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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended January 1, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13421
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DAN RIVER INC.
(Exact name of registrant as specified in its charter)
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Georgia 58-1854637
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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2291 Memorial Drive, Danville, Virginia 24541
(Address of principal executive offices)
(804) 799-7000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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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 voting stock held by non-affiliates of the
registrant as of February 25, 2000 (based on the last reported closing price
per share of Class A Common Stock as reported on the New York Stock Exchange
on such date) was approximately $66,541,168.
As of February 25, 2000, the registrant had 20,574,020 and 2,062,070 shares
of Class A Common Stock and Class B Common Stock outstanding, respectively.
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INDEX TO FORM 10-K
DAN RIVER INC.
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Page
References
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PART I
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Item 1. Business................................................ 3
Item 2. Properties.............................................. 13
Item 3. Legal Proceedings....................................... 14
Item 4. Submission of Matters to a Vote of Security Holders..... 14
Item X. Executive Officers of the Registrant.................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters.................................... 15
Item 6. Selected Financial Data................................. 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.................................................... 27
Item 8. Consolidated Financial Statements and Supplementary
Data.................................................... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant...... 51
Item 11. Executive Compensation.................................. 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 57
Item 13. Certain Relationships and Related Transactions.......... 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................ 60
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PART 1
Unless otherwise indicated, references in this Annual Report to "we," "us,"
"our" or "Dan River" refer to the business of Dan River Inc. and its
predecessors and subsidiaries. References to a fiscal year refer to our fiscal
year, which is the 52- or 53-week period ending on the Saturday nearest to
December 31. All fiscal years presented consisted of 52 weeks other than
fiscal 1997, which ended on January 3, 1998 and consisted of 53 weeks.
This Annual Report contains certain forward-looking statements within the
meaning of the Securities Act of 1933, as amended, which we refer to as the
Securities Act, and the Securities Exchange Act of 1934, which we refer to as
the Exchange Act. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
included in such statements. Many of these statements appear under "Item 1.
Business," "Item 2. Properties," "Item 3. Legal Proceedings" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." For further information regarding these forward-looking
statements and the associated risks and uncertainties, see the discussion in
this Annual Report under the caption "Forward-Looking Statements" under "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 1. BUSINESS
General
We were founded in 1882 and are a leading designer, manufacturer and
marketer of products for the home fashions and apparel fabrics markets. We
design, manufacture and market a coordinated line of value-added home fashions
products consisting of bedroom furnishings such as comforters, sheets,
pillowcases, shams, bed skirts, decorative pillows and draperies, which we
refer to as home fashions products. We also design, manufacture and market a
broad range of high quality woven cotton and cotton-blend apparel fabrics,
which we refer to as apparel fabrics. Based on net sales, we believe that we
are the leading North American supplier of men's dress shirting fabrics. We
also manufacture and sell specialty engineered yarns and woven fabrics for use
in making high-pressure hoses and other industrial products, which we refer to
as engineered products.
Certain financial information for the home fashions, apparel fabrics and
engineered products segments set forth in Note 12 to the Consolidated
Financial Statements is incorporated herein by this reference.
We are a Georgia corporation and our principal offices are located at 2291
Memorial Drive, Danville, Virginia 24541. Our telephone number is (804) 799-
7000.
Acquisitions and Joint Ventures
Cherokee Acquisition. In February 1997, we acquired substantially all of the
assets and assumed certain liabilities of The New Cherokee Corporation, which
we refer to as Cherokee, for an aggregate purchase price of approximately $65
million. Cherokee, which was a supplier of yarn-dyed fabrics to men's and
women's shirting manufacturers and of sportswear fabrics to the converting
trade, was our primary competitor for these fabrics. In connection with the
Cherokee acquisition, we acquired woven fabrics manufacturing facilities
located in Spindale, North Carolina and Sevierville, Tennessee, and a
finishing facility located in Harris, North Carolina. Since completing the
acquisition, we closed our Riverside Plant in the fourth quarter of fiscal
1997 and our Spindale Plant in January 1999. As a result of this
consolidation, we have reduced the number of apparel fabrics weaving plants
from four to two. This consolidation provides us with better capacity
utilization and, aided by our aggressive capital expenditure program, reduces
our fixed manufacturing costs.
Bibb Acquisition. In October 1998, we purchased all the outstanding capital
stock of The Bibb Company, which we refer to as Bibb, through a merger
transaction for an aggregate purchase price of approximately $240 million. The
purchase price consisted of $86 million of cash and 4.3 million shares of our
Class A Common Stock. In connection with the acquisition, we also assumed or
repaid an aggregate of $95 million of
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Bibb's debt. Bibb, which was founded in 1876, was a leading domestic
manufacturer of home fashions textile products. The Bibb acquisition broadened
our home fashions products to include juvenile products and products for the
hospitality and health care markets. As a result of the Bibb acquisition, we
believe that we are the leading manufacturer of bedding products for the
juvenile market under such licensed names and trademarks as "Barbie," "Looney
Tunes," "Major League Baseball," "National Football League," and
"Teletubbies." The Bibb acquisition also significantly expanded our home
fashions products manufacturing capacity, adding spinning and weaving
operations located in Greenville, South Carolina, finishing operations located
in Brookneal, Virginia and sewing facilities located in Fort Valley and
Newnan, Georgia, and in Brookneal, Virginia. Our engineered products
manufacturing operations are located in Porterdale, Georgia.
Plant Acquisition. In December 1998, we purchased a 300,000 square foot
sewing facility located in Morven, North Carolina, for an aggregate purchase
price of approximately $2.4 million. We purchased this facility with the
intention to reduce our dependence on outside manufacturers for the
fabrication of home fashions products, which has increased manufacturing
efficiencies and reduced costs.
DanZa Mexican Venture. In January 2000, we entered into an agreement with
Grupo Industrial Zaga, S.A. de C.V., which we refer to as Zaga, pursuant to
which we formed a company called DanZa Textil S. de R.L. de C.V., which we
refer to as DanZa. We formed DanZa to build and operate a manufacturing plant
in Mexico for the production of apparel fabrics. We expect the new facility to
be located in the State of Hidalgo. The new facility will contain yarn-dyeing
and weaving operations for the production of light and medium weight apparel
fabrics. Once the new facility is fully operational, we anticipate that DanZa
will source yarn from us at prevailing market prices for a period of six
months, after which DanZa will source yarn from the most advantageous source
based on relevant factors. We also anticipate that apparel fabrics produced by
DanZa will be finished at our facilities in the United States and that DanZa
will reimburse our manufacturing costs for these services. However, DanZa is
not required to have fabrics finished by us. We expect the new facility will
be fully operational during the second half of fiscal 2001. By shifting a
significant portion of our apparel fabrics manufacturing capacity into Mexico,
where labor costs are significantly lower than in the United States, we expect
to improve the cost structure of our apparel fabrics operations. Further, we
expect to improve customer service by establishing manufacturing capability in
closer proximity to our customers that have garment sewing operations in
Mexico and Central America.
We own slightly more than 50% of DanZa. DanZa will be managed by a board of
managers that will consist of three representatives selected by us and three
representatives selected by Zaga. Four managers will constitute a quorum for
any meeting of the board and the affirmative vote of four managers will be
required to approve any action of the board. In the event of a deadlock among
the managers, the matter will be decided by a vote of DanZa's members, which
are our company and Zaga. A vote of a majority of the outstanding equity
interests (which we hold) is required to approve any matter submitted to a
vote of the members, provided that certain extraordinary actions require the
vote of 75% of the outstanding equity interests. Pursuant to the governing
agreement, the board is required to, among other things, approve the company's
business plan, financial statements, capital expenditures in excess of $2.0
million, indebtedness in excess of $1.0 million and certain extraordinary
actions. In addition, under the agreement, the parties have agreed to certain
non-competition covenants, rights of first offer and other customary
provisions.
Zadar Mexican Venture. In January 2000, we entered into another agreement
with Zaga pursuant to which we formed another company called Zadar S. de R.L.
de C.V., which we refer to as Zadar. We formed Zadar to build and operate a
manufacturing plant in Mexico, which will include sewing and laundry
operations, for the production of finished garments, primarily sports shirts
and blouses, for sale to retailers. These products are targeted to compete
primarily with Asian imports. The new facility is expected to be located in
the State of Mexico. Once the new facility is fully operational, we anticipate
that Zadar will purchase fabric from the most advantageous sources, which may
include us. We expect the new facility to be fully operational by the end of
fiscal 2000. Initial shipments of products are expected to begin towards the
end of fiscal 2000. We believe Zadar is likely to create an additional source
of demand for our apparel fabrics and will position us to better serve
retailers that seek a single source for garment design and manufacture.
