1 Certificates as specified in the Certificate Purchase Agreement and to
the extent (but only to the extent) that funds become available for such
Additional Amounts in accordance with Sections 4.2 and 4.3.
SECTION IV.2 Daily Calculations and Series Allocations. (a) On each
Test Date, the Servicer shall prepare and deliver to the Trustee and the Agent a
Daily Report substantially in the form of Exhibit B (or such other form as may
be satisfactory to the Servicer, the Trustee and the Agent). The Servicer shall
also deliver a Daily Report in such form to the Trustee and the Agent on any
other day for which the Agent has requested a Daily Report. The Agent shall not
so request a Daily Report unless an Early Amortization Event has occurred or the
Agent reasonably questions whether there has been a material change in the Base
Amount since the most recent Test Date.
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(b) On each Business Day, the Servicer shall prepare and deliver to the
Trustee and the Agent a Cash Flow Report substantially in the form of Exhibit C
(or such other form as may be satisfactory to Servicer, Trustee and the Agent).
(c) No other Series or Purchased Interest shall be issued so long as
the Series 1996-1 Certificates are outstanding. As a consequence, the Series
Collection Allocation Percentage Series 1996-1 shall be 100%, and all funds
received in the Master Collection Account shall be allocated to Series 1996-1.
All such funds received in the Master Collection Account on any Business Day,
and any funds transferred on such day to the Master Collection Account from the
Equalization Account, are herein called the "Daily Series Collections" for such
day.
(d) On each Business Day, Trustee shall allocate Daily Series
Collections pursuant to Section 4.3 or 4.4 (as applicable) on the basis of the
most recently delivered Daily Report, as supplemented by the Cash Flow Report
(if any) for such day. Without limiting the foregoing, the parties shall assume
that the Base Amount on any day shall not be less than the Base Amount shown in
the most recent Daily Report. Notwithstanding such assumption, if on any
Business Day (as a result of the delivery of a subsequent Daily Report or
otherwise) the Agent determines that the Net Invested Amount exceeded the Base
Amount on any day when the Trustee remitted funds to the Transferor, then
Transferor shall immediately pay to Trustee, for deposit to the Equalization
Account, an amount equal to such excess. Amounts not paid when due pursuant to
the foregoing sentence shall bear interest at a rate of interest equal to 2% per
annum above the Corporate Base Rate to the extent permitted by law.
(e) The requirements of Section 3.2(f)(i) and Section 3.5(c) of the
Pooling Agreement shall be waived on each date on which a Daily Report is not
required to be delivered under this Section 4.2.
(f) The requirements of Section 5.1(l)(i) of the Purchase Agreement and
Section 6.1(k) of the Purchase Agreement shall be waived while the Series 1996-1
Certificates are outstanding.
(g) Nothing in this Section 4.2 shall modify the requirements of the
Transaction Documents regarding the preparation and delivery of Monthly Reports.
SECTION IV.3 Allocations of Daily Series Collections (Other Than in an
Early Amortization Period). On each Business Day (other than a Business Day
falling in an Early Amortization Period or after the Fully Funded Date),
Servicer shall allocate the aggregate amount of Daily Series Collections
required to fund the items described in priorities first through fourth below,
to the following purposes, in the priority indicated (and to the extent of Daily
Series Collections available):
first, to the Carrying Cost Account until the amount allocated
to the Carrying Cost Account equals the Carrying Cost Cash Required
Amount shown in the most recent Daily Report;
second, if Transferor shall have notified the Agent in
accordance with Section 3.1 of the Certificate Purchase Agreement that
it desires to reduce the Invested Amount or if the Amortization Period
has begun, to the Principal Funding Account until the funds on deposit
in that account equal the amount of such reduction or (during the
Amortization Period) the Invested Amount, provided that the amount
allocated pursuant to this priority second on any Business Day shall
not exceed the product of (x) the Investor Ownership Percentage,
multiplied by (y) the excess of the Daily Series Collections over the
amounts allocated on that Business Day pursuant to priority first;
third, if during the Revolving Period the Net Invested Amount
(as shown in the most recent Daily Report) is greater than the Base
Amount (as shown in the most recent Daily Report), to the Equalization
Account until the amount on deposit therein is sufficient to reduce the
Net Invested Amount to an amount equal to the Base Amount; and
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fourth, to hold in the Master Collection Account the amount
necessary to pay on the next Distribution Date all Additional Amounts
payable to the Holders (as shown in the most recent Daily Report).
On such Business Day, Servicer shall allocate the remainder of
the Daily Series Collections to make current and/or deferred transfer
payments to Transferor in respect of the Transferor Certificate,
provided that Transferor may, from time to time, direct Servicer to
direct Trustee to hold all or part of the funds to be paid pursuant to
this sentence in the Master Collection Account to be applied as Daily
Series Collections on the following Business Day.
If, on any day, the amount of Collections that is then allocated to the
Carrying Cost Account exceeds the amount of Collections that is then required to
be allocated to the Carrying Cost Account, Servicer shall reallocate such
Collections on such day to one or more of the obligations described in
priorities second through fourth above, and in the last sentence of the
preceding paragraph, in the order of priority set forth therein.
In addition, if, on any day, funds on deposit in the Master Collection
Account and available for allocation under priority fourth are less than the
amount of the obligations described therein, then the available Collections
shall be allocated by Servicer to the holders of such obligations pro rata
according to the respective amounts of such obligations held by them.
On any Business Day falling after the Fully Funded Date, all Daily
Series Collections shall be paid to Transferor as current and/or deferred
transfer payments.
SECTION IV.4 Allocations of Daily Series Collections During an Early
Amortization Period. On each Business Day falling in an Early Amortization
Period and prior to or on the Fully Funded Date, Servicer shall allocate the
Daily Series Collections to the following purposes, in the priority indicated
(and to the extent of Daily Series Collections available):
first, to the Carrying Cost Account to the extent that the
balance therein is less than the amount of Current Carrying Costs (as
shown in the most recent Daily Report, but excluding any Servicing Fee
payable to any Avondale Person) payable on the Distribution Date
relating to the Calculation Period during which such Business Day
falls;
second, to the Principal Funding Account and to Transferor
(or, prior to the Holdback Account Termination Date, to the Holdback
Account) in the following amounts:
(a) the amount to be transferred to the Principal
Funding Account shall equal the product of (i) the Investor
Allocation Percentage (as shown in the most recent Daily
Report), multiplied by (ii) the excess of the Daily Series
Collections over the amount allocated on that Business Day
pursuant to priority first, provided that the aggregate amount
so deposited shall in no event exceed the lesser of (x) the
Invested Amount and (y) the Investor Ownership Percentage
times the aggregate Unpaid Balance of Receivables as of the
last day of the Revolving Period, in each case as shown in the
most recent Daily Report; and
(b) the amount to be transferred to Transferor (or,
prior to the Holdback Account Termination Date, to the
Holdback Account) shall equal the product of (i) the
Transferor Payment Percentage (as shown in the most recent
Daily Report), multiplied by (ii) the excess of the Daily
Series Collections over the amount allocated on that Business
Day pursuant to priority first;
third, to hold in the Master Collection Account the amount
necessary (as shown in the most recent Daily Report) to pay on the next
Distribution Date all Additional Amounts payable to the Holders;
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fourth, to pay any Servicing Fee payable to any Avondale
Person on the Distribution Date relating to the Calculation Period
during which such Business Day falls; and
fifth, the balance to Transferor, provided that prior to the
Holdback Account Termination Date, amounts payable to Transferor
pursuant to this priority fifth shall be deposited into the Holdback
Account and held as provided below.
The "Holdback Account Termination Date" shall be the earlier to occur
of (i) the date that falls twelve months after the beginning of the Early
Amortization Period and (ii) the Fully Funded Date. If at any time prior to the
Holdback Account Termination Date, the amount of funds on deposit in the
Holdback Account exceeds the difference of (1) the Investor Repayment Amount
minus (2) the amount of funds then held in the Carrying Cost Account and the
Principal Funding Account that are available to pay the Investor Repayment
Amount, then the amount of such excess funds shall be released from the Holdback
Account and paid to Transferor as current and/or deferred transfer payments. On
each Test Date prior to the Holdback Account Termination Date, Servicer shall
calculate the sum of: (i) the aggregate Investor Allocable Dilution as to which
no Series Allocable Dilution Adjustments have been received and (ii) Additional
Amounts due and not paid. Such sum (or, if less, the aggregate amount of funds
in the Holdback Account) shall be transferred to the Master Collection Account
and applied to the items listed in the first paragraph of this Section as
priorities first through fifth, in that order (except that no such funds shall
be allocated to Transferor or the Holdback Account pursuant to priority second
and the amount allocable to the Principal Funding Account shall not be limited
by application of the Investor Allocation Percentage). On the Holdback Account
Termination Date, all remaining funds in the Holdback Account shall be paid to
Transferor.
If, on any day, funds on deposit in the Master Collection Account and
available for allocation under priority third are less than the amount of the
obligations described therein, then the available Collections shall be allocated
by Servicer to the holders of such obligations pro rata according to the
respective amounts of such obligations held by them.
On any Business Day falling after the Fully Funded Date, all Daily
Series Collections shall be paid to Transferor in respect of the Transferor
Certificate.
SECTION IV.5 Withdrawals from the Equalization Account. On any Business
Day during the Revolving Period on which Servicer delivers a Daily Report to the
Trustee and the Agent and no Early Amortization Event or Unmatured Early
Amortization Event exists, Servicer may instruct Trustee in writing to withdraw
funds from the Equalization Account and apply such funds as Daily Series
Collections, so long as the Net Invested Amount would not exceed the Base Amount
after giving effect to such transfer and application. On the first day of the
Amortization Period or an Early Amortization Period, Servicer shall instruct
Trustee to transfer the entire balance in the Equalization Account to the
Principal Funding Account.
SECTION IV. 6 Available Subordinated Amount. (a) If an Early
Amortization Period begins, Servicer shall promptly calculate the Available
Subordinated Amount as of the Early Amortization Calculation Date and report
such amount in the Daily Report for the first day in the Early Amortization
Period. Servicer shall also calculate the Available Subordinated Amount as of
each Cut-Off Date falling in the Early Amortization Period, such calculation to
be reflected in the related Monthly Report.
(b) The Available Subordinated Amount as of the Early Amortization
Calculation Date shall equal the product of (x) the Investor Allocation
Percentage, multiplied by (y) the result of:
(i) the product of the Unpaid Balance of Receivables held by
Trustee at the opening of business on the Early Amortization
Calculation Date, multiplied by the Series Collection Allocation
Percentage on that date; minus
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(ii) the sum of (i) the lesser of (A) the Base Amount and (B)
the Net Invested Amount and (ii) the Carrying Cost Receivables Reserve
at the opening of business on the Early Amortization Calculation Date.
(c) The Available Subordinated Amount, as of any Cut-Off Date in the
Early Amortization Period, shall equal the result of:
(i) the Available Subordinated Amount as of the preceding
Cut-Off Date (or as of the Early Amortization Calculation Date, in the
case of the first Cut-Off Date falling in the Early Amortization
Period); minus
(ii) the Investor Allocable Loss Amount with respect to the
ASA Measuring Period ending on that Cut-Off Date; minus
(iii) any Investor Allocable Dilution with respect to the ASA
Measuring Period ending on that Cut-Off Date; plus
(iv) subject to Sections 4.7 and 4.8, the Investor Allocable
Recoveries and Investor Allocable Dilution Adjustments with respect to
the ASA Measuring Period ending on that Cut-Off Date.
(d) Notwithstanding the foregoing, in no event shall the Available
Subordinated Amount at any time be less than zero or greater than the initial
Available Subordinated Amount calculated pursuant to subsection (b).
SECTION IV.7 Write-Offs and Recoveries. (a) In each Monthly Report
required to be delivered during the Early Amortization Period, Servicer shall
calculate the Investor Write-Offs and the Investor Allocable Recoveries for the
most recently ended ASA Measuring Period.
(b) If the Investor Write-Offs calculated in any Monthly Report exceed
zero, the Invested Amount and the outstanding principal amount of the Series
1996-1 Certificates shall be reduced by the amount of the Investor Write-Offs
with effect from the related Distribution Date.
(c) If the Invested Amount has been reduced on account of any Investor
Write-Offs, then any Investor Allocable Recoveries with respect to any
Calculation Period ending after the reduction takes place shall be applied to
reinstate the Invested Amount and the outstanding principal amount of the Series
1996-1 Certificates, to the extent of such prior reductions that have not
previously been reinstated, with effect from the related Distribution Date. If
Investor Allocable Recoveries are so applied to reinstate the Invested Amount
and the outstanding principal amount of the Series 1996-1 Certificates on any
Distribution Date, then Investor Allocable Recoveries shall be applied to
increase the Available Subordinated Amount on the same Distribution Date only to
the extent of the excess, if any, of the Investor Allocable Recoveries, minus
the amount of Investor Allocable Recoveries previously so applied to reinstate
the Invested Amount.
SECTION IV.8 Certain Dilution in an Early Amortization Period. (a) In
each Monthly Report required to be delivered during the Early Amortization
Period, Servicer shall calculate the Investor Allocable Dilution and the Series
Allocable Dilution Adjustments for the most recently ended ASA Measuring Period.
(b) If the Investor Allocable Dilution calculated in any Monthly Report
is greater than zero, and there are funds in the Holdback Account, then those
funds (up to an amount equal to the amount of the Investor Allocable Dilution),
shall be allocated (i) first, in accordance with priority first of the first
paragraph of Section 4.4, (ii) second, to the Principal Funding Account (in
accordance with priority second of the first paragraph of Section 4.4), so long
as the aggregate amount on deposit therein does not exceed the Invested Amount
and (iii) third, in accordance with priorities third through fifth of the first
paragraph of Section 4.4, in that priority.
(c) If the Available Subordinated Amount or the Invested Amount has
been reduced on account of any Investor Allocable Dilution, then (i) any Series
Allocable Dilution Adjustments with respect to any Calculation
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Period ending after the reduction takes place and (ii) any funds on deposit in
the Holdback Account (the "Investor Allocable Dilution Adjustments") shall be
allocated (x) first, to reinstate the Invested Amount and the outstanding
principal amount of the Series 1996-1 Certificates, and (y) second, to reinstate
the Available Subordinated Amount, in each case to the extent not previously
reinstated. Any amount so allocated on any day shall be allocated (i) first, in
accordance with priority first of Section 4.4, (ii) second, to the Principal
Funding Account, so long as the aggregate amount on deposit therein does not
exceed the Invested Amount and (iii) third, in accordance with priorities third
through fifth of the first paragraph of Section 4.4, in that priority.