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We own slightly less than 50% of Zadar. Zadar will be managed by a board of
managers that will consist of three representatives selected by us and three
representatives selected by Zaga. Four managers will constitute a quorum for
any meeting of the board and the affirmative vote of four managers will be
required to approve any action of the board. In the event of a deadlock among
the managers, the matter will be decided by a vote of Zadar's members, which
are our company and Zaga. A vote of a majority of the outstanding equity
interests (which Zaga holds) is required to approve any matter submitted to a
vote of the members, provided that certain extraordinary actions require the
vote of 75% of the outstanding equity interests. Pursuant to the governing
agreement the board is required to, among other things, approve the company's
business plan, financial statements, capital expenditures in excess of
$250,000, indebtedness in excess of $200,000 and certain extraordinary
actions. In addition, under the agreement, the parties have agreed to certain
non-competition covenants, rights of first offer and other customary
provisions.
Proposed Acquisition. On March 1, 2000, we entered into an agreement to
purchase substantially all of the assets and assume certain liabilities of
Import Specialists, Inc., which we refer to as ISI, for an aggregate cash
purchase price of $17.0 million. The purchase price is subject to a post-
closing working capital adjustment. ISI imports home fashions products
primarily from China and India, including doormats, throws, and rugs, which
will expand our home fashions product line. Because ISI's customer base
complements our customer base, we expect significant cross-selling
opportunities. During the year ended June 30, 1999, ISI had net sales of
$19.7 million.
We expect to complete the acquisition of ISI, provided the parties satisfy
customary closing conditions, by the end of April 2000. However, we cannot
guarantee that we will acquire ISI.
Home Fashions Products
Products. Our home fashions products include bedroom furnishings such as
comforters, sheets, pillowcases, shams, bed skirts, decorative pillows and
draperies that we market under private labels of our major retail customers
and under licenses from, among others, "Colours by Alexander Julian" and under
the "Dan River" brand. We also market home fashions products for the juvenile
market under licenses utilizing a number of licensed names and trademarks,
including:
. "Barbie,"
. "Blue's Clues,"
. "Looney Tunes,"
. "Major League Baseball,"
. "National Football League,"
. "National Hockey League," and
. "Teletubbies."
We had net sales attributable to home fashions products of:
. $431.8 million in fiscal 1999,
. $321.8 million in fiscal 1998, and
. $255.8 million in fiscal 1997.
We offer home fashions products in a wide variety of styles and patterns,
including fashion designs and, to a lesser extent, solid colors. Products
range from a 120-thread count muslin sheet of blended polyester and cotton to
a top-of-the-line 250-thread count percale 100% cotton sheet.
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We believe we have established ourselves as an innovator in merchandising
home fashions products. We were a leader in introducing the complete bed
ensemble to retailers, which we market under the name "Bed-in-a-Bag." The
"Bed-in-a-Bag" complete bed ensemble consists of a comforter with matching
sheets, pillowcases, shams and a dust ruffle. In fiscal 1999, we introduced an
expanded line of home fashions products that we market under the "Bed-in-a-Bag
Decor" trademark. We further believe that our ability to manufacture wide-
width, yarn-dyed fabrics in short runs in a wide variety of innovative styles,
such as woven plaids, for use in home fashions products differentiates us from
our competitors.
Customers. We design and manufacture our home fashions products to meet the
needs of retail, hospitality and healthcare markets. We distribute home
fashion products through key retailers in all retail trade classes including:
. department stores,
. specialty home fashions stores,
. direct marketers,
. national chains,
. mass merchants, and
. regional discounters.
We also sell home fashions products to the hospitality and healthcare markets
primarily through distributors.
We market our home fashions products to approximately 1,100 customers. We
have pursued and established strategic relationships with large, high volume
retailers including:
. Wal-Mart Stores, Inc.,
. J.C. Penney Company, Inc.,
. Kmart Corporation,
. Federated Department Stores, Inc., and
. Target Corporation.
Our acquisition of ISI, an importer of home fashions products primarily from
China and India, will expand our home fashions product line to include
doormats, throws and rugs and enable us to source certain niche products at
attractive margins.
During fiscal 1999, sales of home fashions products to Wal-Mart accounted
for approximately 12% of our net sales. No other home fashions products
customer accounted for more than 6% of our total net sales in fiscal 1999. As
a supplement to our primary distribution channels, one of our subsidiaries
operates factory outlet stores which sells home fashions products directly to
consumers. During fiscal 1999, less than 2% of our sales of home fashions
products were to customers outside the United States.
Sales and Marketing. The home fashions products sales and marketing staff
consists of approximately 120 persons. They are headquartered in New York City
and have satellite offices in Atlanta, Boston, Chicago, Dallas, Los Angeles
and San Francisco. These marketing professionals, stylists and product
development personnel work as early as one year in advance of a retail selling
season to develop new fabrics, styles, colors, constructions and finishes.
Together with the marketing group, stylists often work directly with our
customers and our licensors to create fabrics and styles that respond to
rapidly changing fashion trends and customer needs. New styles are also
developed internally for the April and October bed and bath home textile trade
shows, where they are shown to buyers and are placed in production based on
customer acceptance. Orders for home fashions products are filled from
inventory or, if inventory is not available, products are manufactured and
generally shipped within six to 12 weeks of order placement.
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Apparel Fabrics
Products. We manufacture and market a broad range of high quality woven
cotton and cotton-blend fabrics, which we market primarily to manufacturers of
men's, women's and children's clothing. Our yarn-dyed and piece-dyed woven
apparel fabrics include:
. oxford cloth,
. pinpoint oxford cloth,
. fancy broad cloth,
. seer-suckers,
. mid and light weight denim,
. twills, and
. chambrays.
We also manufacture and distribute (1) fabrics for uniforms, (2) fabrics for
use in decorating, crafts and garment sewing, (3) 100% cotton and cotton-blend
upholstery fabrics and (4) greige (unfinished) fabrics to converters. We had
net sales attributable to apparel fabrics products of:
. $150.4 million in fiscal 1999,
. $186.5 million in fiscal 1998, and
. $220.7 million in fiscal 1997.
We believe that we enjoy a reputation as a leader in creating new fabric
styles and designs within the apparel fabrics market. Our product development
professionals work independently as well as directly with customers to develop
new fabric styles and constructions. In addition, our product development
personnel increasingly work directly with retailers to develop fabrics. These
retailers often specify that our fabrics be used by their suppliers in the
manufacture of garments to be sold by them. We believe that we are a leader in
wrinkle resistant technology for shirting fabrics, and we market Dri-Don(R)
blended easy care fabrics and 100% cotton Wrinkl-Shed(R) fabrics. We also
manufacture and market fabrics utilizing Tencel(R) lyocell which is an
innovative natural fiber. Versatile lyocell fabrics have been used primarily
in manufacturing women's sportswear; however, we are actively exploring use of
lyocell in new fabrics for mens' shirting and bottom ("pant") weight fabrics.
Customers. We distribute our apparel fabrics primarily to domestic
manufacturers of men's, women's and children's clothing which, in turn,
operate sewing plants throughout the United States, Mexico, Central America
and the Caribbean. We market our apparel fabrics to approximately 980
customers, none of which accounted for more than 2% of our total net sales in
fiscal 1999. Customers market clothing manufactured from our apparel fabrics
under such brand names as:
. Arrow,
. Brooks Brothers,
. Hathaway,
. Liz Claiborne,
. L.L. Bean,
. Land's End,
. Osh Kosh B'Gosh, and
. Van Heusen,
as well as under private labels through retailers such as J.C. Penney Company,
Inc. and Sears Roebuck & Co. We market uniform fabrics to customers such as
Cintas Corporation and Red Kap. We also distribute apparel fabrics to home
sewing retailers such as Wal-Mart and Jo-Ann Stores, Inc., and through various
wholesale distributors, for use in decorating and crafts, as well as garment
sewing. Our upholstery fabrics are sold to furniture manufacturers. During
fiscal 1999, approximately 5% of our sales of apparel fabrics were to
customers located outside the United States.
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Sales and Marketing. Our apparel fabrics sales and marketing staff consists
of approximately 45 persons. They are headquartered in New York City and have
satellite offices in Atlanta, Chicago, Dallas, Danville, High Point (North
Carolina) and Los Angeles. Apparel fabrics are generally "made to order"
products, which are generally manufactured and shipped within six to 10 weeks
of order placement. Orders for apparel fabrics are based on customer
selections from offerings of color, content, construction, design and finish,
and fabrics are made to customer specifications, which may be developed
jointly with the customer. We expect that the establishment of manufacturing
capability in Mexico through DanZa will make our apparel fabrics more
attractive to our customers, many of whom have established garment sewing
facilities in Mexico and Central America.