SECTION IV.9 Defeasance. On any Business Day falling in the Revolving
Period (but with not less than three Business Days prior written notice from
Servicer to the Holders), Servicer may, upon instruction from Transferor, cause
the Series 1996-1 Certificates to be prepaid in full (but not in part) by
causing the Series Interest to be conveyed to one or more Persons (who may be
the holders of a new Series issued substantially contemporaneously with such
prepayment) for a cash purchase price in an amount equal to the sum of (a) the
Invested Amount, plus (b) to the extent not available in the Carrying Cost
Account, accrued and unpaid interest on the Series 1996-1 Certificates to the
day of such prepayment (the "Refinancing Date"), plus (c) to the extent not
available from funds set aside pursuant to priority fourth of Section 4.3, any
Additional Amounts owed with respect to the Series 1996-1 Certificates
(including any Additional Amounts arising as a result of such prepayment). No
such prepayment or conveyance shall, however, be permitted if as a result
thereof Transferor or any of its Affiliates would acquire such Series Interest
or the underlying Receivables. The purchase price shall be deposited in the
Principal Funding Account and shall be distributed to the Agent, for further
distribution to the Holders, on the Refinancing Date in accordance with the
terms of Section 5.2.
SECTION IV.10 Tax Opinion . If any Tax Opinion is required to be
delivered in connection with the Series 1996-1 Certificates, the term "Tax
Opinion" shall have the meaning specified below:
"Tax Opinion" means, with respect to any action, an Opinion of Counsel
to the effect that, for Federal income tax and state (New York, Alabama,
Georgia, and/or South Carolina, as applicable) income and franchise tax
purposes, (a) such action will not adversely affect the characterization of the
Investor Certificates of Series 1996-1 as debt or partnership interests, (b)
following such action the Trust would not be treated as an association (or
publicly traded partnership) taxable as a corporation, (c) such action would not
be treated as a taxable event to any Series 1996-1 Investor Certificateholder or
Certificate Owner.
ARTICLE V
DISTRIBUTIONS AND REPORTS
SECTION V.1 Distributions. On each Distribution Date and (with respect
to clause (b) below) each Principal Payment Date, other than a Distribution Date
that may be a Refinancing Date, Trustee shall, in accordance with instructions
set out in the applicable Daily Report, distribute to the Agent, for further
distribution among the Holders, the following amounts:
(a) accrued and unpaid interest on the Series 1996-1
Certificates, and any additional interest payable pursuant to Section
4.1, to the extent funds are available for such payment in the Carrying
Cost Account;
(b) on each Principal Payment Date, all funds deposited in the
Principal Funding Account on or prior to the most recent Cut-Off Date
(but in no event in excess of the Invested Amount) shall be distributed
in reduction of the Invested Amount;
(c) if, on the Expected Final Payment Date or any Distribution
Date falling in an Early Amortization Period, the funds on deposit in
the Carrying Cost Account (less any Servicing Fee payable on that day
to anyone other than a Related Person) will be equal to or greater than
the Invested Amount (after giving effect to the distribution required
by subsection (b)) and any then accrued and unpaid
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Additional Amounts, then an amount equal to such remaining Invested
Amount and such Additional Amounts shall be withdrawn from the Carrying
Cost Account and distributed in reduction of the Invested Amount and
such Additional Amounts; and
(d) any Additional Amounts payable with respect to Series
1996-1 Certificates to the extent that funds have been allocated for
those Additional Amounts pursuant to priority fourth of Section 4.3 or
priority third of Section 4.4.
On each Distribution Date, Trustee shall also, in accordance with
instructions set out in the applicable Daily Report, distribute the Servicing
Fee to the Servicer to the extent that funds are available for that purpose in
the Carrying Cost Account.
On any Business Day, Trustee shall, in accordance with instructions set
out in the applicable Daily Report, distribute to the Agent, for further
distribution among the Holders, overdue interest payable pursuant to Section
4.1(d) on such Business Day, to the extent funds are available for such payment
in the Carrying Cost Account.
SECTION V.2 Special Distributions on the Refinancing Date. On the
Refinancing Date, Trustee shall, in accordance with instructions set out in the
applicable Daily Report, distribute to the Agent, for further distribution among
the Holders, the following amounts:
(a) all interest accrued on the Series 1996-1 Certificates
through the Refinancing Date, to the extent funds are available for
such payment in the Carrying Cost Account or have been deposited in the
Principal Funding Account pursuant to Section 4.9;
(b) all funds deposited in the Principal Funding Account
pursuant to Section 4.9; and
(c) any Additional Amounts payable with respect to the Series
1996-1 Certificates to the extent that funds for those Additional
Amounts have been allocated pursuant to priority fourth of Section 4.3
or priority third of Section 4.4 or deposited in the Principal Funding
Account pursuant to Section 4.9.
Any amounts payable to the Holders of Certificates pursuant to this
Section shall be paid to the Agent, and the Agent shall distribute such amounts
to such Holders.
SECTION V.3 Payments in Respect of Transferor Certificate. On each day
on which funds are allocated pursuant to Sections 4.3 and 4.4 (and subject to
the terms of Section 4.4 relating to the Holdback Account), Trustee shall, in
accordance with instructions set out in the applicable Daily Report or Cash Flow
Report, distribute to Transferor, in respect of the Transferor Certificate, all
funds allocated for that purpose in accordance with those Sections. In addition,
after the Invested Amount has been repaid in full and all interest and
Additional Amounts owed to the Holders have been paid, any additional funds on
deposit in the Carrying Cost Account, the Equalization Account or the Principal
Funding Account shall similarly be paid to Transferor, in respect of the
Transferor Certificate.
SECTION V.4 Monthly Reports. Each Monthly Report shall be substantially
in the applicable form set out in Exhibit D or in such other form as may be
satisfactory to Servicer and Trustee and consistent with the terms of this
Supplement and the Pooling Agreement. Copies of each Monthly Report shall be
provided free of charge by the Servicer to the Holders of Series 1996-1
Certificates.
SECTION V.5 Annual Tax Information. On or before February 15 of each
calendar year, beginning with calendar year 1997, Servicer, on behalf of
Trustee, shall furnish or cause to be furnished to each Person who at any time
during the preceding calendar year was a Holder the information for the
preceding calendar year, or the applicable portion thereof during which the
Person was a Holder, as is required to be provided by an issuer of indebtedness
under the Internal Revenue Code to the holders of the issuer's indebtedness and
such other customary
19
<PAGE> 24
information as is necessary to enable such Holders to prepare their federal
income tax returns. Servicer's obligations under the preceding sentence shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Agent to the specified Persons pursuant to
the Pooling Agreement or any requirements of the Internal Revenue Code as from
time to time in effect. Notwithstanding anything to the contrary contained in
this Agreement, Trustee shall, to the extent required by applicable law, from
time to time furnish to the appropriate Persons a Form 1099-INT within the
period required by applicable law.
SECTION V.6 Periodic Perfection Certificate. On or before March 30 of
each calendar year, beginning with calendar year 1997, Servicer, on behalf of
Trustee, shall furnish or cause to be furnished to Trustee and the Agent an
Officer's Certificate setting forth a list of all changes in (a) the name,
identity or corporate structure of Transferor or any Seller and (b) the chief
executive office of Transferor or any Seller (or in the place of business of
Transferor or any Seller that has only one place of business) that have taken
place since the date of the Officer's Certificate most recently delivered
pursuant to this Section 5.6 (or since the Closing Date, in the case of the
first such Officer's Certificate to be delivered), or indicating that no such
events have taken place, and stating in each case what filings of UCC financing
statements, or amendments thereto, relating to the Transaction Documents have
been made in connection with each such event (identifying the date and filing
index numbers for each). Any financing statement identified in such an Officer's
Certificate delivered to Trustee shall be deemed to have been identified to
Trustee in writing for purposes of subsection 11.1(c)(v) of the Pooling
Agreement. If any such new UCC financing statements are filed, Servicer shall
cause Trustee to be named as secured party (in the case of any filing against
Transferor) or assignee of the secured party (in the case of any filing against
a Seller). If any "Event of Default" under (and as defined in) the Avondale
Credit Agreement occurs, the Servicer shall deliver an Officer's Certificate
covering the matters described above to the Trustee and the Agent not later than
10 days after the occurrence of such event, and, for so long as any such event
remains outstanding, the Servicer shall deliver such an Officer's Certificate on
the last Business Day of each of March, June, September and December.
ARTICLE VI
EARLY AMORTIZATION EVENTS
SECTION VI.1 Early Amortization Events. Each of the following shall
constitute an "Early Amortization Event":
(a) any of the following shall occur;
(i) failure on the part of Transferor or Servicer to
make any payment of the principal amount of or any interest on
the Series 1996-1 Certificates when due, or to make any
deposit required by the terms of any Transaction Document
within one Business Day after the date the deposit is required
to be made, or to make any other payment required by the terms
of any Transaction Document on or before three Business Days
after the date such payment is required to be made; or
(ii) failure on the part of Servicer to deliver a
Daily Report within the time period required under Section
3.5(c) of the Pooling Agreement, and continuance of such
failure for three Business Days; provided that if the Servicer
shall have estimated the Base Amount in the Daily Report for
one or more days due to adverse circumstances beyond its
control (as described in, and subject to the limitations in,
such Section 3.5(c)), then the three day grace period
specified in this clause (ii) shall be reduced by the number
of days on which the Base Amount was estimated (of, if such
number of days exceeds three, shall be reduced to zero); or
(iii) failure on the part of the Servicer to deliver
a Monthly Report within the time required under Section 3.5(d)
of the Pooling Agreement and the applicable Supplement or PI
Agreement, and continuance of such failure for three Business
Days; or
20
<PAGE> 25
(iv) failure on the part of Transferor, Guarantor,
Servicer or any Seller duly to observe or perform in any
material respect Section 6.1(f), 6.1(h), 6.1(i), 6.1(j),
6.3(a), 6.3(b), 6.3(c), 6.3(e) or 6.3(f) of the Purchase
Agreement or Section 7.2(c), 7.2(d)(i), 7.2(d)(ii),
7.2(d)(iii), 7.2(e), 7.2(f), 7.2(h), 7.2(i), 7.2(j), 7.2(k) or
7.2(m) of the Pooling Agreement, which failure continues
unremedied for a period of five Business Days; or
(v) failure on the part of Transferor, Guarantor,
Servicer or any Seller duly to observe or perform any other
covenant or agreement set forth in any Transaction Document,
which failure continues unremedied for a period of 30 days
after the date on which written notice thereof, requiring the
same to be cured, shall have been given to Transferor by
Trustee or to Transferor and Trustee by the Agent; or
(vi) Guarantor gives notice of termination of the
Seller Guaranty;
(b) any representation or warranty made by a Seller in
subsection 5.1(d), 5.1(k), 5.1(n), 5.1(o) or 5.1(r) of the Purchase
Agreement or by Transferor in subsection 2.3(a)(i), 2.3(a)(iii) or
7.1(i) of the Pooling Agreement shall prove to have been incorrect in
any material respect when made, and continues to be incorrect in any
material respect for a period of five Business Days, or any other
representation or warranty made by Transferor, Servicer or any Seller
in any Transaction Document shall prove to have been incorrect in any
material respect when made, and continues to be incorrect in any
material respect for a period of 30 days after the date on which
written notice thereof, requiring the same to be cured, shall have been
given to Transferor by Trustee or to Transferor and Trustee by the
Agent; provided that a mistake in the representation of a Receivable as
an Eligible Receivable or the breach of a representation and warranty
with respect to a Receivable shall not constitute an Early Amortization
Event unless and until the applicable Seller has failed to make the
cash payments (if any) owed under Sections 3.1 and 3.5 of the Purchase
Agreement in respect of such mistake or breach (it being understood
that certain of such mistakes or breaches may result in a non-cash
adjustment under the Purchase Agreement);
(c) a Bankruptcy Event shall occur with respect to Transferor,
Servicer, Guarantor or any Seller, or Transferor shall become unable,
for any reason, to transfer Receivables or other Transferred Assets to
the Trust in accordance with the provisions of this Agreement and the
Pooling Agreement; provided that if, at the time any event that would,
with the passage of time, become a Bankruptcy Event occurs as a result
of a bankruptcy proceeding being filed against Transferor or any
Seller, then, on and after the day on which the bankruptcy proceeding
is filed until the earlier to occur of the dismissal of the proceeding
and the Early Amortization Commencement Date, Transferor shall not
purchase Receivables and Related Assets from the affected Seller or, if
Transferor is the subject of the proceeding, transfer Receivables and
Related Transferred Assets to the Trust;
(d) the Trust or Transferor shall be required to be registered
as an "investment company" under and within the meaning of the
Investment Company Act of 1940, as amended;
(e) the Net Invested Amount exceeds the Base Amount for a
period of three or more consecutive Business Days starting with the
delivery of the related Daily Report (or, if a Daily Report has not
been delivered when required hereunder, starting with the date on which
such delivery was required);
(f) a Servicer Default shall have occurred and shall not have
been remedied;
(g) Avondale shall cease to own, directly or indirectly, 100%
of the issued and outstanding capital stock of Transferor;
(h) the Internal Revenue Service or the PBGC files one or more
Tax or ERISA Liens against the assets of Transferor or any Seller
(including Receivables) and either (x) such Tax or ERISA Liens remain
in effect for fifteen days, or (y) the aggregate amount secured thereby
exceeds $1,000,000;
21
<PAGE> 26
(i) the cessation of, or the failure to create, a valid
first-priority perfected and/or protected ownership or security
interest in favor of Trustee in the Receivables or the rights of
Transferor under the Purchase Agreement;
(j) the Invested Amount is not paid in full on the Expected
Final Payment Date;
(k) Transferor's net worth (as calculated in accordance with
GAAP, except that all obligations owed to Transferor from an Avondale
Person shall not constitute assets or equity for purposes of such
calculation) shall be less than 22% of the aggregate Unpaid Balance of
the Receivables at any time and such condition continues for five or
more consecutive Business Days;
(l) any foreclosure or similar proceeding in respect of any
adverse claim on any Buyer Note or the Transferor's common stock shall
have been commenced; or title to any Buyer Note or Transferor's common
stock shall pass to the holders of such adverse claim, it being
understood that the grant of a security interest in the stock of
Transferor or any Buyer Note to a creditor of a Seller that is party to
an Intercreditor Agreement shall not be an Early Amortization Event;
(m) the Intercreditor Provisions shall be amended, waived,
modified or breached without the prior written consent of the Agent;
(n) the average of the Aged Receivables Ratio for any three
consecutive Calculation Periods shall be greater than 5.5%; or
(o) the average of the Dilution Ratio for any three
consecutive Calculation Periods shall be greater than 4.25%.
SECTION VI.2 Early Amortization Period. Upon the occurrence and
continuance of any Early Amortization Event described in subsection 6.1(c), an
Early Amortization Period shall commence without any notice or other action on
the part of Trustee or the Series 1996-1 Certificateholders, immediately upon
the occurrence of such Early Amortization Event. Upon the occurrence and
continuance of any other Early Amortization Event, after the applicable grace
period, if any, set forth in such subsection, Trustee may (and, at the direction
of the Required Series Holders, shall) by notice then given in writing to
Transferor and Servicer, declare that an Early Amortization Period has commenced
as of the date of Transferor's receipt of the notice.