Engineered Products
Products. Our engineered products consist of yarns and woven fabrics that
are manufactured to customer specification for use in such products as high
pressure hoses for the automotive industry, conveyer belts and other
industrial applications. We had net sales attributable to engineered products
of:
. $46.7 million in fiscal 1999, and
. $9.1 million in fiscal 1998.
Customers. We sell our engineered products primarily to companies serving
the automotive industry, which in turn utilize them as components in their own
products. We believe our ability to meet stringent industrial certification
standards and to provide domestic sourcing to customers has helped us
establish strong relationships with our customers. We market our engineered
products to approximately 50 customers, none of which accounted for more than
3% of our net sales in fiscal 1999. During fiscal 1999, substantially all of
our sales of engineered products were to domestic customers.
Sales and Marketing. We have established close working relationships with
our engineered products customers in the development of products to meet their
specific needs. Sales and marketing of our engineered products is based in the
Atlanta, Georgia area.
Manufacturing Process
We are a vertically integrated manufacturer involved in all aspects of the
woven textile manufacturing process, from spinning and weaving to dyeing,
finishing, and sewing.
In addition to the expansion of our manufacturing operations through
acquisitions, we have made significant investments over the past several years
in an extensive facility modernization program focused on installing advanced
manufacturing technologies in an effort to be the low cost manufacturer in the
industry. Within our home fashions operations, we have installed:
. modern, high-speed air-jet looms,
. automatic sheet cutting, hemming and folding equipment,
. lower cost open-end spinning equipment, and
. computerized comforter equipment.
Additionally, within the past three years, we have built:
. a new home fashions accessory sewing plant,
. a new distribution center, and
. a new graphics printing facility primarily for production of home
fashions packaging materials.
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We built these facilities in Danville, Virginia, in close proximity to our
other Danville home fashions facilities and our Brookneal finishing and sewing
operations. We believe that as a result of our acquisitions and investments we
are positioned to better and more efficiently service our home fashions
customers and accommodate further growth of our home fashions business.
Within our apparel fabrics operations, we have installed high speed looms
and modernized our yarn preparation processes through the installation of more
efficient, lower cost, open-end spinning, carding, drawing and combing
equipment. Our ongoing capital improvement programs have modernized and
streamlined substantially all significant components of the manufacturing
process. With the Cherokee acquisition in February 1997 we acquired efficient
greige manufacturing capacity as well as a modern finishing plant dedicated to
the finishing of apparel fabrics.
In addition to modernizing operations, we have consolidated our
manufacturing operations to improve operating costs within our apparel fabrics
operations. In fiscal 1997, we closed our Riverside apparel fabrics weaving
facility and consolidated these operations into an existing facility located
in Danville, Virginia. In January 1999, we closed our Spindale, North Carolina
spinning and weaving facility and consolidated these operations into our
existing Danville, Virginia and Sevierville, Tennessee apparel fabrics
manufacturing plants. Together, these actions have aided our efforts to fully
utilize our most cost-effective equipment in the manufacture of apparel
fabrics.
In January 2000, we formed DanZa to build and operate a manufacturing plant
in Mexico for the production of apparel fabrics. The new facility will contain
yarn-dyeing and weaving operations for the production of light and medium
weight apparel fabrics. We expect the new facility will be fully operational
during the second half of fiscal 2001.
The engineered products facilities include weaving equipment and coating
ranges for finishing both yarns and fabrics. We have also begun a program to
modernize the twisting and winding operations. Additionally, our engineered
products facilities have achieved ISO 9001 certification.
We have engineered our manufacturing processes to meet the quick response
delivery requirements of our customers. Quick response techniques reduce the
time required to process a particular order, which improves customer service
and production efficiency. Furthermore, we have the capability to offer
electronic data interchange programs to all of our customers. These programs
minimize the lead time for customer orders and permit a more efficient,
targeted manufacturing schedule, as well as improvements in efficiency,
communications, planning and processing times at each stage of production. We
have electronic data interchange programs in place with most of our major home
fashions products customers.
Raw Materials
We use substantial quantities of cotton in our manufacturing operations. By
law, U.S. textile companies are generally prohibited from importing cotton,
subject to certain exceptions that take effect primarily when U.S. cotton
prices exceed world cotton prices for a period of time. Cotton is an
agricultural product subject to weather conditions and other factors affecting
agricultural markets. Accordingly, the price of cotton is subject to
considerable fluctuation.
We purchase cotton primarily in the domestic market directly from merchants
or through brokers. Generally, we seek to purchase sufficient amounts of
cotton to cover existing order commitments. We may purchase cotton in advance
of orders on terms that we deem advantageous, and while we do not speculate on
the price of cotton, we may hedge prices from time to time through forward
contracts and in the futures and options markets. We also use significant
quantities of polyester, which is available from several sources.
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Although we have always been able to obtain sufficient supplies of both
cotton and polyester, any shortage or interruption in the supply or variations
in the quality of either could have a material adverse effect on our business.
Additionally, fluctuations in cotton and polyester prices can significantly
affect our profitability, particularly on a short term basis, since we cannot
always mirror such fluctuations in the prices of our products.
We also use various other raw materials, such as dyes and chemicals, in
manufacturing operations. We believe these materials are readily available
from a number of sources. We also supplement our internal manufacturing
capabilities by purchasing yarn and unfinished fabrics from outside sources
and by contracting with third parties for various manufacturing services,
including certain printing and sewing operations. During fiscal 1999, we
purchased less than 5% of our manufacturing requirements from outside sources.
Trademarks and Licenses
We hold licenses to produce and sell home fashions products under:
. "Colours by Alexander Julian,"
. "Di Lewis,"
. "Barbie,"
. "Blue's Clues,"
. "Looney Tunes,"
. "Major League Baseball,"
. "National Football League,"
. "National Hockey League," and
. "Teletubbies,"
as well as other names or marks, and to use certain designs on our home
fashions products. Such licenses generally provide that we have the right for
a limited period, generally three years subject to renewal for additional
periods, to use the respective brand name and/or design in the sale of certain
types of products in certain geographic regions. We also hold licenses with
respect to the use and advertising of certain processes or synthetic fibers or
fabrics. We believe that our failure to continue to hold any one of our
licenses or trademarks, other than "Dan River," would not have a material
adverse effect on our business.
Competition
Our competitive position varies by product line. Competitive factors
include:
. price,
. product styling and differentiation,
. quality,
. flexibility of production and finishing,
. delivery time, and
. customer service.
We sell our products primarily to domestic customers and compete with both
large, vertically integrated textile manufacturers and numerous smaller
companies specializing in limited segments of the market. Our competitors
include both domestic and foreign companies, a number of which are larger in
size and have significantly greater financial resources than we do.
We are one of several domestic manufacturers of home fashions products.
Although the Bibb acquisition has increased our sales of home fashions
products, certain of our competitors still have a significantly greater share
of the domestic market, including WestPoint Stevens Inc. and Springs
Industries, Inc., which we believe collectively account for over 50% of the
home fashions bedding products market.
With the acquisition of Cherokee, we believe that we are a leading producer
of light weight yarn-dyed woven cotton and cotton-blend apparel fabrics in the
Western Hemisphere. With respect to men's shirtings, based
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on net sales, we believe we are the largest producer of oxford cloth and pima
cotton pinpoint oxford cloth and the leading producer of light weight yarn-
dyed dress shirting fabrics in the Western Hemisphere. In the sportswear and
upholstery fabrics markets, we are one of a number of domestic producers.
We are subject to foreign competition. We believe that over 50% of the
apparel fabrics, much of which is imported in the form of garments, and
approximately 25% of the home fashions products sold in the U.S. are
manufactured overseas. Competitive pressures due to imports have been
exacerbated, particularly in the case of apparel fabrics, by the Asian
economic crisis.
One of our business strategies is to seek niche apparel fabrics markets that
are less susceptible to foreign competition. We believe that our manufacturing
base in the United States, a significant portion of which will be shifted to
Mexico through Danza, our design expertise, our product development efforts,
and our emphasis on shortening production and delivery times allow us to
respond more quickly to changing fashion trends and to our domestic customers'
delivery schedules than can producers located outside the Western Hemisphere.
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. We benefit from protections afforded to
apparel manufacturers based in certain Caribbean and Central American
countries which ship finished garments into the U.S. under Item 9802.00.80 of
the Harmonized Tariff Schedule of the U.S. as authorized by the Caribbean
Basin Recovery Act. Item 9802.00.80 reduces certain tariffs which would
otherwise apply to apparel garments manufactured outside the U.S. and shipped
into the U.S., provided that the garments are manufactured from fabric
produced and cut domestically. Item 9802.00.80 is beneficial for us and other
domestic producers of apparel fabrics, because it creates an attractive
manufacturing base for apparel in close proximity to the U.S.