ARTICLE VII
OPTIONAL REDEMPTION; INDEMNITIES
SECTION VII.1 Optional Redemption of Investor Interests. On any
Distribution Date occurring during an Early Amortization Period with respect to
the Series 1996-1 Certificates on or after the date that the Invested Amount is
reduced to ten percent or less of the sum of the initial Stated Amounts for the
Certificates, Transferor shall have the option to redeem the Series 1996-1
Series Interest. The purchase price will be an amount equal to the Invested
Amount plus accrued and unpaid interest (and accrued and unpaid interest with
respect to interest that was due but not paid on any prior Distribution Date)
through the day preceding the Distribution Date at the Certificate Rate
applicable to the Series plus the aggregate amount by which the Invested Amount
has been reduced on account of Investor Write-Offs and Investor Allocable
Dilution (and not subsequently reinstated) plus any Additional Amounts then due.
Upon the tender of the outstanding Certificates of the Series by the Holders,
Trustee shall distribute the amounts, together with all funds on deposit in the
Principal Funding Account that are allocable to the Series 1996-1 Certificates,
to the Holders of the Series on the next Distribution Date in repayment of the
principal amount and accrued and unpaid interest owing to the Holders. Following
any redemption, the Holders of the Series shall have no further rights with
respect to the Receivables. In the event that Transferor fails for any reason to
deposit in the Principal Funding Account the aggregate purchase price for the
Series 1996-1
22
<PAGE> 27
Certificates, payments shall continue to be made to the Holders of the Series in
accordance with the terms of the Pooling Agreement and this Supplement.
SECTION VII.2 Indemnification by Transferor. (a) Transferor hereby
agrees to indemnify the Trust, Trustee, each Holder of a Series 1996-1
Certificate and each of the successors, permitted transferees and assigns of any
such Person and all officers, directors, shareholders, controlling Persons,
employees, affiliates and agents of any of the foregoing (each of the foregoing
Persons individually being called a "Transferor Indemnified Party"), forthwith
on demand, from and against any and all damages, losses, claims (whether on
account of settlements or otherwise, and whether or not the relevant Indemnified
Party is a party to any action or proceeding that gives rise to any Transferor
Indemnified Losses (as defined below)), judgments, liabilities and related
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) (all of the foregoing collectively being called "Transferor
Indemnified Losses") awarded against or incurred by any of them that arise out
of or relate to this Agreement, any other Transaction Document or any of the
transactions contemplated herein or therein or the use of proceeds herefrom or
therefrom (including without limitation any Transferor Indemnified Losses (i)
relating to any Adverse Claim, without regard to whether such Adverse Claim was
a Permitted Adverse Claim, or (ii) arising from any failure to make any filing
or obtain any consent as required by the Federal Assignment of Claims Act with
respect to any Receivables).
Notwithstanding the foregoing, in no event shall any Transferor
Indemnified Party be indemnified for any Transferor Indemnified Losses (i)
resulting from gross negligence or willful misconduct on the part of such
Transferor Indemnified Party (or the gross negligence or willful misconduct on
the part of any of its officers, directors, employees, affiliates or agents), or
the breach by such Transferor Indemnified Party of its obligations under any
Transaction Document, (ii) to the extent they include Transferor Indemnified
Losses in respect of Receivables and reimbursement therefor that would
constitute credit recourse to Transferor for the amount of any Receivable or
Related Transferred Asset not paid by the related Obligor (it being understood
and agreed that the Transferor's liability for the return of funds distributed
to it on a day when the Net Invested Amount exceeded the Base Amount shall not
constitute credit recourse), (iii) to the extent they are or result from lost
profits, (iv) to the extent they are or result from taxes (including interest
and penalties thereon) asserted with respect to (A) distributions on the Series
1996-1 Certificates, (B) franchise or withholding taxes imposed on any
Transferor Indemnified Party other than the Trust or Trustee in its capacity as
Trustee, or (C) federal or other income taxes on or measured by the net income
of such Transferor Indemnified Party (other than franchise taxes imposed on the
Trust) and costs and expenses in defending against the same, or (v) to the
extent they constitute consequential, special or punitive damages.
If for any reason the indemnification provided in this section is
unavailable to a Transferor Indemnified Party or is insufficient to hold a
Transferor Indemnified Party harmless, then Transferor shall contribute to the
amount paid by such Transferor Indemnified Party as a result of any loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by such Transferor Indemnified Party on the one hand
and Transferor on the other hand, but also the relative fault (if any) of such
Transferor Indemnified Party and Transferor and any other relevant equitable
considerations.
Notwithstanding any provisions contained in any Transaction Document to
the contrary, Transferor shall not, and shall not be obligated to, pay any
amount pursuant to this Section unless funds are allocated for such payment
pursuant to Article IV of this Supplement. Any amount which Transferor does not
pay pursuant to the operation of the preceding sentence shall not constitute a
claim (as defined in ss.101 of the Bankruptcy Code) against or corporate
obligation of Transferor for any such insufficiency.
(b) If any action, suit, proceeding or investigation is commenced, as
to which a Transferor Indemnified Party proposes to demand indemnification, it
shall notify the Transferor with reasonable promptness; provided, however, that
any failure by such Transferor Indemnified Party to notify the Transferor shall
not relieve the Transferor from its obligations hereunder (except to the extent
that the Transferor is prejudiced by such failure to promptly notify). The
Transferor shall be entitled to assume the defense of any such action, suit,
proceeding or investigation, including the employment of counsel reasonably
satisfactory to the Transferor Indemnified Party.
23
<PAGE> 28
The Transferor Indemnified Party shall have the right to counsel of its own
choice to represent it, but the fees and expenses of such counsel shall be at
the expense of such Transferor Indemnified Party unless: (a) the Transferor has
failed promptly to assume the defense and employ counsel reasonably satisfactory
to the Transferor Indemnified Party in accordance with the preceding sentence,
or (b) the Transferor Indemnified Party shall have been advised by counsel that
there exists an actual or potential conflict of interests among the Transferor
and such Transferor Indemnified Party, including situations in which one or more
legal defenses may be available to such Transferor Indemnified Party that are
inconsistent with those available to the Transferor; provided, however, that the
Transferor shall not, in connection with any one such action or proceeding or
separate but substantially similar actions or proceedings arising out of the
same general allegations, be liable for fees and expenses of more than one
separate firm of attorneys (other than local counsel) at any time for all
Transferor Indemnified Parties; and such counsel shall, to the extent consistent
with its professional responsibilities, cooperate with the Transferor and any
counsel designated by the Transferor.
The Transferor further agrees that it will not, without the prior
written consent of the applicable Transferor Indemnified Party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Transferor Indemnified Party is an actual
or potential party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
Transferor Indemnified Party from all liability and obligations arising
therefrom.
SECTION VII.3 Indemnification by Servicer. Servicer agrees that each
Agent and each Holder of a Series 1996-1 Certificate (or an interest therein)
shall be an "Indemnified Party" for purposes of the Pooling Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.1 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
SECTION VIII.2 Counterparts. This Supplement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which together shall constitute one and the same instrument.
SECTION VIII.3 Severability of Provisions. If any one or more of the
provisions or terms of this Supplement shall for any reason whatsoever be held
invalid, then the unenforceable provision(s) or term(s) shall be deemed
severable from the remaining provisions or terms of this Supplement and shall in
no way affect the validity or enforceability of the other provisions or terms of
this Supplement.
SECTION VIII.4 Amendment, Waiver, Etc. This Supplement may be amended,
modified or waived from time to time by Servicer, Transferor and Trustee with
the consent of the Required Series Holders or the Holders of Series 1996-1
Certificates (as applicable) to the extent permitted by Section 13.1 of the
Pooling Agreement and Section 10.1 of the Certificate Purchase Agreement, and
the terms of that section shall apply to any such amendment, modification or
waiver.
SECTION VIII.5 Trustee. Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplement
or for or in respect of the recitals contained herein, all of which recitals are
made solely by Transferor and Servicer.
SECTION VIII.6 Instructions in Writing. All instructions given by
Servicer to Trustee pursuant to this Supplement shall be in writing, and may be
included in a Daily Report, Cash Flow Report or Monthly Report.
24
<PAGE> 29
SECTION VIII.7 Rule 144A. So long as any of the Series 1996-1
Certificates are "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act, Transferor shall, unless it becomes subject to and
complies with the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, or rule 12g3-2(b) thereunder,
provide to any Holder of such restricted securities, or to any prospective
purchaser of such restricted securities designated by a Holder, upon the request
of such Holder or prospective purchaser, any information required to be provided
by Rule 144A(d)(4) under the Act.
SECTION VIII.8 Original Supplement. This Supplement amends and restates
the Original Supplement in its entirety. References to the Original Supplement
in any other agreement or document shall be deemed to constitute a reference to
this Supplement.
25
<PAGE> 30
IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
AVONDALE RECEIVABLES COMPANY,
as Transferor
By: /s/ J. Elliott Woodward
-----------------------------------------
Name: J. Elliott Woodward
----------------------------------
Title: Assistant Secretary
---------------------------------
AVONDALE MILLS, INC., as Servicer
By: /s/ J. Elliott Woodward
-----------------------------------------
Name: J. Elliott Woodward
----------------------------------
By: Vice President, Treasurer and
-------------------------------------
Assistant Secretary
----------------------------------------
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By: /s/ Russell T. Whitley
-----------------------------------------
Name: Russell T. Whitley
----------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE> 1
EXHIBIT 10.5
================================================
AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT
(SERIES 1996-1)
dated as of November 21, 1997
among
AVONDALE RECEIVABLES COMPANY,
AVONDALE MILLS, INC.,
AS THE INITIAL SERVICER,
THE PURCHASERS DESCRIBED HEREIN,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions...............................................................1
ARTICLE II
PURCHASE AND SALE OF CERTIFICATES
SECTION 2.1 The Commitments...........................................................2
SECTION 2.2 Purchase Mechanics........................................................2
SECTION 2.3 Reduction of Stated Amounts...............................................3
SECTION 2.4 Certificates..............................................................3
ARTICLE III
REDUCTIONS IN INVESTED AMOUNT
SECTION 3.1 Transferor's Right to Reduce Invested Amount..............................4
SECTION 3.2 Notice to Purchasers......................................................4
ARTICLE IV
TRANCHES, INTEREST AND FEES
SECTION 4.1 Tranches..................................................................4
SECTION 4.2 Fees......................................................................5
SECTION 4.3 Yield Protection..........................................................5
SECTION 4.4 Illegality; Unavailability................................................7
SECTION 4.5 Indemnity.................................................................7
SECTION 4.6 Taxes.....................................................................8
ARTICLE V
OTHER PAYMENT TERMS
SECTION 5.1 Time and Method of Payment................................................9
SECTION 5.2 Pro Rata Treatment........................................................9
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1 Transferor...............................................................10
SECTION 6.2 Initial Servicer and Avondale............................................10
SECTION 6.3 Purchasers...............................................................10
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to Effectiveness..............................................11
SECTION 7.2 Conditions to Each Purchase..............................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VIII
COVENANTS
SECTION 8.1 Affirmative Covenants..................................................12
SECTION 8.2 Negative Covenants.....................................................13
SECTION 8.3 Transfers..............................................................13
ARTICLE IX
AGENT; REQUIRED PURCHASERS
SECTION 9.1 Appointment............................................................14
SECTION 9.2 Nature of Duties.......................................................14
SECTION 9.3 Lack of Reliance on Agent and Financial Advisor........................14
SECTION 9.4 Certain Rights of Agent................................................14
SECTION 9.5 Reliance...............................................................15
SECTION 9.6 Indemnification........................................................15
SECTION 9.7 Agent in its Individual Capacity.......................................15
SECTION 9.8 Resignation by Agent...................................................15
SECTION 9.9 Required Purchasers. .................................................16
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendments..............................................................16
SECTION 10.2 No Waiver; Remedies.....................................................16
SECTION 10.3 Successors and Assigns; Assignments.....................................16
SECTION 10.4 Survival of Agreement...................................................20
SECTION 10.5 Expenses; Indemnification...............................................20
SECTION 10.6 Entire Agreement........................................................21
SECTION 10.7 Notices.................................................................21
SECTION 10.8 No Third-Party Beneficiaries............................................22
SECTION 10.9 Severability of Provisions..............................................22
SECTION 10.10 Counterparts...........................................................22
SECTION 10.11 Governing Law..........................................................22
SECTION 10.12 Tax Characterization...................................................22
SECTION 10.13 No Proceedings.........................................................22
SECTION 10.14 References to Original Agreement.......................................22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SCHEDULE
SCHEDULE I Amount of Each Initial Purchaser's Certificate
EXHIBITS
EXHIBIT A Form of Pooling and Servicing Agreement
EXHIBIT B Form of Receivables Purchase Agreement
EXHIBIT C Form of Series 1996-1 Supplement
EXHIBIT D-1 Form of Assignment Agreement
EXHIBIT D-2 Form of Support Bank Confirmation
APPENDIX
APPENDIX X Index of Additional Defined Terms
</TABLE>
<PAGE> 5
This AMENDED AND RESTATED CERTIFICATE PURCHASE AGREEMENT, dated as of
November 21, 1997 (this "Agreement"), is made among AVONDALE RECEIVABLES
COMPANY, a Delaware corporation ("Transferor"), AVONDALE MILLS, INC., an
Alabama corporation ("Avondale", "Servicer" or "Initial Servicer"), the
purchasers named on the signatures pages of this Agreement (together with their
respective permitted assigns, the "Purchasers"), and THE FIRST NATIONAL BANK OF
CHICAGO ("FNBC"), as agent for the Purchasers (in that capacity, together with
any successors in that capacity, "Agent").
BACKGROUND
1. Transferor (a) has entered into a Pooling and Servicing Agreement
substantially in the form of Exhibit A (the "Pooling Agreement") with Initial
Servicer, as initial Servicer, and, Manufacturer and Traders Trust Company, a
New York banking corporation, as trustee (in that capacity, together with any
successors in that capacity, the "Trustee"), (b) is party to a Receivables
Purchase Agreement substantially in the form of Exhibit B and (c) will enter
into a Amended and Restated Series 1996-1 Supplement to the Pooling Agreement
substantially in the form of Exhibit C (the "Supplement").
2. Pursuant to the Pooling Agreement and the Supplement, Transferor
will obtain the Series 1996-1 Certificates (the "Certificates"), which will
represent fractional undivided beneficial interests in the assets of the
Avondale Receivables Master Trust (the "Trust"), a trust to be organized
pursuant to the Pooling Agreement.
3. The parties to this Agreement entered into a Certificate Purchase
Agreement, dated as of April 29, 1996 (the "Original Agreement"), pursuant to
which FALCON purchased fractional undivided interests in the assets of the
Trust, evidenced by a Certificate.
4. Transferor wishes to obtain the commitment of each Purchaser to
purchase fractional undivided beneficial interests in the assets of the Trust
(each a "Trust Interest") that will be evidenced by its Certificate. Subject to
the terms and conditions of this Agreement, each Purchaser is willing to agree
to so make purchases of Trust Interests, up to the Stated Amount (as defined
below) set forth opposite its name in Schedule I. Initial Servicer and Avondale
have joined in this Agreement to confirm certain representations, warranties
and covenants for the benefit of the Purchasers and the Agent.
<PAGE> 6
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. Capitalized terms used and not otherwise
defined herein have the meanings assigned to them in the Supplement or, if not
defined in the Supplement, in Appendix A to the Pooling Agreement. An index of
terms defined directly in this Agreement is attached as Appendix X.
ARTICLE 2
PURCHASE AND SALE OF CERTIFICATES
SECTION 2.1 The Commitments. (a) Subject to the terms and conditions of
this Agreement (including Section 2.1(c)), the Pooling Agreement and the
Supplement, each Purchaser agrees, severally and for itself alone, upon
Transferor's request (through Servicer), to make purchases (each a "Purchase")
of Trust Interests from time to time during the Revolving Period; provided, that
no Purchaser will be required or permitted to make a Purchase on any date if the
funded principal amount of its Certificate, after giving effect to the Purchase,
would exceed the lesser of (a) the Stated Amount of its Certificate and (b) its
Percentage (as defined below) multiplied by the Invested Amount. In addition, no
Purchaser will be required or permitted to make a Purchase if, after giving
effect thereto (and any corresponding reduction to the Invested Amount pursuant
to Section 3.1), the Net Invested Amount would exceed the Base Amount. The
Purchases by the Purchasers shall be made ratably in accordance with their
respective Percentages; provided, that the failure of any Purchaser to make any
Purchase shall not relieve any other Purchaser of its obligation to make
Purchases hereunder. No Purchaser shall, however, be responsible for the failure
of any other Purchaser to make any Purchase. Subject to the terms of this
Agreement, the aggregate principal amount of a Purchaser's investment
represented by its Certificate may be increased or decreased from time to time.
(b) For purposes of this Agreement, "Percentage" means, with respect to
each Purchaser, the percentage equivalent (carried out to twelve decimal places)
of a fraction the numerator of which is the Stated Amount of such Purchaser's
Certificate and the denominator of which is the sum of the Stated Amounts of all
of the Purchasers' Certificates. The initial Percentages of the initial
Purchasers, and the Stated Amounts of their Certificates, are set out opposite
their names in Schedule I.
(c) Notwithstanding anything in this Agreement or any other Transaction
Document to the contrary, no Purchaser that is a Structured Purchaser shall be
obligated to make any Purchase, and each Purchase by it shall be discretionary,
in its sole discretion, if: (i) one or more Support Banks for such Structured
Purchaser shall have agreed (which agreement may be several and not joint) in
writing to make any Purchase that such Structured Purchaser would otherwise be
required to make hereunder, and (ii) each such Support Bank shall have
confirmed, for the benefit of the other parties hereto and Trustee, its
obligation to make such Purchases by executing and delivering this Agreement or
an agreement substantially in the form of Exhibit D-1 or D-2. FNBC, as Support
Bank for FALCON, hereby confirms, for the benefit of such parties and Trustee,
its obligation to make any Purchase that FALCON would otherwise be required to
make hereunder.
SECTION 2.2 Purchase Mechanics. (a) Whenever Transferor wishes the
Purchasers to make Purchases, it shall cause Servicer to notify the Agent if the
Trust Interests to be purchased initially will form a part of (i) a CBR Tranche,
not later than noon, New York City time, one Business Day prior to the date of
the proposed Purchase, and (ii) a LIBOR Tranche, not later than 2:00 p.m., New
York City time, three Business Days prior to the date of the proposed Purchase;
provided that the notice to the Agent of the initial Purchase hereunder may be
provided up to (but no later than) 10:00 a.m. on the Closing Date and such
Purchase shall form a part of the CBR Tranche. Each notice shall be irrevocable
and shall in each case refer to this Agreement and specify (w) the aggregate
purchase price for the requested Purchases (which shall be in a minimum amount
of $2,000,000 or a greater integral multiple of $1,000,000 (or in the total
unutilized amount of the various Purchasers' Stated Amounts)), whether the Trust
Interests to be purchased will form a part of the CBR Tranche a LIBOR Tranche,
and (y) the date of the Purchase (which shall be a Business Day) and the amount
thereof. If no election required by clause (x) is made in any notice, then the
Trust Interests obtained in the Purchase shall form a
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part of the CBR Tranche. The Agent shall promptly advise the Purchasers of any
notice given pursuant to this section and of the amount of each Purchaser's
Purchase. Any such selection of a LIBOR Tranche shall be subject to Section 4.4.
(b) After receiving notice from the Agent of any notice given pursuant
to subsection (a) and subject to the conditions in Article VII, each Purchaser
shall make a Purchase in the amount of its pro rata portion of aggregate
Purchases requested to be made, ratably according to its Percentage, on the
proposed date thereof by wire transfer in Dollars of immediately available funds
to the Agent at the office designated from time to time by the Agent, not later
than 10:00 a.m., New York City time, and the Agent shall (unless notified in
writing that any condition precedent has not been satisfied), by noon, New York
City time, on the same day, make available to Transferor by wire transfer of
Dollars in immediately available funds the aggregate amount of the funds
received. Unless the Agent shall have received written notice from a Purchaser
prior to the date of any Purchase that the Purchaser will not make available to
the Agent its purchase price, the Agent may (but shall not be required to)
assume that the Purchaser has made that portion available to the Agent on the
date of the Purchase in accordance with this subsection, and the Agent may, in
reliance upon that assumption, make available to Transferor on that date a
corresponding amount.
(c) If and to the extent that any Purchaser shall not have made its
purchase price available to the Agent and the Agent has made available a
corresponding amount to Transferor, such Purchaser agrees to repay to the Agent
forthwith on demand a corresponding amount, together with interest thereon, for
each day from the date the amount is made available to Transferor until the date
the amount is repaid to the Agent (i) for the first three days following the
date the amount is made available, at a rate per annum equal to the Federal
Funds Rate and (ii) thereafter, at a rate per annum equal to the Federal Funds
Rate plus 1%. If the Purchaser shall repay to the Agent a corresponding amount,
the amount shall constitute its Purchase for purposes of this Agreement, and if
Transferor shall have already made the repayment (as provided below), the Agent
shall make a corresponding amount immediately available to Transferor. At any
time after the Agent learns that a Purchaser has failed to make the purchase
price for a Purchase available as described above, the Agent promptly shall give
notice to Transferor and Servicer of that failure, and upon notice Transferor
will be required to refund to the Agent an amount equal to that purchase price,
together with interest on the amount at the rate of interest applicable to such
Purchase (determined in accordance with Section 4.1 of the Supplement).
SECTION 2.3 Reduction of Stated Amounts. Upon at least three Business
Days' prior irrevocable notice to the Agent in writing, Transferor may reduce
the Stated Amounts of the Certificates; provided, that (a) each partial
reduction of the Stated Amounts shall be, in the aggregate for all Certificates,
in an integral multiple of $1,000,000 and in a minimum principal amount of
$2,000,000 and (b) no partial reduction shall be made that would reduce the
aggregate Stated Amounts to an amount less than the Invested Amount at the time
of the reduction. Each reduction in the Stated Amounts shall be made ratably
among the Purchasers in accordance with their respective Stated Amounts. The
Agent shall promptly advise the Purchasers of any notice given pursuant to this
section. Each reference in this Agreement to the "Stated Amount" of a
Certificate means the Stated Amount of the Certificate after giving effect to
any reductions made pursuant to this section.
SECTION 2.4 Certificates. The outstanding amounts of the Purchases made
by each Purchaser shall be evidenced by its Certificate, to be issued on the
Closing Date substantially in the form of Exhibit A to the Supplement. Each
Purchaser shall and is hereby authorized to record on the grid attached to its
Certificate (or at its option, in its internal books and records) the date and
amount of each Purchase made by it, the amount of each repayment of the
principal
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amount represented by its Certificate, the portions of its Purchases that are
from time to time allocated to the CBR Tranche and each LIBOR Tranche, and any
reductions to the Stated Amount of its Certificate made pursuant to Section 2.3
(which shall be conclusive absent manifest error); provided, that failure to
make any recordation on the grid or records or any error in the grid or records
shall not adversely affect the Purchaser's rights with respect to its interest
in the assets of the Trust and its right to receive interest in respect of the
outstanding principal amount of all Purchases made by the Purchaser.
ARTICLE 3
REDUCTIONS IN INVESTED AMOUNT
SECTION 3.1 Transferor's Right to Reduce Invested Amount. Transferor
may, on at least one Business Day's prior notice by Transferor or Servicer to
the Agent, reduce the Invested Amount by causing an amount of funds equal to the
desired amount of the reduction that are available for this purpose in
accordance with the terms of the Supplement to be transferred to the Agent, for
the account of the Purchasers (and application to the respective and ratable
reduction of the funded principal amount of the Certificate of each Purchaser),
provided that any reduction to the aggregate funded principal amounts
represented by the Certificates must be in a minimum amount of $1,000,000 (or
the entire funded principal amount, if less) or a greater integral multiple of
$1,000,000.
SECTION 3.2 Notice to Purchasers. The Agent shall promptly advise the
Purchasers of any notice received by the Agent pursuant to Section 3.1.
ARTICLE 4
TRANCHES, INTEREST AND FEES
SECTION 4.1 Tranches. (a) All Purchases made hereunder shall be
included in up to four LIBOR Tranches and/or a single CBR Tranche.
(b) Subject to the terms and conditions set forth in this section and
Section 4.4, Transferor shall have the option, on any Business Day, to convert a
Tranche of one type into a Tranche of a different type, or to continue a Tranche
of one type as such type of Tranche, provided that:
(i) any such conversion or continuation of a LIBOR Tranche
shall be on the last day of an Interest Period therefor,
(ii) each conversion or continuation shall be made ratably
among the Purchasers in accordance with their respective amounts of the
Purchases comprising the converted or continued Tranche, and
(iii) no outstanding LIBOR Tranche may be continued as such
type of Tranche, and no Tranche may be converted into a LIBOR Tranche
at any time that an Early Amortization Event has occurred and is
continuing; and any Interest Period for the LIBOR Tranche that
commences after the commencement of the Amortization Period must begin
on a Distribution Date and end on the next Distribution Date.
(c) If Transferor wishes to convert and/or continue a Tranche under
this section, Transferor shall notify the Agent in writing (i) in the case of a
conversion to or continuation of the LIBOR Tranche, not later than 2:00 p.m.,
New York City time, three Business Days prior to the date of the proposed
conversion or continuation date, or (ii) otherwise, not later than noon, New
York City time, one Business Day prior to the date of the proposed conversion or
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continuation. Each notice shall be irrevocable and shall refer to this
Agreement and specify (x) the identity and amount of the Tranche that
Transferor wishes to convert or continue, (y) whether the Tranche is to be
converted into or continued as a LIBOR Tranche or CBR Tranche and (z) the date
of the proposed conversion or continuation (which shall be a Business Day). If
Transferor shall not have delivered a timely notice in accordance with this
section with respect to any Tranche, the Tranche shall, at the end of the
Interest Period applicable to it (unless repaid pursuant to the terms hereof),
automatically be converted into or continued as the CBR Tranche. The Agent
shall promptly advise the Purchasers of any notice given pursuant to this
section and of each Purchaser's portion of any converted or continued Tranche.
(d) In accordance with Section 4.1 of the Supplement, each Purchaser
and the Agent will be entitled to receive additional interest (at the rate
specified therein) on amounts that are not paid when due under this Agreement or
under its Certificate.
SECTION 4.2 Fees. (a) Each Purchaser shall be entitled to receive from
Collections a fee (a "Facility Fee") for the period from the Closing Date until
the later to occur of (x) the end of the Revolving Period and (y) the payment in
full of the Certificates, equal to 0.25% per annum, on the Stated Amount of its
Certificate; provided that any Facility Fee payable to a Structured Purchaser
shall be for the account of, and distributed to, such Structured Purchaser's
Support Banks, pro rata according to the commitment of each such Support Bank to
such Structured Purchaser in connection with this Agreement. The Facility Fee
for any Distribution Date shall be calculated on the basis of the actual number
of days elapsed since the preceding Distribution Date (or, if prior to the first
subsequent Distribution Date after the Closing Date, during the period from the
Closing Date to such Distribution Date) over a year of 365 or 366 days, as
applicable.
(b) In addition, Transferor shall pay to the Agent and First Chicago
Capital Markets, Inc. certain other fees, payable at the times and in the
amounts specified in the fee letter (the "Fee Letter") dated the date hereof
from First Chicago Capital Markets, Inc. to Transferor and Avondale.
SECTION 4.3 Yield Protection. (a) Notwithstanding any other provision
herein, if, after the Closing Date, either:
(i) the adoption of any law, rule or regulation (including any
imposition or increase of reserve requirements) or any change after the
Closing Date in the interpretation or administration of any law, rule
or regulation by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
(ii) the compliance by a Purchaser with any new or revised
guideline or request from any central bank or other Governmental
Authority or quasi-governmental authority exercising control over banks
or financial institutions generally (whether or not having the force of
law),
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shall subject a Purchaser to the imposition or modification of any reserve
(including any imposed by the Federal Reserve Board), special deposit or similar
requirement (including a reserve, special deposit or similar requirement that
takes the form of a tax) against assets of, deposits with or for the account of,
or credit extended by, the Purchaser or the office from time to time that it
designates to the Agent as the office through which it makes and maintains its
Purchases comprising part of a LIBOR Tranche (as to each Purchaser, its "LIBOR
Office") or impose any other condition on a Purchaser affecting the LIBOR
Tranche or its obligations hereunder, and as a result of either of the foregoing
there shall be any increase in the cost to the Purchaser of agreeing to make or
making, funding or maintaining Purchases as a LIBOR Tranche (except to the
extent already included in the determination of the LIBOR), or there shall be a
reduction in the amount received or receivable by the Purchaser or its LIBOR
Office, then, upon written notice from the Purchaser to Transferor and Servicer
(with a copy to the Agent), signed by an officer of the Purchaser with knowledge
of and responsibility for such matters, and setting forth in reasonable detail
the calculation used to arrive at the amounts, the Purchaser shall be entitled
to receive such additional amounts sufficient to indemnify that Purchaser
against the increased cost or reduction in amounts received or receivable,
solely from amounts allocated thereto and paid pursuant to the Supplement;
provided, that any Purchaser entitled to compensation pursuant to this Section
shall designate a different LIBOR Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in such
Purchaser's sole judgment, be otherwise disadvantageous to such Purchaser.
(b) If a Purchaser shall reasonably determine that the adoption after
the Closing Date of any law, rule or regulation regarding capital adequacy or
capital maintenance, or any change after the Closing Date in any of the
foregoing or in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by a Purchaser, any of its lending offices
or its holding company with any new or revised request or directive regarding
capital adequacy or capital maintenance (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Purchaser's capital
or the capital of its holding company as a consequence of this Agreement, the
commitment of such Purchaser to make Purchases or the Purchases made by such
Purchaser pursuant hereto to a level below what the Purchaser or its holding
company could have achieved but for the adoption, change or compliance (taking
into consideration the Purchaser's policies, and the policies of its holding
company, with respect to capital adequacy), then, upon written notice from the
Purchaser to Transferor and Servicer (with a copy to the Agent), signed by an
officer of the Purchaser with knowledge of and responsibility for such matters,
and setting forth in reasonable detail the calculation used to arrive at the
amounts, the Purchaser shall be entitled to receive such additional amounts as
will compensate the Purchaser or its holding company for the reduction, solely
from amounts allocated thereto and paid pursuant to the Supplement; provided,
that any Purchaser entitled to compensation pursuant to this Section shall
designate a different lending office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in such
Purchaser's sole judgment, be otherwise disadvantageous to such Purchaser.