In 1995, the World Trade Organization, or WTO, established mechanisms to
progressively liberalize world trade in textiles and clothing by eliminating
quotas and reducing duties over a 10-year period beginning in January 1995.
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: tops and yarns,
fabrics, made-up textile products and apparel. The elimination of quotas and
the reduction of tariffs under the WTO may result in increased imports of
certain textile products and apparel into North America. These factors could
make our products less competitive against low cost imports from developing
countries.
NAFTA, which was entered into by the United States, Canada and Mexico, 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. NAFTA will phase out all trade restrictions and tariffs on
textiles and apparel among the three countries. 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. Although we believe that we may derive some benefit from NAFTA, there
can be no assurance that the removal of these barriers to trade will not in
the future have a material adverse effect on our business.
Order Backlog
Our order backlog was approximately $172 million at January 1, 2000, as
compared to approximately $117 million at January 2, 1999. Substantially all
of the orders on hand at January 1, 2000 are expected to be filled within four
months of that date.
Governmental Regulation
We must comply with various federal, state and local environmental laws and
regulations limiting the discharge of pollutants and the storage, handling and
disposal of a variety of substances. In particular, our dyeing and finishing
operations result in the discharge of substantial quantities of wastewater and
in emissions to the
11
<PAGE>
atmosphere. We must comply with the federal Clean Water and Clean Air Acts,
and related state and local laws and regulations. Our operations also are
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.
We believe that we currently comply in all material respects with applicable
environmental or health and safety laws and regulations. We do not believe
that the cost of, or any operational constraints or modifications required to
assure, future compliance with such laws or regulations, or to remediate
existing environmental contamination, will have a material adverse effect on
our results of operations or financial condition. However, there can be no
assurance that:
. environmental requirements will not become more stringent in the future,
. that the position taken by the various regulatory agencies in respect of
the matters described herein will not change in a manner materially
adverse to us,
. that claims in material amounts will not be brought by third parties,
. that additional sites which are alleged to have been contaminated by us
or our predecessors will not be discovered, or
. that we will not incur material costs in order to address any such
matters.
Prior to the acquisition of Bibb, the State of Georgia required Bibb to
perform a groundwater investigation and remediation at its graphics facility
in Macon, Georgia due to the presence of volatile organic compounds in the
groundwater underlying the facility. Monitoring wells and a treatment system
utilizing an air stripper have been installed to control the off-site
migration of impacted groundwater. These operations have had success in
eliminating off-site migration and continue to date. According to the State of
Georgia the facility will not be listed on Georgia's Hazardous Site Inventory.
At the Brookneal, Virginia finishing plant, which we also acquired from
Bibb, we are subject to a consent order in connection with our wastewater
treatment system, which Bibb negotiated in 1996. The order required, among
other things, substantial upgrades to the wastewater treatment facilities. The
construction activities required by the order have been substantially
completed, and we have completed negotiations with the State Water Control
Board with regard to renewal of our wastewater discharge permit. We believe
substantial further upgrades to the wastewater treatment system will not be
required to maintain compliance with the permit. Pursuant to the order, the
Commonwealth of Virginia also required the closure of the existing wastewater
treatment systems and related groundwater remediation under the Virginia
voluntary remediation program. In addition, Bibb entered into a voluntary
remediation agreement with Virginia providing for the investigation and on-
site remediation of groundwater and soils. This activity has not been
completed.
During our due diligence at the Morven, North Carolina facility, which we
acquired in December 1998, we discovered low levels of groundwater
contamination from perchloroethylene. Prior to purchasing the facility, our
personnel met with regulatory authorities regarding the options for dealing
with this contamination. As a result of those discussions, we elected to
pursue a brownfields agreement for the property with the State of North
Carolina. Under the North Carolina brownfields program, contaminated
industrial sites are placed into productive use by allowing owners to perform
less intensive cleanups than would be required for residential sites or
drinking water sources. We are in on-going discussions with the State of North
Carolina regarding this agreement.
At the closed Abbeville, South Carolina facility, Bibb previously worked
with the South Carolina Department of Health and Environmental Control to
identify the source of low levels of freon and certain other volatile organic
compounds which were found in a water supply well located on-site. It is
believed that this contamination originates off-site. No active on-site
remediation is being required by the State at this time. We have signed a
contract to sell this facility. If the sale occurs, we have not agreed to
retain environmental liability for the facility or to indemnify the new owner.
12
<PAGE>
Employees
At January 1, 2000, we had approximately 7,300 employees, of which
approximately 6,300 were hourly employees. Of these hourly employees,
approximately 3,400 are located primarily in our Danville, Virginia operations
and represented by a collective bargaining agreement that expires on January
1, 2002. We believe that our relations with our employees are good.
ITEM 2. PROPERTIES
In February 1997, in connection with the Cherokee acquisition, we acquired
greige manufacturing facilities in Spindale, North Carolina and Sevierville,
Tennessee, and a finishing plant in Harris, North Carolina. The Spindale
facility was sold in fiscal 1999. We own the Harris facility, totaling
approximately 225,000 square feet of manufacturing, office and warehouse
space. We lease the Sevierville, Tennessee facility, which consists of
approximately 419,000 square feet of manufacturing, warehouse and office
space, with an option to purchase the facility for nominal consideration in
2018.
In October 1998, we acquired Bibb, and in December 1998, we acquired the
Morven facility. As a result of these acquisitions, but net of facilities that
we sold during fiscal 1999, we added approximately 3.1 million square feet of
additional manufacturing and warehouse space for our home fashions products.
Approximately 2.5 million square feet are currently in use, as well as
approximately 600,000 square feet devoted to manufacturing and warehousing
engineered products. We own all of these facilities except for a 119,000
square foot warehouse in Fort Valley, Georgia, which we lease.
Our other apparel fabrics and home fashions products facilities, as well as
our corporate facilities, are located in Danville, Virginia. We own most of
our Danville facilities. The owned facilities occupy a total of approximately
5.9 million square feet, with approximately 4.2 million square feet of space
currently used for manufacturing and warehousing. We also lease approximately
260,000 square feet of additional warehouse and manufacturing space in
Danville.
We lease each of our marketing and sales offices and, through our
subsidiary, Dan River Factory Stores, Inc., we lease seven factory outlet
stores in Florida, Georgia, North Carolina, Ohio, South Carolina and
Tennessee. These stores average approximately 6,000 square feet of total space
each. We own our factory outlet store in Danville, Virginia.
Our manufacturing facilities generally operate on a 24 hour, five, six or
seven day schedule depending on the nature of the operations and demand for
specific products, as well as other factors.
We believe that our existing facilities are adequate to service existing
demand for our products. We consider our plants and equipment to be in good
condition.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to litigation arising in the ordinary
course of our business. Except as described below, we are not currently a
party to any litigation that we believe would have a material adverse effect
on our results of operations or financial condition.
Bibb is a plaintiff in a lawsuit filed on June 5, 1998 in the General Court
of Justice, Superior Court Division, Halifax County, North Carolina, styled
WestPoint Stevens, Inc., which we refer to as WestPoint, and The Bibb Company
v. Panda-Rosemary Corporation and Panda Energy Corporation, which we refer to
collectively as Panda, in which Bibb and WestPoint seek, among other things, a
declaratory judgment as to the validity of an assignment by Bibb to WestPoint
of Bibb's rights under a cogeneration agreement between Bibb and Panda in
connection with the sale of Bibb's Roanoke Rapids towel operations to
WestPoint in 1997. Panda counterclaimed seeking, among other things, damages
against WestPoint and/or Bibb based on various theories of alleged breach of
contract, tort, conspiracy and unfair competition, all based generally on the
factual allegation that Bibb could not assign its rights under the contract
without Panda's prior consent and that Panda is, therefore, entitled to cancel
the contract, renegotiate the price to be paid by WestPoint for steam under
the contract, and/or receive a "market price" for steam purchased by
WestPoint. In discovery Panda has alleged damages in excess of $30 million. On
October 27, 1998, Panda-Rosemary, L.P. and Panda Energy Corporation sued
WestPoint, Bibb and Dan River (as alleged successor to Bibb), making
essentially the same allegations, in the County Court at Law No. Two, Dallas
County, Texas.
In the fall of 1999 the parties agreed to dismiss the Texas litigation and
to transfer the North Carolina litigation to Guilford County to be heard by
the Special Superior Court Judge for Complex Business Cases. On December 16,
1999, the Court issued a ruling stating, among other things, that Bibb did not
breach the cogeneration agreement, but that Panda had the right to reasonably
approve the assignment of the cogeneration agreement to WestPoint. The parties
have filed cross-notices of appeal of the Court's ruling, and discovery in the
case has been stayed pending the result of the appeal.