(c) A Purchaser shall promptly notify Transferor, Servicer and the
Agent in writing of any event of which it has knowledge occurring after the
Closing Date that will entitle it to compensation pursuant to this section. A
certificate of the Purchaser, signed by an officer of the Purchaser with
knowledge of and responsibility for such matters, and setting forth in
reasonable detail the calculation used to arrive at the amounts necessary to
compensate the Purchaser or its holding company as specified in subsection (a)
or (b), as the case may be, shall be delivered to Transferor and Servicer and
shall be conclusive absent demonstrable error.
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(d) Failure on the part of a Purchaser to demand compensation for any
amounts as specified in subsection (a) or (b) with respect to any period shall
not constitute a waiver of its right to demand compensation with respect to that
period or any other period; provided, that no such demand may be made for any
period before 180 days preceding the date of such demand. The protection of this
section shall be available to the Purchasers regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition that shall have occurred or been imposed.
(e) Promptly after giving any notice to Transferor pursuant to this
section, a Purchaser will seek to designate one of its offices located at an
address other than that previously designated pursuant to this Agreement as the
office from which its Purchases will be made after the designation if it will
avoid the need for, or materially reduce the amount of, any payment to which the
Purchaser would otherwise be entitled pursuant to this section and will not, in
the sole and reasonable discretion of the Purchaser, be otherwise
disadvantageous to the Purchaser.
SECTION 4.4 Illegality; Unavailability. (a) In the event that on any
date any Purchaser shall have reasonably determined (which determination shall
be final and conclusive and binding upon all parties) that the making or
continuation of its Purchases as a LIBOR Tranche has become unlawful by
compliance by the Purchaser in good faith with any law, governmental rule,
regulation or order or has become impossible as a result of a contingency
occurring after the Closing Date that materially and adversely affects its
interbank eurodollar market, then, and in any such event, that Purchaser shall
promptly give notice (by telephone confirmed in writing) to Transferor, Servicer
and the Agent (which notice the Agent shall promptly transmit to each Purchaser)
of that determination. The obligation of the affected Purchaser to make or
maintain its Purchases as the LIBOR Tranche during any such period shall be
terminated at the earlier of the termination of the Interest Period then in
effect for the LIBOR Tranche or when required by law, and Transferor shall, no
later than the time specified for the termination, convert any Purchases of the
affected Purchaser that constitute part of the LIBOR Tranche into a part of the
CBR Tranche.
(b) If, prior to the beginning of any Interest Period, the Agent shall
have reasonably determined (which determination shall be final and conclusive
and binding upon all parties) that: (i) Dollar deposits in the relevant amount
and for the Interest Period are not available in the eurodollar market or (ii)
by reason of circumstances affecting the interbank eurodollar market, that
adequate and fair means do not exist for ascertaining the LIBOR applicable to
the LIBOR Tranche, then the Agent shall promptly give notice of this
determination to Transferor, Servicer and to each Purchaser. Thereafter, and
continuing until the Agent shall notify Transferor, Servicer and each Purchaser
that the circumstances giving rise to this determination no longer exist, (x)
each LIBOR Tranche will, on the last day of the applicable Interest Period,
convert into a part of the CBR Tranche, (y) the right of Transferor to request a
LIBOR Tranche shall be suspended and (z) any Purchases requested to be made as
the LIBOR Tranche prior to such time but not yet made shall be made as the part
of the CBR Tranche.
SECTION 4.5 Indemnity. If a Purchaser shall incur any losses, expenses
or liabilities (including any interest paid to lenders of funds borrowed by it
to fund any Purchase of a Certificate as the LIBOR Tranche and any loss
sustained in connection with the re-deployment of such funds) as a result of (a)
the failure of a Purchase to be made on a date specified therefor in a notice
delivered by Transferor pursuant to Section 2.2 (other than any such failure
resulting from the Purchaser's default in the performance of its obligations
hereunder) or (b) any repayment, including under Section 3.1, of the LIBOR
Tranche on a date that is not the last day of the Interest Period applicable to
the LIBOR Tranche or that is any date other than the date specified in a notice
of repayment given by Servicer, then, upon written notice (which notice shall be
signed by an officer of the Purchaser with knowledge of and responsibility for
such matters and
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shall set forth in reasonable detail the basis for requesting the amounts) from
the Purchaser to Transferor and Servicer, additional amounts sufficient to
indemnify the Purchaser against the losses, expenses and liabilities, but not
for any lost profits associated therewith, shall constitute "Additional
Amounts" for purposes of the Supplement, and the Purchaser shall be entitled to
receive these additional amounts, solely from amounts allocated thereto and
paid pursuant to the Supplement.
SECTION 4.6 Taxes. (a) Except as otherwise provided below, any and all
payments made to each Purchaser under its Certificate shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, duties, charges, fees, deductions or withholdings of any nature and
whatever called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed, excluding taxes imposed on all or part of the
net income, profits or gains of such Purchaser or its Participant, Transferee or
Affected Party (whether worldwide, or only insofar as such income, profits or
gains are considered to arise in or to relate to a particular jurisdiction, or
otherwise) by any jurisdiction under the laws of which such Purchaser,
Participant, Transferee or Affected Party is organized, has its principal office
or books its investment in its Certificate (or any tax authority thereof) (all
the nonexcluded taxes, levies, imposts, charges, deductions, withholdings and
liabilities being hereinafter referred to as "Taxes"). If Trustee or the Agent
are required by law to deduct or withhold any Taxes from or in respect of any
sum payable hereunder or under any Certificate to a Purchaser, then the sum
payable shall be increased by the amount necessary to yield to such Purchaser
(after payment of all Taxes) an amount equal to the sum it would have received
had no such deductions or withholdings been made, and the additional amount
shall constitute "Additional Amounts" for purposes of the Supplement, and the
Purchaser shall be entitled to receive these additional amounts, solely from
amounts allocated thereto and paid pursuant to the Supplement.
(b) Whenever any Taxes are paid by Trustee pursuant to subsection (a),
as promptly as possible thereafter Servicer shall send to the relevant Purchaser
the original or a certified copy of an original official receipt showing payment
thereof (if any) or any other evidence of the payment as may be available to
Servicer through the exercise of its reasonable efforts. If Trustee fails to pay
any Taxes when due to the appropriate taxing authority or fails to remit to the
Purchaser the required receipts or other required documentary evidence, the
Purchaser shall be entitled to receive, solely from amounts allocated with
respect thereto and paid pursuant to the Supplement, additional amounts
necessary to indemnify it for any incremental taxes, interest or penalties that
may become payable by the Purchaser as a result of any such failure, and the
amounts shall constitute "Additional Amounts" for purposes of the Supplement,
and the Purchaser shall be entitled to receive these additional amounts, solely
from amounts allocated thereto and paid pursuant to the Supplement.
(c) On or before the date it becomes a party to this Agreement (and, so
long as it may properly do so, periodically thereafter, as requested by
Servicer, to keep forms up to date), each Purchaser, including any Assignee,
that is not a United States person (as defined in section 7701(a)(30) of the
Internal Revenue Code), shall deliver to Trustee any certificates, documents or
other evidence that shall be required by the Internal Revenue Code or Treasury
Regulations issued pursuant thereto to establish that, assuming the Certificates
are properly characterized as indebtedness for Federal income tax purposes, it
is exempt from existing United States Federal withholding (including backup
withholding) requirements, including (i) two original copies of Internal Revenue
Service Form 4224 or successor applicable form, properly completed and duly
executed by the Purchaser or Assignee certifying that it is entitled to receive
payments under this Agreement or any Certificate without deduction or
withholding of any United States Federal income taxes, or (ii) an original copy
of Internal Revenue Service Form W-8 or applicable successor form, properly
completed and duly executed; provided, that if any Purchaser does not comply
with this subsection 4.6(c), amounts payable to such Purchaser under this
Section 4.6
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shall be limited to amounts that would have been payable under this section if
such Purchaser had so complied.
(d) The Transferor shall not be required pursuant to this Section to
indemnify any Purchaser, Participant, Transferee or Affected Party that itself
is not incorporated under the laws of the United States of America or a state
thereof or that is purchasing its Certificate from or holding its Certificate in
an office not located within the United States of America or a state thereof (a
"Non-U.S. Party"), or to pay any additional amounts to any Non-U.S. Party, in
each case in respect of United States Federal withholding tax to the extent that
the obligation to withhold amounts with respect to United States Federal
withholding tax existed (i) in the case of a Purchaser, Participant or
Transferee, on the date such Non-U.S. Party became a party to this Agreement or
otherwise acquired a Certificate or any interest therein or (ii) in the case of
an Affected Party, on the date such Non-U.S. Party became a Support Bank.
ARTICLE 5
OTHER PAYMENT TERMS
SECTION 5.1 Time and Method of Payment. (a) All amounts payable to any
Purchaser hereunder or with respect to its Certificate shall be made to the
Agent for the account of the Purchaser by wire transfer of immediately available
funds in Dollars not later than 2:00 p.m., New York City time, on the date due.
Any funds received after that time will be deemed to have been received on the
next Business Day. The Agent shall distribute all payments to the Purchasers, in
accordance with their respective interests, prior to the close of business on
the Business Day on which any payment is deemed received.
(b) On any date on which a payment to one or more Purchasers hereunder
or under the Certificates is due and payable, the Agent may (but in no event
shall be required to) assume that the payment has been made available to the
Agent on the date of the payment in accordance with this section, and the Agent
may (but in no event shall be required to), in reliance upon this assumption,
make payment of a corresponding amount to the Purchasers. If and to the extent
any amounts shall not have so been made available to the Agent, each Purchaser
irrevocably and unconditionally agrees to repay to the Agent forthwith on demand
the amount of payment it received together with interest thereon, for each day
from the date payment is made by the Agent until the date the amount is repaid
to the Agent, (i) for the first three days following the date the payment is
made, at a rate per annum equal to the Federal Funds Rate and (ii) thereafter,
at a rate per annum equal to the Federal Funds Rate plus 1%.
SECTION 5.2 Pro Rata Treatment. Each repayment of the principal of the
Certificates, (except as otherwise required by Section 2.2(c)), each payment of
interest thereon, each payment of the Facility Fee, each reduction of the Stated
Amounts and each conversion or continuation of any Tranche (except as otherwise
required by Section 4.4(a) with respect to conversions) shall be allocated pro
rata among the Purchasers on the date of payment or reduction, in accordance
with their respective Percentages. Each Purchaser agrees that in computing its
portion of any Purchases to be made hereunder, the Agent may, in its discretion,
round each Purchaser's pro rata share of the Purchases to the next higher or
lower whole dollar amount.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES
SECTION 6.1 Transferor. As of the date hereof, Transferor represents
and warrants to the Purchasers that each of its representations and warranties
in the Pooling Agreement and Purchase Agreement is true and correct, as if made
on the date hereof, and further represents and warrants that:
(a) no Early Amortization Event or Unmatured Early
Amortization Event exists;
(b) assuming the accuracy of each Purchaser's representations
set out in Section 6.3 and that no Purchaser (and no Person acting on
any Purchaser's behalf) has made a general solicitation or general
advertising within the meaning of the Securities Act, the offer and
sale of the Certificates in the manner contemplated by this Agreement
is a transaction exempt from the registration requirements of the
Securities Act, and the Pooling Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended; and
(c) no information supplied by or on behalf of Transferor,
Avondale or any of its Subsidiaries to the Agent or the Purchasers in
connection with the Transaction Documents contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading in light of
the circumstances under which they were made or the information was
furnished.
SECTION 6.2 Initial Servicer and Avondale. As of the date hereof, each
of Initial Servicer and Avondale represents and warrants to the Purchasers that:
(a) each of its representations and warranties in the Pooling
Agreement and the Purchase Agreement is true and correct;
(b) the audited financial statements of Avondale and its
consolidated Subsidiaries, as of August 30, 1996 present fairly in all
material respects the financial position, results of operations and
cash flows of Avondale and its consolidated Subsidiaries at the dates
and for the periods to which they relate and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise stated therein;
(c) since August 30, 1996, (i) there has been no material
adverse change in the financial condition or the earnings, business or
operations of Transferor or Avondale, whether or not arising in the
ordinary course of business, and (ii) there have been no transactions
entered into by Transferor, Avondale or the Sellers that are material
with respect to the financial condition or the earnings, business
affairs or business prospects of Transferor or Avondale; and
(d) no information supplied by or on behalf of Transferor,
Avondale or any of its Subsidiaries to the Agent or the Purchasers in
connection with the Transaction Documents contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading in light of
the circumstances under which they were made or the information was
furnished.
SECTION 6.3 Purchasers. As of the Closing Date (or such later date on
which it acquires its Certificate in accordance with Section 10.3), each
Purchaser represents and warrants
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(and each Assignee shall be deemed to represent and warrant as of the date that
its assignment becomes effective) that:
(a) it is a "qualified institutional buyer" as that term is
defined under Rule 144A of the Securities Act and it is not purchasing
its Certificate with a view to making a distribution thereof (within
the meaning of the Securities Act); and
(b) it is not a pension, profit sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of
1975, as amended.
ARTICLE 7
CONDITIONS
SECTION 7.1 Conditions to Effectiveness. The effectiveness of this
Agreement shall be subject to the satisfaction of the conditions precedent that
(x) the Agent shall have received, for the account of FALCON, a duly executed
and authenticated Certificate registered in its name and in a Stated Amount
equal to the amount set out opposite its name on the signature pages of this
Agreement, and (y) the Agent shall have received an original (except as
indicated below) counterpart of the following (each of which, if not in a form
attached to this Agreement, shall be in form and substance satisfactory to the
Agent):
(a) the Supplement, which shall be in full force and effect,
and all actions required to be taken under those documents in
connection with the issuance of the Certificates shall have been taken;
(b) Amendment No. 1 to the Pooling Agreement and the Purchase
Agreement (the "Amendment") dated as of November 21, 1997 among
Transferor, Avondale and Trustee, and all conditions precedent in
Section 2.01 of the Amendment have been satisfied;
(c) the Seller Assignment Certificate in the form attached as
Exhibit B-2 to the Pooling Agreement, necessary to protect the
Trustee's security interest in the Transferred Assets;
(d) a certificate of the Secretary, or an Assistant Secretary,
of each of Transferor, Servicer, Guarantor and each Seller with respect
to:
(i) attached copies of resolutions of its Board of
Directors then in full force and effect authorizing the
execution, delivery and performance of the Transaction
Documents,
(ii) the incumbency and signatures of those of its
officers authorized to act with respect to the Transaction
Documents,
(iii) attached copies of its certificate of
incorporation and by-laws;
(e) a certificate of an Authorized Officer of each of
Transferor, Servicer and each Seller as to the satisfaction of the
conditions precedent set forth in Section 7.2,
(f) such documentation with respect to the assignment of
Receivables owed by Canadian residents as the Agent shall reasonably
request;
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(g) the following opinions addressed to the Agent, the
Purchasers and Trustee, and in each case as to the matters and in such
form and substance as shall be satisfactory to the Agent, the
Purchasers and Trustee:
(i) opinions of King & Spalding as to certain
corporate and securities matters, Federal and state tax and
UCC matters, true sale and non-consolidation; and
(ii) opinions of Bradley, Arant, Rose & White as to
certain corporate, state tax and UCC matters;
(h) any other information, certificates, opinions and
documents as the Agent may have reasonably requested.
SECTION 7.2 Conditions to Each Purchase. The obligation of each
Purchaser to make any Purchase on any day (including those comprising the
initial Purchase) shall be subject to the conditions precedent that on the date
of the Purchase, before and after giving effect thereto and to the application
of any proceeds therefrom, the following statements shall be true:
(a) the representations and warranties of Transferor and
Initial Servicer set out in this Agreement (other than in Section
6.2(b) or (c)) are true and accurate in all material respects as of
that date with the same effect as though made on that date (unless
specifically stated to relate to an earlier date); and
(b) no Early Amortization Event or Unmatured Early
Amortization Event has occurred and is continuing.
The giving of any notice pursuant to Section 2.2 shall constitute a
representation and warranty by Transferor, Avondale and Initial Servicer that
the foregoing statements (limited, in the case of subsection (a) to the
representations and warranties of the Person deemed to make the representation
and warranty referred to in this sentence) are true.
ARTICLE 8
COVENANTS
SECTION 8.1 Affirmative Covenants. Transferor, Avondale and Initial
Servicer each severally covenant and agree that, until the Certificates have
been paid in full, it will:
(a) duly and timely perform all of its covenants and
obligations under each Transaction Document to which it is a party;
(b) with reasonable promptness deliver to each Purchaser such
information, documents, records or reports respecting the Program or
the Receivables as the Agent may from time to time reasonably request
on behalf of any Purchaser;
(c) at the same time any report (including any Daily Report,
Cash Flow Report, Monthly Report or annual auditors' report), notice or
other document is provided, or caused to be provided, by Transferor or
Servicer to Trustee under the Pooling Agreement, provide the Agent (for
the benefit of each Purchaser) with a copy of the report;
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(d) during regular business hours and (so long as no Early
Amortization Event has occurred and is continuing) upon five Business
Days prior written notice, permit the Agent (or such other Person as
the Agent may designate from time to time), or their respective agents
or representatives (including certified public accountants or other
auditors), at the expense of the Servicer paid out of the Servicing
Fee, (i) to examine and make copies of and abstracts from, and to
conduct accounting reviews of, all Records in the possession or under
the control of Servicer, Transferor or any Seller, including the
related Contracts and purchase orders, invoices and other agreements
related thereto, and (ii) to visit the offices and properties of
Servicer, Transferor or any Seller for the purpose of examining such
materials described in clause (i), and to discuss matters relating to
the Receivables or the Related Transferred Assets or the performance by
Servicer, Transferor or any Seller of their respective obligations
under any Transaction Document with any officer, employee or
representative of Servicer, Transferor or any Seller. The Agent may
(but shall not be obligated to) conduct, or cause its agents or
representatives to conduct, reviews of the types described in this
paragraph (each such review, a "Receivables Review") whenever the
Agent, in its reasonable judgment, deems any such review appropriate;
provided, that before the occurrence and continuance of an Early
Amortization Event, the Agent (or its agent or representative) shall
have the right to request a Receivables Review not more than twice in
any calendar year;
(e) maintain credit insurance policies with respect to the
Receivables in a manner reasonably consistent with Avondale's practices
prior to the Closing Date, and cause Trustee to be named as a loss
payee under such policies; and
(f) comply with the covenants made by it in the back-up
certificates delivered to King & Spalding in support of opinions given
by that firm on the Closing Date with respect to true sale and
substance consolidation issues.
SECTION 8.2 Negative Covenants. (a) Notwithstanding Section 1.7 of the
Purchase Agreement, Transferor, Avondale and Avondale Incorporated shall not
cause or permit any Domestic Subsidiary of Avondale or Avondale Incorporated to
become a new Seller unless the Required Purchasers have consented in writing to
that addition.
(b) Transferor covenants and agrees that, until the Certificates have
been paid in full, it will not allow (i) to be outstanding over 20 Private
Holders of Subject Instruments and (ii) any Subject Instruments to be traded on
an Established Securities Market, registered under the Securities Act or offered
or sold pursuant to Regulation S (17 CFR 230.901 through 230.904 or any
successor thereto) if such offering or sale would have been required to be
registered under the Securities Act if the interests so offered or sold had been
offered and sold within the United States.
SECTION 8.3 Transfers. Each Purchaser represents that neither it nor
any Person acting on its behalf has made a general solicitation or general
advertising, within the meaning of the Securities Act and the rules and
regulations thereunder, for the offer or sale of the Certificates. Each
Purchaser further agrees that it will not make any general solicitation or
general advertising for the offer or sale of the Certificates and will not
transfer its Certificate (or any portion thereof) to any Person unless such
Person shall have provided the Trustee and Transferor with a certificate to the
effect that such Person: (a) is a "qualified institutional buyer" as that term
is defined under Rule 144A of the Securities Act and is not purchasing its
Certificate with a view to making a distribution thereof (within the meaning of
the Securities Act) and (b) is not a pension, profit sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act of 1974, as
amended.
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ARTICLE 9
AGENT; REQUIRED PURCHASERS
SECTION 9.1 Appointment. The Purchasers hereby designate FNBC as Agent.
Each Purchaser hereby irrevocably authorizes the Agent to take action on its
behalf under the provisions of the Transaction Documents and any other
instruments and agreements referred to therein and to exercise the powers and
perform the duties hereunder and thereunder that are specifically delegated to
or required of the Agent by the terms hereof and thereof, and any other powers
as are reasonably incidental thereto. The Agent may perform any of its duties by
or through its officers, directors, agents or employees.
SECTION 9.2 Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement. Neither the
Agent nor any of its officers, directors, agents or employees shall be liable
for any action taken or omitted by it or them under any Transaction Document or
in connection herewith or therewith, unless caused by their gross negligence or
willful misconduct. The duties of the Agent shall be mechanical and
administrative in nature, the Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Purchaser, and nothing in any
Transaction Document, expressed or implied, is intended to or shall be construed
as to impose upon the Agent any obligations in respect of any Transaction
Document except as expressly set forth herein.
SECTION 9.3 Lack of Reliance on Agent and Financial Advisor.
Independently and without reliance upon the Agent or the Financial Advisor, each
Purchaser, to the extent it deems appropriate, has made and shall continue to
make (a) its own independent investigation of the financial condition and
affairs of Transferor, the Sellers, Servicer, Guarantor and the Trust in
connection with the making and the continuation of each Purchase and the taking
or not taking of any action in connection herewith and (b) its own appraisal of
the creditworthiness of Transferor, the Sellers, Guarantor and Servicer and the
merits and risks of an investment in the Certificates, and, except as expressly
provided in this Agreement, the Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Purchaser with any
credit or other information with respect thereto, whether coming into its
possession before the making of a Purchase or at any time or times thereafter.
The Agent shall not be responsible to any Purchaser for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Transaction Documents or the
financial condition of Transferor, the Sellers, Guarantor, Servicer or the Trust
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of any Transaction
Document, or the financial condition of Transferor, the Sellers, Guarantor,
Servicer or the Trust or the existence or possible existence of any Early
Amortization Event or Unmatured Early Amortization Event.
SECTION 9.4 Certain Rights of Agent. If the Agent shall request
instructions from the Required Purchasers with respect to any act or action
(including failure to act) in connection with any Transaction Document, the
Agent shall be entitled to refrain from acting or taking the action unless and
until the Agent shall have received instructions from the Required Purchasers,
and the Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, no Purchaser shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under any Transaction Document in accordance with the
instructions of the Required Purchasers or for refraining to act in the absence
of instruction.
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SECTION 9.5 Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Agent believed to be the proper Person. The Agent may
consult with legal counsel (including counsel for any Related Person),
independent public accountants and other experts selected by the Agent and shall
not be liable for any action taken or omitted to be taken in accordance with the
advice of such counsel, accountants or experts.
SECTION 9.6 Indemnification. To the extent the Agent is not reimbursed
and indemnified by Transferor or Servicer, the Purchasers will reimburse and
indemnify the Agent ratably in accordance with their respective Percentages from
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses or disbursements of
whatsoever kind or nature that may be imposed on, asserted against or incurred
or suffered by the Agent (including fees and expenses of legal counsel,
accountants and experts) in performing its duties or as a result of any action
taken or omitted to be taken by the Agent under any Transaction Document or in
any way relating to or arising out of any Transaction Document; provided, that
no Purchaser shall be liable for any portion of these liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, costs, expenses
or disbursements resulting from the Agent's gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
non-appealable order).
SECTION 9.7 Agent in its Individual Capacity. With respect to its
obligation to purchase a Certificate under this Agreement, the Agent shall have
the rights and powers specified herein for a Purchaser and may exercise the same
rights and powers as though it were not performing the duties of the "Agent"
specified herein, and the term "Purchasers," "Required Purchasers" and "Holders"
or "payees" of any Certificates or any similar terms shall, unless the context
clearly otherwise indicates, include the Agent in its individual capacity. The
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust or other business with Transferor or
Servicer or any Related Person as if the Agent were not performing the duties
specified herein, and may accept fees and other consideration from Transferor or
Servicer for services in connection with this Agreement and otherwise without
having to account for the same to the Purchasers. Each of the parties hereto
acknowledges that the Agent will be acting both as agent and as lender under the
Avondale Credit Agreement and as a Purchaser and Agent under this Agreement.
SECTION 9.8 Resignation by Agent. (a) The Agent may resign at any time
by giving notice to Transferor and the Purchasers. Such resignation shall take
effect upon the appointment of a successor Agent pursuant to subsections (b) and
(c) below or as otherwise provided below.
(b) Upon any notice of resignation of the Agent, the Required
Purchasers shall appoint a successor Agent hereunder who shall be a commercial
bank or trust company reasonably acceptable to Transferor (it being understood
and agreed that any Purchaser is deemed to be acceptable to Transferor).
(c) If a successor Agent is not appointed pursuant to subsection (b)
within 30 days after the delivery of the notice referred to in subsection (a),
the resigning Agent, with the consent of Transferor, shall then appoint a
successor Agent who shall serve as Agent hereunder until the time, if any, that
the Required Purchasers appoint a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to subsection (b)
or (c) above by the 60th day after the date notice of resignation was given by
the resigning Agent, such Agent's resignation shall become effective and the
Purchasers shall thereafter perform all the duties of the
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Agent under the Transaction Documents until the time, if any, that the
Purchasers appoint a successor Agent as provided above.
SECTION 9.9 Required Purchasers. "Required Purchasers" means (i) for
purposes of Sections 6.2 of the Supplement, Purchasers having Percentages that
aggregate at least 66_%, and (ii) otherwise, Purchasers having Percentages that
aggregate more than 50%.
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendments. Except as provided in Section 13.1(a) or (b)
of the Pooling Agreement, Transferor, Avondale and Initial Servicer shall not
amend, waive or otherwise modify any provision of any Transaction Document to
which it is a party, consent to any departure therefrom, or grant any waiver or
consent thereunder, unless the same shall have been consented to in writing by
the Required Purchasers prior to the effectiveness of the same; provided,
however, that no amendment shall (a) decrease in any manner the amount of, or
delay the timing of, any allocation, payment or distribution in respect of any
Certificate without the prior written consent of each Purchaser affected
thereby, (b) amend, modify or waive any provision of this Agreement that
requires the approval or consent of a specified percentage of Purchasers without
the prior written consent of that percentage of Purchasers, (c) amend, modify or
waive the provisions of this section in a manner adverse to the rights of any
Purchaser without the consent of that Purchaser, (d) waive any Early
Amortization Event arising from a Bankruptcy Event with respect to Transferor,
Avondale or any Seller without the consent of each Purchaser, (e) amend or
modify the Percentage of any Purchaser without its prior written consent, (f)
waive any of the requirements hereunder that the interests of Trustee in the
Receivables and the other Transferred Assets be perfected by appropriate UCC
filings without the prior written consent of each Purchaser or (g) amend, modify
or otherwise affect the rights or duties of the Agent hereunder without the
prior written consent of the Agent; provided further that neither the execution
and delivery of a Supplement relating to a refinancing of the Certificates as
contemplated by Section 4.9 of the Supplement relating to the Certificates, nor
any other amendment to the Transaction Documents in connection with such a
refinancing, shall require any consent from any Purchaser, so long as the prior
or contemporaneous repayment in full of the Certificates in accordance with
Section 5.2 of the Supplement relating to the Certificates is a condition to the
issuance of the refinancing certificates, and of the effectiveness of such
related amendment. Each Purchaser shall be bound by any modification, waiver or
consent authorized by this section.
SECTION 10.2 No Waiver; Remedies. Any waiver, consent or approval given
by any party hereto shall be effective only in the specific instance and for the
specific purpose for which given, and no waiver by a party of any breach or
default under this Agreement shall be deemed a waiver of any other breach or
default. No failure on the part of any party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder, or any abandonment or
discontinuation of steps to enforce the right, power or privilege, preclude any
other or further exercise thereof or the exercise of any other right. No notice
to or demand on any party hereto in any case shall entitle such party to any
other or further notice or demand in the same, similar or other circumstances.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 10.3 Successors and Assigns; Assignments. (a) This Agreement
shall be binding upon, and inure to the benefit of, Transferor, Servicer,
Avondale, the Agent, the Purchasers and their respective successors and assigns;
provided that none of Transferor, Servicer or Avondale may assign its rights or
obligations hereunder or in connection herewith or
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any interest herein (voluntarily, by operation of law or otherwise) without the
prior written consent of all the Purchasers, except that Servicer may be
terminated in accordance with Sections 10.1 and 10.2 of the Pooling Agreement;
and provided further, that no Purchaser or Participant may transfer, pledge,
assign, sell participations in or otherwise encumber its rights or obligations
hereunder or any interest herein except as permitted under this section.
(b) No Certificate may be subdivided into an aggregate principal amount
of less than 2.1% of the aggregate principal amount of all outstanding Subject
Instruments (including the Transferor Certificate) and, if Transferor so
specifies, Enhancements (other than as a direct result of a transfer, assignment
or other conveyance by a Structured Purchaser to a Permitted Transferee), and
after giving effect to any subdivision (other than a transfer, assignment or
other conveyance by a Structured Purchaser to a Permitted Transferee), there may
not be more than 20 Private Holders of Subject Instruments. Subject to the terms
of Section 10.3(f), each Purchaser may at any time sell to one or more banks or
other entities ("Participants") participating interests in all or any portion of
its Certificate and its obligations hereunder (its "Credit Exposure"); provided
that such Participant shall have certified to the selling Purchaser that such
Participant is a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act). In the event of any sale by a Purchaser of participating
interests to a Participant, the Purchaser shall notify Transferor of the
identity of the Participant upon a request by Transferor, the Purchaser's
obligations under this Agreement shall remain unchanged, the Purchaser shall
remain solely responsible for the performance thereof, and the Purchaser shall
remain the holder of its rights under its Certificate and this Agreement for all
purposes under this Agreement, and the other parties to the Transaction
Documents shall continue to deal solely and directly with the Purchaser in
connection with such rights and obligations under this Agreement. If the
proposed Participant is not a Permitted Transferee, prior to any rights of such
Participant being recognized hereunder or under any other Transaction Document
or Certificates the Purchaser shall provide, or shall cause such Participant to
provide, to Transferor such information as Transferor reasonably requests to
make the determination required by Section 10.3(f).