WestPoint is currently purchasing steam from the cogeneration facility and
Panda is accepting WestPoint's payments of the contract price for the steam.
We believe that Panda's position is without merit, and we intend to cause Bibb
to continue to cooperate with WestPoint in seeking a successful conclusion to
this litigation. There can be no assurance, however, that Bibb and WestPoint
will prevail or that Bibb will not suffer a judgment against it in a material
amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our executive officers set forth under Item 10 in
Part III of this Annual Report is hereby incorporated by reference into this
Item X.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
We were privately held until the completion of our initial public offering
on November 20, 1997, at which time our Class A Common Stock was listed on the
New York Stock Exchange, or the NYSE, under the symbol "DRF." There is no
established trading market for the Class B Common Stock. On February 25, 2000,
there were approximately 200 holders of record of our Class A Common Stock and
nine holders of record of our Class B Common Stock.
We have not paid cash dividends during our two most recent fiscal years and
have no present intention to pay dividends in the foreseeable future.
The following table sets forth for the calendar quarter indicated the high
and low closing prices per share of our Class A Common Stock as reported in
composite trading on the NYSE.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1998:
First Quarter.................................................. $19.00 $14.75
Second Quarter................................................. 21.13 16.75
Third Quarter.................................................. 18.13 10.63
Fourth Quarter................................................. 11.75 8.13
1999:
First Quarter.................................................. $11.19 $ 6.56
Second Quarter................................................. 10.38 7.38
Third Quarter.................................................. 7.81 6.38
Fourth Quarter................................................. 6.44 4.38
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1999 1998 1997(1) 1996 1995
-------- -------- -------- -------- --------
(in thousands, except share and per share
data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales.................... $628,899 $517,443 $476,448 $379,567 $384,801
Cost of sales................ 512,977 406,619 372,165 307,383 306,879
Gross profit................. 115,922 110,824 104,283 72,184 77,922
Selling, general and
administrative expenses..... 64,547 58,410 54,231 45,673 44,860
Amortization of goodwill..... 2,859 589 -- -- --
Other operating costs,
net(2)...................... (2,267) 5,347 7,012 (428) 8,972
Operating income............. 50,783 46,478 43,040 26,939 24,090
Other income (expense), net.. 603 334 (290) 485 241
Interest expense............. 28,416 18,713 21,135 18,168 21,941
Income before extraordinary
item........................ 14,715 17,101 13,264 5,686 258
Extraordinary item........... -- (405) (243) -- --
Net income................... 14,715 16,696 13,021 5,686 258
Earnings per share--basic:
Income before extraordinary
item...................... 0.64 0.86 0.90 0.40 0.02
Net income per share--
basic..................... 0.64 0.84 0.89 0.40 0.02
Earnings per share--diluted:
Income before extraordinary
item...................... 0.63 0.85 0.89 0.40 0.02
Net income per share--
diluted................... 0.63 0.83 0.88 0.40 0.02
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
1999 1998 1997(1) 1996 1995
-------- -------- -------- ------- --------
(in thousands, except share and per share
data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of
fiscal year):
Working capital.................. $174,365 $221,854 $123,604 $93,291 $109,763
Total assets..................... 684,582 720,210 392,295 321,050 330,944
Total debt, including current
maturities...................... 314,784 354,268 143,756 169,468 179,703
Common stock subject to put
rights.......................... -- -- -- 9,726 7,000
Shareholders' equity............. 270,952 258,774 165,830 77,898 73,702
Common shares outstanding........ 22,636 23,219 18,841 14,155 14,155
Other Financial Data:
Depreciation and amortization of
property, plant and equipment... $ 38,912 $ 30,220 $ 27,508 $20,795 $ 19,537
Capital expenditures in cash..... 36,729 39,454 24,231 27,582 24,316
</TABLE>
- --------
(1) Fiscal year 1997 represents a 53-week period. All other fiscal years
presented represent a 52-week period.
(2) Other operating costs, net includes various non-recurring charges and
credits. The most significant of these charges relate to fixed asset
writedowns, plant closure costs and a discontinued product line. See Note
7 to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Our primary strategy is to expand our home fashions business both internally
and through acquisitions as well as to maintain our niche position as a
leading producer of light weight yarn-dyed apparel fabrics. We also continue
to implement cost reductions, which we believe are critical in order to remain
competitive in the global marketplace.
Three significant factors affected our results of operations in fiscal 1999.
First, the continued flood of low cost imports from Asia negatively impacted
the results of operations of our apparel fabrics division. Net sales
attributable to apparel fabrics fell from $186.5 million in fiscal 1998 to
$150.4 million in fiscal 1999, and operating income attributable to apparel
fabrics decreased from $23.7 million in fiscal 1998 to $4.4 million in fiscal
1999. Second, in preparation for Year 2000, we installed a new Enterprise
Resource Planning System, which we refer to as the ERP system, in our home
fashions and engineered products businesses. The installation of this system
caused disruptions in the second half of fiscal 1999, which negatively
impacted sales of home fashions products. Third, we completed the integration
of Bibb's operations, which enabled us to reduce costs and allowed us to
maintain our operating margin level in our home fashions products business
despite lower than anticipated sales of home fashions products.
Several years ago, we made the strategic decision to focus on our home
fashions products business, which generally is less cyclical than other
textile products and has attractive margins. Consistent with this strategy, we
acquired Bibb in October 1998, which significantly increased the size of our
home fashions products business. As a result of the Bibb acquisition, more
than two-thirds of our net sales are now attributable to sales of home
fashions products. We believe our increased critical mass has made us more
attractive to our home fashions products customers, who need large suppliers
to satisfy their requirements.
We believe the Bibb acquisition has generally made us less dependent on
outsourcing, which we have relied upon from time to time to meet spikes in
demand. For example, during the first half of fiscal 1998, we experienced
strong demand for our home fashions products, particularly our Bed-in-a-Bag(R)
ensembles, as a result of new program rollouts at mass merchandise retailers.
In order to meet demand for these products, it was necessary to outsource some
of the production, which led to higher costs and negatively impacted profit
margins
16
<PAGE>
for our home fashions segment throughout fiscal 1998. During fiscal 2000 we
are anticipating increased demand for our home fashions products due to, among
other things, a significant new program for home fashions products with a
large mass merchant. As a result, we may need to outsource some production
during fiscal 2000.
Historically, our apparel fabrics operations have been more sensitive to
downturns within the textile industry. As a result, apparel fabrics'
contribution to our operating income has been significantly less than, and has
tended to fluctuate more than, home fashions products' contribution to our
operating income. The decrease in operating income attributable to apparel
fabrics that we experienced during fiscal 1999 compared to fiscal 1998 was an
example of the fluctuation that can occur in that business. In recent years we
have taken several steps to improve the performance of our apparel fabrics
operations, including, (1) the replacement of older manufacturing equipment,
(2) the acquisition of Cherokee (which gave us greater critical mass in our
apparel fabrics operations), (3) the closure and consolidation of our
Riverside Plant (which was the least efficient of our apparel fabrics plants)
at the end of fiscal 1997 and (4) the closure of our Spindale Plant in January
1999.
We believe that the closure of these plants better aligned our apparel
fabrics manufacturing capacity with expected future demand and helped our
apparel fabrics operations to remain profitable during fiscal 1999, despite
the decrease in net sales from $186.5 million in fiscal 1998 to $150.4 million
in fiscal 1999. We believe the sales decline was precipitated by the increase
in fabric and garment imports from the Far East, resulting from currency
devaluations experienced in that part of the world.
Despite recent plant closures, the cost structure of our apparel fabrics
operations continues to make it difficult to compete effectively with garments
or fabrics imported from countries with significantly lower labor costs and to
provide an adequate return on the assets employed in that business.
Accordingly, we formed DanZa in January 2000 to build and operate a
manufacturing plant for the production of apparel fabrics in Mexico, where
labor costs are significantly lower than in the United States. The new
facility will contain yarn-dyeing and weaving operations for the production of
light and medium weight apparel fabrics. We expect the new facility will be
fully operational during the second half of fiscal 2001. By establishing
manufacturing capability in closer proximity to our customers that have
garment sewing operations in Mexico and Central America, we also expect to
improve customer service.