Transferor agrees that each Participant shall be entitled to the
benefits (and subject to the duties) of Sections 4.3, 4.5 and 4.6 with respect
to its participation in the Certificate. The Purchasers agree that any agreement
between them and any Participant in respect of a participating interest shall
(x) contain a covenant of the Participant not to make any general solicitation
or general advertising for the offer or sale of its interest in the
Certificates, (y) require the Participant to comply with the terms of Section
10.13 and (z) not restrict the Purchasers' right to agree to any amendment,
supplement or modification of the Transaction Documents except to (i0 extend the
final maturity of any obligation, (ii) reduce the rate or extend the time of
payment of interest thereon or any fees owed to the Purchasers under the
Transaction Documents, (iii) reduce the principal amount of any obligation, (iv0
release or direct the release of all or substantially all of the Transferred
Assets or Trustee's claim to the Transferred Assets, (v) reduce substantially
the amount of any reserve included in the calculation of the Base Amount, (vi)
increase the amount of the participation from the amount thereof then in effect,
or (vii) permit assignment or transfer by Transferor or any Seller of its rights
or obligations under the Transaction Documents.
(c) Subject to the terms of Section 10.3(f), any Purchaser may at any
time assign to any Permitted Transferee or to one or more banks or other
financial institutions (each, an "Assignee") all or any part of its Credit
Exposure; provided that (i) unless assigned to an Affiliate of the Purchaser or
to a Permitted Transferee, it assigns all of its Credit Exposure or a portion of
its Credit Exposure in an amount not less than $5,000,000, (ii) such Assignee,
other than an existing Purchaser, an Affiliate of the Purchaser or a Permitted
Transferee, must be reasonably acceptable to the Agent, which acceptance shall
not be delayed or withheld unreasonably, (iii) if such Assignee is not a United
States person (as defined in section 7701(a)(30) of the Internal
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Revenue Code), such Assignee shall satisfy the requirements of Section 4.6(c),
provided, that if such Assignee thereafter fails to comply with the
requirements of Section 4.6, amounts payable to it under Section 4.6 shall be
limited to amounts that would be payable if such Assignee had complied with
Section 4.6(c), and (iv) such Assignee shall have certified to the assigning
Purchaser that such Assignee is a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act). For purposes of this Section 10.3, a
"Permitted Transferee" means, with respect to any Structured Purchaser, any of
its Support Banks; provided, however, that the aggregate number of actual
assignments by a Structured Purchaser to Permitted Transferees at any time
outstanding shall not exceed 10.
In the event of any assignment, the Purchaser (x) shall comply with
Article VI of the Pooling Agreement; provided that no Opinion of Counsel shall
be required to be delivered pursuant to Section 6.3(e) of the Pooling Agreement
with respect to any transfer to a Permitted Transferee, and (y) shall give
notice to Transferor and the Agent and shall deliver to the Agent, for
acceptance and recording in its records, an assignment agreement substantially
in the form of Exhibit D together with a processing and recordation fee of, in
the case of assignments to a Purchaser or an Affiliate of a Purchaser, $1,500
and, in cases of any other assignment, $3,500; provided, that no processing and
recordation fee shall be payable in connection with any assignment by a
Structured Purchaser to a Permitted Transferee. Within five Business Days of
receipt thereof, the Agent shall, if the assignment agreement has been fully
executed by the Assignee and the assignor Purchaser, is completed and is in
substantially the form of Exhibit D, execute the assignment agreement and record
the information contained therein in its records. Upon the earlier of the
expiration of the five Business Day period or the date of the recording, the
assignment will become effective; provided, that any assignment by a Structured
Purchaser to a Permitted Transferee shall not require acceptance or recording by
the Agent prior to effectiveness and shall become effective immediately upon
receipt by the Agent of an assignment agreement appropriately completed in
substantially the form of Exhibit D and executed by such Structured Purchaser
and the applicable Permitted Transferee.
Transferor, Servicer, Avondale, the Agent and the Purchasers agree to
extend the rights and benefits under this Agreement to the Assignee to the
extent the Assignee would have had if it were a Purchaser that was an original
signatory to this Agreement; provided, that the parties hereto shall be entitled
to continue to deal solely and directly with the assignor Purchaser in
connection with the interests so assigned to the Assignee until the assignment
agreement and any required fee, as described above, shall have been delivered to
the Agent by the Purchaser and the Assignee and the assignment shall have become
effective; provided, further, that notwithstanding anything herein or in the
assignment agreement, the Transaction Documents or any Certificate to the
contrary, an assignment to an existing Purchaser or an Affiliate of the
assigning Purchaser (other than to a Permitted Transferee) shall not become
effective, an Assignee (other than a Permitted Transferee) shall not be
recognized as a Purchaser and no other rights of an Assignee hereunder or under
any other Transaction Document or Certificate shall be recognized unless and
until the assigning Purchaser shall have provided, or caused the Assignee to
provide, to Transferor such information as Transferor reasonably requests to
make the determinations required by Section 10.3(f). Upon the effective
assignment of its Credit Exposure, the Purchaser shall be relieved of its
obligations hereunder to the extent of the assignment.
(d) The sale or assignment of any Credit Exposure to any Assignee or
Participant (each, a "Transferee") shall not be effective until it has agreed to
be bound by the provisions of Section 10.13. Transferor and, the Sellers, the
Servicer and Avondale each authorize the Purchasers to disclose to any
Transferee and any prospective Transferee any and all information in their
possession concerning Transferor, the Sellers, the Servicer or Avondale in
connection with the Transferee's credit evaluation of the Program prior to
entering into this Agreement.
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(e) Notwithstanding any other provision set forth in this Agreement,
the Purchasers may at any time create a security interest in all or any portion
of their rights under this Agreement and the Certificates in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.
(f) No transfer, assignment or other conveyance of, or sale of a
participation interest in, a Certificate (other than by a Structured Purchaser
to a Permitted Transferee) shall be made unless (i) the aggregate outstanding
principal amount of all Certificates transferred, or in which a participation
interest is sold, pursuant to such transfer or sale is equal to a principal
amount of Certificates that would represent at least 2.1% of the aggregate
principal amounts of all Subject Instruments (including the Transferor
Certificate) and, if the Transferor so specifies, Enhancements, and (ii) after
giving effect thereto, there shall be no more than 20 Private Holders of Subject
Instruments, as reasonably determined by Transferor. No Certificate may be
subdivided into an aggregate principal amount that would represent less than
2.1% of the aggregate principal amounts of all outstanding Subject Instruments
(including the Transferor Certificate) and, if the Transferor so specifies,
Enhancements. Any attempted transfer, assignment, conveyance, participation or
subdivision in contravention of the preceding restrictions, as reasonably
determined by the Transferor, shall be void ab initio and the purported
transferor, seller or subdivider of such Certificate shall continue to be
treated as the Certificateholder of any such Certificate for all purposes of
this Agreement.
(g) Each Affected Party with respect to each Purchaser shall be
entitled to receive additional payments pursuant to Sections 4.3, 4.5, 4.6, and
10.5 as though it were a Purchaser and such Sections applied to its interest in
a Certificate or commitment to make or acquire interests in Purchases; provided
that such Affected Party shall not be entitled to additional payments pursuant
to Section 4.6 attributable to its failure to satisfy, at the time such Affected
Party becomes a Support Bank, the requirements of subsection 4.6(c) as if it
were an Assignee.
(h) Each Affected Party claiming increased amounts described in
Sections 4.3, 4.5, 4.6 or 10.5 shall furnish, through its related Purchaser, to
the Trustee, the Agent, Servicer and Transferor a certificate setting forth in
reasonable detail the basis and amount of each request by such Affected Party
for any such amounts referred to in such Section, which certificate will be
prepared in accordance with the requirements of such Section (if any).
Determinations by an Affected Party of any increased amounts referred to in such
Sections shall be conclusive, absent demonstrable error. Each Affected Party
shall promptly notify, through its related Purchaser, the Trustee, the Agent,
Servicer and Transferor of the occurrence of any event of which such Affected
Party is aware that would be likely to result in a demand for compensation
pursuant to Section 4.3, 4.5, 4.6 or 10.5.
(i) In connection with any proposal that a bank or other financial
institution become a Support Bank for a Purchaser which is a Structured
Purchaser, such Purchaser at its sole discretion, shall be entitled to
distribute to any proposed Support Bank on a confidential basis any information
furnished to such Purchaser by the Agent pursuant to the Transaction Documents.
Each Purchaser which is a Structured Purchaser shall promptly notify the Agent
(who shall promptly notify Transferor) in writing of the identity and interest
of each Support Bank for such Purchaser promptly upon the obtaining of such
Support Bank. Such Purchaser shall provide to the Agent (who shall, upon
request, provide copies of the same to Transferor, Servicer and the Trustee),
with respect to each Support Bank, such forms as would be required to be
furnished by such Support Bank pursuant to subsection 4.6(c) if such Support
Bank were an Assignee.
(j) Transferor, the Servicer and Avondale agree to assist the Agent in
any marketing of the Series 1996-1 Certificates, and Transferor, the Servicer
and Avondale agree (promptly upon request) to review any related marketing
materials and to provide all reasonably available
19
<PAGE> 24
information deemed necessary by the Agent in such marketing. In addition,
Transferor, the Servicer and Avondale will use its best efforts to make
appropriate officers and representatives of Transferor, the Sellers and
Avondale available to participate in the information meetings for potential
investors at such times and places as the Agent may reasonably request.
SECTION 10.4 Survival of Agreement. All covenants, agreements,
representations and warranties made herein and in the Certificates delivered
pursuant hereto shall survive the making and the repayment of the Purchases and
the execution and delivery of this Agreement and the Certificates and shall
continue in full force and effect until all obligations have been paid in full
and all commitments of the Purchasers hereunder have been terminated. In
addition, the obligations of Transferor under Sections 4.2, 4.3, 4.4, 4.6 and
10.5 and the obligations of the Purchasers under Section 9.6 shall survive the
termination of this Agreement.
SECTION 10.5 Expenses; Indemnification. (a) Transferor and Avondale
jointly and severally shall pay on demand (i) all reasonable out-of-pocket fees
and expenses (including reasonable attorneys' fees and expenses) of the Agent
incurred in connection with the preparation, execution, delivery,
administration, amendment, modification and waiver of the Transaction Documents
and the making and repayment of the Purchases, including any Servicer or
collection agent fees paid to any third party for services rendered to the
Purchasers and the Agent in collecting the Receivables and (ii) all reasonable
out-of-pocket fees and expenses of the Purchasers and the Agent (including
reasonable attorneys' fees and expenses of their counsel) incurred in connection
with the enforcement of the Transaction Documents against Transferor, Servicer,
Guarantor and the Sellers and in connection with any workout or restructuring of
the Transaction Documents. In addition, Transferor will pay any and all stamp
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing, recording or enforcement of this Agreement or
any payment made under the Transaction Documents (other than taxes imposed on
net income that are excluded from the definition of Taxes), and hereby
indemnifies and saves the Agent and the Purchasers harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay the taxes and fees. Transferor and Avondale jointly and
severally agree to reimburse and indemnify the Agent and each Purchaser and
their respective officers, directors, shareholders, controlling Persons,
employees and agents (collectively, the "Indemnitees") from and against any and
all actions, judgments, costs, expenses or disbursements of whatsoever kind or
nature that may be imposed on, asserted against or incurred or suffered by the
Agent or the Purchasers (including fees and expenses of legal counsel,
accountants and experts) in any way relating to or arising out of any
Transaction Document.
Notwithstanding the foregoing (and with respect to clause (x) below,
without prejudice to the rights that an Indemnitee may have pursuant to the
other provisions of the Transaction Documents), in no event shall any Indemnitee
be indemnified against any amounts (w) resulting from gross negligence or
willful misconduct by it or on the part of any of its officers, directors,
employees or agents, or the breach by such Indemnitee of its obligations under
any Transaction Document, (x) to the extent they include amounts in respect of
Receivables and reimbursement therefor that would constitute credit recourse to
Servicer for the amount of any Receivable or Related Transferred Asset not paid
by the related Obligor, (y) to the extent they are or result from lost profits
or (z) to the extent they would constitute consequential, special or punitive
damages.
If for any reason the indemnification provided in this section is
unavailable to an Indemnitee or is insufficient to hold it harmless, then
Transferor and Avondale jointly and severally shall contribute to the amount
paid by the Indemnitee as a result of any loss, claim, damage or liability in a
proportion that is appropriate to reflect not only the relative benefits
received by the Indemnitee on the one hand and Transferor and Avondale on the
other hand, but also the relative fault of the Indemnitee (if any), Transferor
and Avondale and any other relevant
20
<PAGE> 25
equitable considerations; provided that Transferor's obligations under this
section shall be paid by Transferor only to the extent that funds are available
to make the payments pursuant to Article IV of the Supplement, and there shall
be no recourse to Transferor for all or any part of any amounts payable
pursuant to this section if the funds are at any time insufficient to make all
or part of any such payments. Any amount which Transferor does not pay pursuant
to the operation of the preceding sentence shall not constitute a claim (as
defined in ss. 101 of the Bankruptcy Code) against or corporate obligation of
Transferor for any such insufficiency.
(b) If any action, suit, proceeding or investigation is commenced, as
to which an Indemnitee proposes to demand indemnification, it shall notify the
Transferor and Avondale with reasonable promptness; provided, however, that any
failure by such Indemnitee to notify the Transferor and Avondale shall not
relieve the Transferor and Avondale from their obligations hereunder (except to
the extent that the Transferor and Avondale are prejudiced by such failure to
promptly notify). The Transferor and Avondale shall be entitled to assume the
defense of any such action, suit, proceeding or investigation, including the
employment of counsel reasonably satisfactory to the Indemnitee. The Indemnitee
shall have the right to counsel of its own choice to represent it, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless:
(a) the Transferor and Avondale have failed promptly to assume the defense and
employ counsel reasonably satisfactory to the Indemnitee in accordance with the
preceding sentence, or (b) the Indemnitee shall have been advised by counsel
that there exists an actual or potential conflict of interests among the
Transferor and Avondale and such Indemnitee, including situations in which one
or more legal defenses may be available to such Indemnitee that are inconsistent
with those available to the Transferor and Avondale; provided, however, that
Transferor and Avondale shall not, in connection with any one such action or
proceeding or separate but substantially similar actions or proceedings arising
out of the same general allegations, be liable for fees and expenses of more
than one separate firm of attorneys (other than local counsel) at any time for
all Indemnitees; and such counsel shall, to the extent consistent with its
professional responsibilities, cooperate with the Transferor and Avondale and
any counsel designated by the Transferor and Avondale.
Each of the Transferor and Avondale further agrees that it will not,
without the prior written consent of the applicable Indemnitee, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Indemnitee is an actual or potential party
to such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each Indemnitee from all liability
and obligations arising therefrom.