We own slightly over 50% of DanZa and are responsible for the same
percentage of the capital contributions and other costs. We currently expect
that it will cost approximately $25 million to build the new facility, of
which our share will be approximately $12.5 million. We expect to pay most of
this amount during fiscal 2000. In addition, we plan to loan DanZa up to $20
million during fiscal 2000 for capital expenditures. These amounts will be
repaid over five years and will bear interest at market rates. We expect to
sell approximately 275 looms and related equipment to DanZa at their fair
market value of approximately $15 million to $20 million. These looms
currently account for approximately 46% of our existing apparel fabrics
production capacity. In addition, a portion of our selling, general and
administrative expenses will be allocated and billed to DanZa in an amount
equal to approximately 10% of the net sales of DanZa, subject to a negotiated
cap. We will also have the exclusive right to market DanZa's products. For
financial reporting purposes, DanZa will be treated as a subsidiary of ours
and will be consolidated in our results of operations.
In addition, in January 2000, we entered into another agreement with Zaga
pursuant to which we formed Zadar. We formed Zadar to build and operate a
manufacturing plant in Mexico, which will include sewing and laundry
operations, for the production of finished garments, primarily sports shirts
and blouses, for sale to retailers. These products are targeted to compete
primarily with Asian imports. Once the new facility is fully operational, we
anticipate that Zadar will source fabric from the most advantageous sources,
which may include us. We expect the new facility to be fully operational by
the end of fiscal 2000. We believe Zadar will benefit us as it likely will
create an additional source of demand for our apparel fabrics and will
position us to better serve retail customers that seek a single source for
garment design and manufacture.
17
<PAGE>
We own slightly less than 50% of Zadar and are responsible for the same
percentage of the capital contributions and other costs. We currently expect
that it will cost approximately $8 million to build the new facility, of which
our share will be approximately $4 million. We expect to pay all of this
amount during fiscal 2000. In addition, a portion of our selling, general and
administrative expenses will be allocated and billed to Zadar in an amount
equal to approximately 0.5% of the net sales of Zadar, subject to a negotiated
cap. For financial reporting purposes, our interest in Zadar will be accounted
for under the equity method.
As we move into fiscal 2000, we are currently experiencing increased demand
for our home fashions products and apparel fabrics. The increased demand for
apparel fabrics should allow us reasonable operating schedules in our apparel
fabrics manufacturing plants thus improving the profitability of our apparel
fabrics business in fiscal 2000 over fiscal 1999 levels. However, the most
important factor affecting our performance during fiscal 2000 will be our
ability to implement further refinements to our ERP system, allowing us to
consistently meet anticipated demand for our home fashions products. In
addition, levels of consistent demand for both our apparel fabrics and home
fashions products and the stability of cotton prices will be important to our
operating performance in fiscal 2000. Cotton prices have recently been at
historically low levels.
Performance By Segment
We operate in three industry segments: products for the home fashions
markets, products for the apparel fabrics markets and engineered products for
the industrial markets. The following table sets forth certain information
about segment results for fiscal 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net Sales
Home fashions..................................... $431,828 $321,807 $255,766
Apparel fabrics................................... 150,401 186,491 220,682
Engineered products............................... 46,670 9,145 --
-------- -------- --------
Total......................................... $628,899 $517,443 $476,448
======== ======== ========
Operating Income
Home fashions..................................... $ 50,878 $ 33,848 $ 32,468
Apparel fabrics................................... 4,358 23,656 23,446
Engineered products............................... 2,725 169 --
-------- -------- --------
Total segment operating income................ 57,961 57,673 55,914
Corporate items not allocated to segments:
Amortization of goodwill........................ (2,859) (589) --
Other operating costs, net...................... 2,267 (5,347) (7,012)
Other expenses not allocated to segments........ (6,586) (5,259) (5,862)
-------- -------- --------
Total operating income........................ $ 50,783 $ 46,478 $ 43,040
======== ======== ========
</TABLE>
Results Of Operations
Comparison of 52 Weeks Ended January 1, 2000 ("fiscal 1999") to 52 Weeks Ended
January 2, 1999 ("fiscal 1998")
Net Sales
Net sales for fiscal 1999 were $628.9 million, an increase of $111.5 million
or 21.5% from net sales of $517.4 million for fiscal 1998.
Homes Fashions. Net sales of home fashions products for fiscal 1999 were
$431.8 million, up $110.0 million or 34.2% from net sales of $321.8 million
for fiscal 1998. The increase was attributable to incremental sales as a
result of our acquisition of Bibb in October 1998.
18
<PAGE>
Apparel Fabrics. Net sales of apparel fabrics for fiscal 1999 were $150.4,
down $36.1 million or 19.4% from net sales of $186.5 million for fiscal 1998.
Most of the decrease was in the segment's largest product category, shirting
products, in which sales declined $31.6 million or 28.0%. We believe that the
decrease was attributable to higher fabric and garment imports, particularly
from Asia, as a result of currency devaluations.
Engineered Products. Net sales of engineered products were $46.7 million for
fiscal 1999. Net sales of engineered products were $9.1 million for the period
from October 14, 1998 (the date we acquired this business as a result of the
Bibb acquisition) through the end of fiscal 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 1999 were $64.5
million (10.3% of net sales), an increase of $6.1 million or 10.5% from $58.4
million (11.3% of net sales) for fiscal 1998. The increase reflected
incremental expenses resulting from the acquisition of Bibb, offset in part by
a $3.4 million decrease in incentive compensation.
Operating Income
Total operating income for fiscal 1999 was $50.8 million (8.1% of net sales)
compared to $46.5 million (9.0% of net sales) for fiscal 1998.
Home Fashions. Operating income for the home fashions segment was $50.9
million for fiscal 1999, compared to $33.8 million for fiscal 1998. The
increase in operating income reflected the increase in sales resulting from
the Bibb acquisition, lower raw material costs and cost savings resulting from
the integration of Bibb.
Apparel Fabrics. Operating income for the apparel fabrics segment decreased
to $4.4 million in fiscal 1999 from $23.7 million in fiscal 1998. The decrease
was due to lower sales volume, a very competitive pricing environment, and
higher per unit manufacturing costs resulting from reduced capacity
utilization, offset somewhat by lower raw material costs. The closure of our
Spindale greige mill in the first quarter of fiscal 1999 resulted in overhead
cost savings that partially mitigated the under-absorption of fixed costs and
prevented an operating loss for this segment in fiscal 1999.
Engineered Products. Operating income for the engineered products segment
was $2.7 million in fiscal 1999. In the 11-week period during fiscal 1998 that
we operated this business, beginning with the acquisition of Bibb in October
1998, operating income for the segment was $0.2 million.
Corporate Items. Amortization of goodwill, which is entirely attributable to
the October 1998 acquisition of Bibb, was $2.9 million for fiscal 1999.
Amortization for the 11-week period included in fiscal 1998 after the
acquisition was $0.6 million.
Other operating costs, net for fiscal 1999 included a $1.8 million pre-tax
gain from reversal of reserves established in fiscal 1997 in connection with
the closure of our Riverside apparel fabrics weaving facilities in Danville,
Virginia. During fiscal 1999 we donated the Long Mill, one of two mill
complexes that comprise the Riverside facilities, to a local nonprofit
historical organization for future renovation and development into a multi-use
retail and residential facility. At the time of the donation, $1.7 million
remained of a $3.1 million reserve that was established in fiscal 1997 for the
estimated cost of demolishing the mill buildings and related costs. Due to the
donation of the Long Mill, it is no longer anticipated that the remaining
Riverside property will be demolished. Accordingly, we reversed the remaining
reserve during fiscal 1999. In fiscal 1999, we also reversed $0.1 million of
the reserve established in fiscal 1997 for severance and benefit costs
associated with the Riverside closure, due to lower than anticipated actual
costs. We could potentially be reimbursed by the developer of the Long Mill
property for $1.2 million of demolition and related costs that we incurred
before the donation. Under our agreement with the developer, such
reimbursement will only occur if the developer begins
19
<PAGE>
receiving revenues from the development of the Riverside property, will not
commence until at least 2004, and will be paid in installments of $10,000 per
month.
Other operating costs, net for fiscal 1999 also included a $0.5 million pre-
tax gain from reversal of a portion of the loss recorded in fiscal 1998 for
closure of our apparel fabrics weaving facility in Spindale, North Carolina.
The majority of this gain was caused by a better than anticipated recovery on
equipment that was written down in connection with the plant closure.
Other operating costs, net for fiscal 1998 totaled $5.3 million and
consisted of a $5.7 million charge resulting from our decision to close our
apparel fabrics weaving facility in Spindale, North Carolina, and a
$0.4 million gain from the early termination of a lease. The charge for the
Spindale facility closure included a $5.4 million non-cash writedown of
assets, and $0.3 million for estimated severance and other benefits associated
with the termination of approximately 130 employees. By the end of January
1999, all production at the facility had ceased and the payout of severance
and benefit costs to terminated employees was completed by the end of fiscal
1999.
Other expenses not allocated to our business segments totaled $6.6 million
in fiscal 1999 compared to $5.3 million in fiscal 1998 and consisted primarily
of depreciation on the write-up of our fixed assets from our acquisition in
1989. The vast majority of the write-up relates to manufacturing equipment
that was fully depreciated as of the end of fiscal 1999.
Interest Expense
Interest expense for fiscal 1999 was $28.4 million, up $9.7 million or 51.9%
from fiscal 1998. Higher debt levels as a result of the Bibb acquisition
resulted in a $10.7 million increase in interest expense for fiscal 1999. This
was offset somewhat by the effect of lower average interest rates, which
decreased to 8.1% in fiscal 1999 from 8.6% in fiscal 1998.
Income Tax Provision
The income tax provision was $8.3 million (35.9% of pre-tax income) for
fiscal 1999, compared to $11.0 million (39.1% of pre-tax income) for fiscal
1998. The lower effective tax rate in fiscal 1999 was attributable to a
$1.5 million combined federal and state tax benefit from the charitable
donation of the Riverside Long Mill (discussed above). This was partially
offset by the effect of a full year of nondeductible goodwill amortization
from the Bibb acquisition, compared to 11 weeks of amortization in fiscal
1998.
Net Income and Earnings Per Share
Net income for fiscal 1999 was $14.7 million or $0.63 per share (diluted),
in comparison with $16.7 million or $0.83 per share (diluted) for fiscal 1998.
Fiscal 1999 net income was affected by the following one-time items (discussed
above) that, together, increased net income by $2.9 million, or $0.12 per
diluted share:
. a $1.5 million combined federal and state tax benefit from the charitable
donation of the Riverside Long Mill;
. a $1.8 million pre-tax gain ($1.1 million after-tax) from reversal of
certain prior year reserves associated with the Riverside plant closure;
and
. a $0.5 million pre-tax gain ($0.3 million after-tax) from reversal of a
portion of the loss recorded in fiscal 1998 for closure of the Spindale
plant.
Fiscal 1998 net income included a pre-tax charge of $5.7 million ($3.5 million
after-tax, or $0.18 per share) relating to closure of the Spindale plant, and
an extraordinary loss of $0.4 million ($0.02 per share) from the refinancing
of outstanding bank debt as a result of the Bibb acquisition.
20
<PAGE>
Comparison of 52 Weeks Ended January 2, 1999 ("fiscal 1998") to 53 Weeks Ended
January 3, 1998 ("fiscal 1997")
Net Sales
Net sales for fiscal 1998 were $517.4 million, an increase of $41.0 million
or 8.6% from net sales of $476.4 million for fiscal 1997.
Home Fashions. Net sales of home fashions products for fiscal 1998 were
$321.8 million, up $66.0 million or 25.8% from net sales of $255.8 million for
fiscal 1997. The acquisition of Bibb in October 1998 contributed $38.3 million
of this increase. The remainder of the increase was primarily attributable to
higher sales of bed ensembles, which were up $60.7 million over fiscal 1997
sales, offset by lower sales of individually packaged sheets and sales of
greige goods (unfinished sheeting) which were down $29.1 million from fiscal
1997 sales.
Apparel Fabrics. Net sales of apparel fabrics in fiscal 1998 were $186.5
million, down $34.2 million or 15.5% from net sales of $220.7 million for
fiscal 1997. Of this decrease, $12.2 million was attributable to the sale of a
polypropylene yarn spinning plant in December 1997 and our exit from a
commission dyeing arrangement during the year. The remainder of the decrease
reflected lower sales throughout most product categories, including the
segment's largest product category, shirting products, in which sales declined
$12.1 million, or approximately 10% from fiscal 1997 sales.
Engineered Products. Net sales of engineered products for the period from
October 14, 1998 (the date the segment was acquired as a result of the Bibb
acquisition) until the end of fiscal 1998 were $9.1 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 1998 were $58.4
million (11.3% of net sales), an increase of $4.2 million or 7.7% from $54.2
million (11.4% of net sales) for fiscal 1997. The increase was primarily
attributable to incremental expenses resulting from the acquisition of Bibb
(approximately $3.3 million), higher spending in the information systems area
($1.0 million) and an increase in group insurance costs ($0.4 million), offset
by lower incentive compensation ($0.4 million).
Operating Income
Total operating income for fiscal 1998 was $46.5 million (9.0% of net sales)
compared to $43.0 million (9.0% of net sales) for fiscal 1997.
Home Fashions. Operating income for the home fashions segment was $33.8
million in fiscal 1998. This compares to operating income of $32.5 million for
the segment in fiscal 1997. The increase was due to the acquisition of Bibb in
October 1998, which added $4.0 million of operating income. Excluding Bibb,
operating income would have declined $2.6 million or 8.0% from operating
income for fiscal 1997. In spite of higher sales and lower raw material costs
during fiscal 1997, operating income for the segment (excluding Bibb) declined
due to higher production costs associated with the use of outside contractors
to meet increased demand levels, a competitive pricing environment which led
to lower prices for home fashions products, and a less favorable product mix.
Apparel Fabrics. Operating income for the apparel fabrics segment was $23.7
million for fiscal 1998 as compared to $23.4 million of operating income for
fiscal 1997. Operating income for the segment was approximately even with
operating income for fiscal 1997 despite a $34.2 million sales decline. This
relatively high level of operating income in relation to net sales was due to
lower production costs as a result of the acquisition of Cherokee in February
1997 and the subsequent closure of our Riverside apparel fabrics weaving plant
(which resulted in increased plant utilization and reduced unit costs), and
lower raw material costs during fiscal 1998. Segment operating income does not
reflect the amounts reported as one-time charges under "Other Operating Costs,
Net" for the closure of the apparel fabrics segment's Riverside and Spindale
weaving mills.
21
<PAGE>
Engineered Products. The engineered products segment generated $0.2 million
in operating income in the 11 weeks since the business was acquired by us from
Bibb in October 1998.
Corporate Items. Amortization of goodwill was $0.6 million for fiscal 1998
and was entirely attributable to goodwill resulting from the acquisition of
Bibb.
Other operating costs, net totaled $5.3 million in fiscal 1998 and consisted
of (1) a $5.7 million charge relating to the closure of our apparel fabrics
weaving facility in Spindale, North Carolina, and (2) a $0.4 million gain
realized from the early termination of a lease. The charge for the Spindale
facility closure included a $5.4 million non-cash write-down of assets, $0.5
million of which was reversed in fiscal 1999, and $0.3 million for severance
and other benefits associated with the termination of approximately 130
employees. We began phasing out production at the Spindale facility in the
fourth quarter of fiscal 1998. By the end of January 1999 all production had
ceased and the termination of affected employees had been completed.
Substantially all of the related severance and benefit costs were paid out
during fiscal 1999.
Other operating costs, net for fiscal 1997 totaled $7.0 million and
consisted of (1) a $7.6 million charge relating to the closure of our
Riverside apparel fabrics weaving facilities, and (2) a $0.6 million gain from
the sale of a yarn mill in Wetumpka, Alabama. The charge for the Riverside
facilities closure included a $4.2 million non-cash write-down of assets, and
$0.3 million for severance and other benefits associated with the termination
of approximately 200 employees. The remainder of the charge ($3.1 million)
related principally to estimated expenditures required for demolition of the
buildings and environmental expense (principally asbestos removal). By the end
of fiscal 1997, operations at the facilities had ceased, the termination of
affected employees had been completed, and most salvageable equipment had
either been sold or was in the process of being moved to other facilities.
During fiscal 1998, we entered into a contract with a third party for asbestos
removal and demolition of the first of the two mill buildings. Shortly after
work on the project commenced, we agreed to suspend work on the demolition at
the request of state and local historical organizations who were exploring
alternative uses for the property and had the support of various government
agencies and officials. As of January 2, 1999, (1) $0.5 million had been spent
on, and $2.6 million remained in reserve for, asbestos removal and demolition
and (2) $0.2 million had been spent on, and $0.1 million remained in reserve
for, severance and benefits. In fiscal 1999 we donated a portion of the
Riverside facilities to a nonprofit historical organization and reversed $1.8
million of the reserves established in 1997.
As noted above, we realized a $0.6 million gain on the sale of our Wetumpka
yarn mill in fiscal 1997. Wetumpka was a plant devoted primarily to the
manufacture of polypropylene yarn for one customer pursuant to a long-term
contract. The customer decided to exit the business and since the conversion
of the plant to support other businesses was not cost effective, we decided to
sell the plant. During fiscal 1997 and 1996, sales attributable to yarn
manufactured at the plant ranged from $5.0 million to $7.0 million annually,
and it operated at a break-even level.