SECTION 10.6 Entire Agreement. This Agreement, together with the
documents delivered pursuant to Section 7.1 and the other Transaction Documents,
including the exhibits and schedules thereto, contains a final and complete
integration of all prior expressions by the parties hereto with respect to the
subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, superseding all
previous oral statements and other writings with respect thereto.
SECTION 10.7 Notices. All communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered, sent by
overnight courier or mailed by registered mail, postage prepaid and return
receipt requested, or transmitted by facsimile transmission and confirmed by a
similar mailed writing to any party at the address for that party set forth (a)
on the signature page to this Agreement or (b) to another address as that party
may designate in writing to the Agent and Transferor.
21
<PAGE> 26
SECTION 10.8 No Third-Party Beneficiaries. Nothing expressed herein is
intended or shall be construed to give any Person (other than the parties
hereto, the Participants and Assignees described in Section 10.3 and, to the
extent provided in Section 10.3, the other Affected Parties) any legal or
equitable right, remedy or claim under or in respect of this Agreement.
SECTION 10.9 Severability of Provisions. Any covenant, provision,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of the prohibition or unenforceability without invalidating the
remaining provisions of this Agreement.
SECTION 10.10 Counterparts. This Agreement may be executed in any
number of counterparts (which may include facsimile) and by the different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original, and all of which together shall constitute one and the
same instrument.
SECTION 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
SECTION 10.12 Tax Characterization. Each party to this Agreement (a)
acknowledges that it is the intent of the parties to this Agreement that, for
purposes of Federal, applicable state and local income and franchise and other
taxes measured by or imposed on income, the Certificates will be treated as
evidence of indebtedness secured by the Transferred Assets and the Trust will
not be characterized as an association (or publicly traded partnership) taxable
as a corporation, (b) agrees that the provisions of the Transaction Documents be
construed to further that intent, and (c) agrees to treat the Certificates, for
purposes of Federal, state and local income and franchise and other taxes
measured by or imposed on income, as indebtedness.
SECTION 10.13 No Proceedings. (a) Notwithstanding any prior termination
of this Agreement, Servicer, the Agent (solely in its capacity as such) and each
Purchaser (solely in its capacity as such) hereby agrees that it will not
institute against Transferor, or join any other Person in instituting against
Transferor, any insolvency proceeding (namely, any proceeding of the type
referred to in the definition of "Bankruptcy Event") so long as any Certificates
shall be outstanding or there shall not have elapsed one year plus one day since
the last day on which any Certificates shall have been outstanding. The
foregoing shall not limit the right of Servicer, the Agent or any Purchaser to
file any claim in or otherwise take any action with respect to any insolvency
proceeding that was instituted against Transferor by any other Person.
(b) Notwithstanding any prior termination of this Agreement, each of
Servicer, the Agent (solely in its capacity as such), and each Purchaser (solely
in its capacity as such) hereby agrees that it will not institute against any
Structured Purchaser, or join any other Person in instituting against any
Structured Purchaser, any insolvency proceeding (namely, any proceeding of the
type referred to in the definition of "Bankruptcy Event") for one year plus one
day after the latest maturing commercial paper note, medium term note or other
debt security issued by such Structured Purchaser is paid. The foregoing shall
not limit the right of Servicer, the Agent or any Purchaser to file any claim in
or otherwise take any action with respect to any insolvency proceeding that was
instituted against such Structured Purchaser by any other Person.
SECTION 10.14 References to Original Agreement. This Agreement amends
and restates the Original Agreement in its entirety. Any reference in any other
agreement or document to the Original Agreement shall be deemed to be a
reference to this Agreement.
22
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and delivered as of the day and
year first above written.
AVONDALE RECEIVABLES COMPANY
By: /s/ J. Elliott Woodward
---------------------------------------------
Name: J. Elliott Woodward
------------------------------------------
Title: Assistant Secretary
-----------------------------------------
Address: 506 South Broad Street
Monroe, Georgia 30655
Attention: Treasurer
Telephone: (770) 267-2226
Facsimile: (770) 267-2543
AVONDALE MILLS, INC.,
as Servicer
By: /s/ J. Elliott Woodward
---------------------------------------------
Name: J. Elliott Woodward
------------------------------------------
Title: Vice President, Treasurer and Assistant
-----------------------------------------
Secretary
-----------------------------------------
Address: 506 South Broad Street
Monroe, Georgia 30655
Attention: Chief Financial Officer
Telephone: (707) 267-2226
Facsimile: (707) 267-2543
23
<PAGE> 28
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent and as Support Bank for FALCON
By: /s/ Mark R. Matthews
---------------------------------------------
Name: Mark R. Matthews
------------------------------------------
Title: Authorized Signer
Address: One First National Plaza
Mail Suite 0079
Chicago, Illinois 60670
Attention: Mark Matthews
Telephone: (312) 732-5430
Facsimile: (312) 732-4487
FALCON ASSET SECURITIZATION CORPORATION, as a
Purchaser
By: /s/ Mark R. Matthews
---------------------------------------------
Name: Mark R. Matthews
------------------------------------------
Title: Authorized Signer
Address: One First National Plaza
Mail Suite 0079
Chicago, Illinois 60670
Telephone: (312) 732-5768
Facsimile: (312) 732-4487
24
<PAGE> 1
EXHIBIT 10.12
INTER
OFFICE
MEMO
DATE: November 10, 1997
TO: Mr. G. Stephen Felker
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1998. You will participate in the
plan based on an individual percentage award of 100%.
For fiscal 1998, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1998 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 124,000
75% 130,000
100% 136,000
125% 142,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1998 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
<PAGE> 2
The general guidelines of the plan for fiscal 1998 are as follows:
1. Operating earnings (EBDLIT) will be defined as reported in the
Company's financial statements.
2. Your actual incentive award will be paid on an annual basis, with
payment to be made as soon as practical after the fiscal year audit is
completed.
3. No incentive award will be paid if you are not in the employ of the
Company on the last day of the fiscal year (effective date of
severance must be after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or demotion),
payment of the incentive award will be determined on a case-by-case
basis. The Company reserves the right to deny payment or to reduce the
incentive award in the case of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me. A
copy is provided for your personal files.
/s/ Sharon Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ G. Stephen Felker
---------------------
Date: November 21, 1997
---------------------
<PAGE> 1
EXHIBIT 10.13
INTER
OFFICE
MEMO
DATE: November 10, 1997
TO: Mr. Jack Altherr
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1998. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1998, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1998 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 124,000
75% 130,000
100% 136,000
125% 142,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1998 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
The general guidelines of the plan for fiscal 1998 are as follows:
<PAGE> 2
1. Operating earnings (EBDLIT) will be defined as reported in the
Company's financial statements.
2. Your actual incentive award will be paid on an annual basis, with
payment to be made as soon as practical after the fiscal year audit is
completed.
3. No incentive award will be paid if you are not in the employ of the
Company on the last day of the fiscal year (effective date of
severance must be after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or demotion),
payment of the incentive award will be determined on a case-by-case
basis. The Company reserves the right to deny payment or to reduce the
incentive award in the case of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me. A
copy is provided for your personal files.
/s/ Sharon Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Jack R. Altherr Jr.
------------------------
Date: November 11, 1997
------------------------
<PAGE> 1
EXHIBIT 10.14
INTER
OFFICE
MEMO
DATE: November 10, 1997
TO: Mr. Wayne Spraggins
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1998. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1998, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1998 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 124,000
75% 130,000
100% 136,000
125% 142,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1998 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
The general guidelines of the plan for fiscal 1998 are as follows:
<PAGE> 2
1. Operating earnings (EBDLIT) will be defined as reported in the
Company's financial statements.
2. Your actual incentive award will be paid on an annual basis, with
payment to be made as soon as practical after the fiscal year audit is
completed.
3. No incentive award will be paid if you are not in the employ of the
Company on the last day of the fiscal year (effective date of
severance must be after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or demotion),
payment of the incentive award will be determined on a case-by-case
basis. The Company reserves the right to deny payment or to reduce the
incentive award in the case of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me. A
copy is provided for your personal files.
/s/ Sharon Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Wayne Spraggins
-------------------
Date: November 11, 1997
-------------------
<PAGE> 1
Exhibit 10.15
INTER
OFFICE
MEMO
DATE: November 10, 1997
TO: Mr. Keith Hull
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1998. You will participate in the
plan based on an individual percentage award of 50%.
For fiscal 1998, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1998 award are as follows:
<TABLE>
<CAPTION>
Corporate
Operating Earnings
Performance (Thousands of Dollars)
Level (EBDLIT)
----------- ----------------------
<S> <C>
50% 124,000
75% 130,000
100% 136,000
125% 142,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals. Your actual incentive award will be determined by multiplying
your total base salary paid in fiscal 1998 times your individual percentage
award times the Performance Level achieved as set forth above and will be
calculated by the Company. Any such award will be prorated when the Performance
Level achieved falls between the 50% and 125% levels. No incentive award will be
paid if the Performance Level is below 50%, and no additional incentive award
will be paid for any financial results which exceed the 125% Performance Level.
The general guidelines of the plan for fiscal 1998 are as follows:
<PAGE> 2
1. Operating earnings (EBDLIT) will be defined as reported in the
Company's financial statements.
2. Your actual incentive award will be paid on an annual basis, with
payment to be made as soon as practical after the fiscal year audit is
completed.
3. No incentive award will be paid if you are not in the employ of the
Company on the last day of the fiscal year (effective date of
severance must be after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or demotion),
payment of the incentive award will be determined on a case-by-case
basis. The Company reserves the right to deny payment or to reduce the
incentive award in the case of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me. A
copy is provided for your personal files.
/s/ Sharon Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Keith M. Hull
-----------------
Date: November 11, 1997
-----------------
<PAGE> 1
Exhibit 10.16
INTER
OFFICE
MEMO
DATE: November 10, 1997
TO: Mr. Bob Nelson
FROM: Sharon L. Rodgers
I am pleased to inform you that you have been approved to participate
in the management incentive plan for fiscal 1998. You will participate in the
plan based on an individual percentage award of 40%.
For fiscal 1998, the amount of your actual incentive award will be
based on achievement of Financial Goals, as set forth below.
Financial Goals
The Financial Goals for your fiscal 1998 award are as follows:
<TABLE>
<CAPTION>
Corporate
Avondale Yarns Operating Earnings
Performance Division Income (Thousands of Dollars)
Level (Thousands of Dollars) (EBDLIT)
- ----------- ---------------------- ----------------------
<S> <C> <C>
50% 18,000 124,000
75% 21,000 130,000
100% 24,000 136,000
125% 27,000 142,000
</TABLE>
100% of your actual incentive award will be based on achievement of
Financial Goals, with 75% based on Avondale Yarns Division Income and 25% based
on Corporate Operating Earnings (EBDLIT). Your actual incentive award will be
determined by multiplying your total base salary paid in fiscal 1998 times your
individual percentage award times the sum of 75% of the Performance Level
achieved for Avondale Yarns Division Income and 25% of the Performance Level
achieved for Corporate Operating Earnings (EBDLIT) as set forth above and will
be calculated by the Company. The Performance Levels will be prorated when final
financial results fall between the 50% and 125% levels. No incentive award based
on Financial Goals will be paid if the applicable Performance Level is below
50%, and no additional incentive award will be paid for any financial results
which exceed the 125% Performance Level.
The general guidelines of the plan for fiscal 1998 are as follows:
<PAGE> 2
1. Operating earnings (EBDLIT) will be defined as reported in the
Company's financial statements.
2. Your actual incentive award will be paid on an annual basis, with
payment to be made as soon as practical after the fiscal year audit is
completed.
3. No incentive award will be paid if you are not in the employ of the
Company on the last day of the fiscal year (effective date of
severance must be after fiscal year end).
4. In the event you are reassigned or given a new position and
responsibilities during the fiscal year (promotion or demotion),
payment of the incentive award will be determined on a case-by-case
basis. The Company reserves the right to deny payment or to reduce the
incentive award in the case of demotions.
Please indicate your understanding of the plan, the performance goals
and your potential incentive award by signing and returning this letter to me. A
copy is provided for your personal files.
/s/ Sharon Rodgers
---------------------
SLR/jwp
Acknowledged: /s/ Bob Nelson
--------------
Date: November 11, 1997
-----------------
<PAGE> 1
EXHIBIT 12.1
AVONDALE INCORPORATED
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(AMOUNTS IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Fiscal Years Ended
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $6.5 $14.3 $18.5 $26.2 23.3
Discount and expenses on sale of
accounts receivable -- -- 3.7 6.6 7.3
Amortization of debt issuance costs -- -- .9 1.1 1.1
Fixed Charges ---- ----- ----- ----- -----
$6.5 $14.3 $23.1 $33.9 $31.7
==== ===== ===== ===== =====
Earnings
Pretax income before
extraordinary item $22.6 $34.0 $22.7 $37.9 $55.4
Fixed charges 6.5 14.3 23.1 33.9 31.7
----- ----- ----- ----- -----
Earnings $29.1 $48.3 $45.8 71.8 87.1
===== ===== ===== ===== =====
Ratio of Earnings to Fixed Charges 4.5x 3.4x 2.0x 2.1x 2.8x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 29, 1997 AND
AUGUST 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-28-1998
<PERIOD-START> AUG-29-1997
<PERIOD-END> AUG-28-1998
<CASH> 9,259
<SECURITIES> 0
<RECEIVABLES> 62,497
<ALLOWANCES> 2,533
<INVENTORY> 114,684
<CURRENT-ASSETS> 187,182
<PP&E> 521,505
<DEPRECIATION> 267,791
<TOTAL-ASSETS> 463,582
<CURRENT-LIABILITIES> 82,069
<BONDS> 244,575
0
0
<COMMON> 127
<OTHER-SE> 99,917
<TOTAL-LIABILITY-AND-EQUITY> 463,582
<SALES> 1,056,103
<TOTAL-REVENUES> 1,056,103
<CGS> 879,263
<TOTAL-COSTS> 969,526
<OTHER-EXPENSES> 7,859
<LOSS-PROVISION> 1,532
<INTEREST-EXPENSE> 23,280
<INCOME-PRETAX> 55,438
<INCOME-TAX> 21,125
<INCOME-CONTINUING> 34,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,313
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED AUGUST 29, 1997 AND
AUGUST 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-START> AUG-30-1996
<PERIOD-END> AUG-29-1997
<CASH> 8,517
<SECURITIES> 0
<RECEIVABLES> 77,698
<ALLOWANCES> 5,518
<INVENTORY> 120,860
<CURRENT-ASSETS> 208,636
<PP&E> 459,099
<DEPRECIATION> 230,117
<TOTAL-ASSETS> 461,222
<CURRENT-LIABILITIES> 94,868
<BONDS> 248,075
0
0
<COMMON> 133
<OTHER-SE> 86,299
<TOTAL-LIABILITY-AND-EQUITY> 461,222
<SALES> 1,049,474
<TOTAL-REVENUES> 1,049,474
<CGS> 882,760
<TOTAL-COSTS> 970,511
<OTHER-EXPENSES> 14,918
<LOSS-PROVISION> 3,473
<INTEREST-EXPENSE> 26,158
<INCOME-PRETAX> 37,887
<INCOME-TAX> 14,950
<INCOME-CONTINUING> 22,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,937
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.70
</TABLE>