Other expenses not allocated to our business segments totaled $5.3 million
in fiscal 1998 compared to $5.9 million in fiscal 1997 and consisted primarily
of depreciation on the write-up of our fixed assets from when we were acquired
in 1989.
Interest Expense
Interest expense for fiscal 1998 was $18.7 million, down $2.4 million or
11.4% from $21.1 million in fiscal 1997. Most of the decrease in interest
expense was attributable to lower interest rates, which averaged 8.6% in
fiscal 1998 compared to 9.5% in fiscal 1997. In addition, lower debt levels
during fiscal 1998 as a result of debt repayments made with the proceeds from
our initial public offering in November 1997 resulted in a $0.5 million
decrease in interest expense. Debt levels increased by $211.0 million at the
end of fiscal 1998 as a result of higher levels of working capital and the
acquisition of Bibb.
22
<PAGE>
Income Tax Provision
The income tax provision was $11.0 million (39.1% of pre-tax income) for
fiscal 1998, compared to $8.4 million (38.6% of pre-tax income) for fiscal
1997. The slightly higher effective tax rate in fiscal 1998 was caused by
nondeductible goodwill amortization.
Net Income and Earnings Per Share
Net income for fiscal 1998 was $16.7 million or $0.83 per share (diluted),
in comparison with $13.0 million, or $0.88 per share (diluted) for fiscal
1997. Fiscal 1998 included a charge of $3.5 million after tax ($0.18 per
share) for the closure of the Spindale apparel fabrics weaving plant and an
extraordinary loss of $0.4 million ($0.02 per share) from the refinancing of
outstanding bank debt as a result of the Bibb acquisition. Fiscal 1997
included a net charge of $4.3 million after tax ($0.29 per share) for the
closure of the Riverside apparel fabrics weaving plant offset by the gain on
the sale of Wetumpka, and an extraordinary loss of $0.2 million ($0.01 per
share) associated with the early retirement of debt from the proceeds of our
initial public offering.
Liquidity and Capital Resources
General
We rely on internally generated cash flow, supplemented by borrowings under
our working capital facility and proceeds received in connection with
issuances and sales of debt and equity securities, to meet our working capital
needs, capital improvements and debt service requirements. Our total debt to
total capital ratio at January 1, 2000 was 53.7%.
Working Capital
Our operations are working capital intensive. Our operating working capital
(accounts receivable and inventories less accounts payable and accrued
expenses) typically increases or decreases in relation to sales and operating
activity levels.
Operating working capital generated $4.1 million of cash during fiscal 1999.
Net income plus non-cash expense items (net) provided $65.7 million in cash
during the year, in addition to $5.2 million generated by changes in operating
assets and liabilities. Those changes were the $4.1 million decrease in
working capital mentioned above, an increase of $0.2 million of prepaid
expenses and other assets and a $1.3 million increase in other liabilities. As
a result, operating activities in fiscal 1999 provided net cash of $70.9
million.
Operating working capital used $46.3 million of cash during fiscal 1998
reflecting increased sales activity and the payment of Bibb's vendors whom
were not current. Net income plus noncash expense items (net) provided $57.9
million in cash during the year, which provided funding for $48.0 million used
by changes in operating assets and liabilities. Those changes were the $46.3
million increase in working capital mentioned above, an increase of $1.3
million in prepaid expenses and other assets, and a $0.4 million decrease in
other liabilities. As a result, net cash of $9.9 million was provided by
operating activities in fiscal 1998.
Excluding the initial impact of the Cherokee acquisition, operating working
capital increased $3.7 million (4.2%) during fiscal 1997 reflecting increased
sales activity. Net income plus noncash expense items (net) provided $49.4
million in cash during the year, which provided funding for $4.7 million used
by changes in operating assets and liabilities. Those changes were a $2.7
million increase in prepaid expenses and other assets, a $1.6 million decrease
in other liabilities, as well as the $3.7 million increase in operating
working capital mentioned above. As a result, net cash of $44.6 million was
provided by operating activities in fiscal 1997.
In connection with purchasing cotton for anticipated manufacturing
requirements, we may enter into cotton futures and option contracts in order
to reduce the risk associated with future price fluctuations. We generally
cover open order requirements, which average approximately three months of
production, through direct
23
<PAGE>
purchase and hedging transactions, and we may shorten or lengthen that period
in accordance with our perception of the direction of cotton prices. Futures
and option contracts are accounted for as hedges and, accordingly, gains or
losses are deferred and reflected in cost of sales as an element of the cost
of the finished product. Gains and losses related to hedging activity during
the three year period ended January 1, 2000 were not material to our results
of operations. There were no material cotton futures or options contracts
outstanding at January 1, 2000, January 2, 1999 or January 3, 1998.
We have been awarded a significant new program for the manufacture of home
fashions products for a large mass merchant. We expect shipments to begin in
late July 2000. Initial shipments will consist of inventory valued at
approximately $25.0 million. We intend to fund the working capital necessary
for the inventory build up with additional borrowings under our working
capital facility and/or cash flow from operations. The program has a three-
year term and is expected to generate significant incremental annual net sales
in each of fiscal 2000, 2001 and 2002.
Credit Facilities
On October 14, 1998, in order to finance the Bibb acquisition, we replaced
our $90 million revolving credit facility with a new $275 million credit
facility. This credit facility consists of a $125 million amortizing term
loan, which we refer to as the term loan, and a $150 million non-amortizing
revolving working capital credit line, which we refer to as the working
capital facility. The credit facility is secured by our accounts receivable
and inventories.
The borrowings under the credit facility bear interest at a base rate plus
applicable percentage, as defined (9.00% as of February 29, 2000) or LIBOR
plus applicable percentage, as defined (7.57% as of February 29, 2000) for
periods of one, two, three or six months, at our option. The term loan was
fully borrowed at inception and has required principal amortization in the
amounts of $20.0 million, $23.0 million, $40.0 million, and $42.0 million in
fiscal years 2000, 2001, 2002, and 2003, respectively, with a final maturity
of September 30, 2003. The working capital facility is non-amortizing with any
borrowings outstanding due at final maturity September 30, 2003. At January 1,
2000, we had aggregate borrowings of $54.5 million and $1.4 million in letters
of credit outstanding under the working capital facility and had $94.1 million
unused and available for borrowing.
The credit facility contains certain covenants including the maintenance of
a certain interest coverage ratio and maximum debt levels and limitations on
mergers and consolidations, affiliated transactions, incurring liens,
disposing of assets and limitations on investments. An event of default under
the credit facility includes change of control (as defined in the credit
facility) as well as non-compliance with certain other provisions.
In addition, at January 1, 2000, we had an aggregate of $120.0 million of
our 10 1/8% senior subordinated notes due 2003 outstanding. Interest on these
notes is payable semi-annually on June 15 and December 15 of each year. The
notes mature on December 15, 2003.
The credit facility and the indenture relating to our 10 1/8% senior
subordinated notes restrict certain payments, including dividends and payments
for the repurchase of capital stock. At January 1, 2000, $52.1 million of our
retained earnings was restricted under either the credit facility and/or the
indenture.
Acquisitions
In February 1997, we acquired substantially all of the assets and assumed
certain liabilities of Cherokee for an aggregate purchase price of $65
million. Cherokee was a supplier of yarn-dyed fabrics to men's and women's
shirting manufacturers and of sportswear fabrics to the converting trade, and
was our primary competitor for these fabrics. We financed the purchase price
with borrowings under our old revolving credit facility (which was refinanced
in connection with the Bibb acquisition). In connection with the acquisition,
we also assumed $0.6 million of Cherokee debt.
24
<PAGE>
In October 1998, we purchased all of the outstanding capital stock of Bibb
(through a merger transaction) for an aggregate purchase price of $240
million. Bibb, founded in 1876, was a leading domestic manufacturer of home
fashions products. The purchase price for the Bibb acquisition consisted of
$86 million of cash and 4.3 million shares of our Class A Common Stock. We
funded the cash portion of the purchase price with borrowings under the
working capital facility. In connection with the acquisition, we also assumed
or repaid an aggregate of $95 million of Bibb debt. The portion of Bibb debt
repaid was funded with borrowings under the working capital facility.
Capital Improvements
We made capital expenditures aggregating $36.7 million, $39.5 million and
$24.2 million in fiscal 1999, 1998 and 1997, respectively. We anticipate
capital expenditures in the range of $40.0 million to $45.0 million in fiscal
2000, which will be used primarily for cutting and sewing, greige fabric
manufacturing and other various facility modernizations.
Rental expense for fiscal 1999, 1998 and 1997 was approximately $8.3
million, $7.7 million, and $7.4 million, respectively, net of rental income on
noncancellable leases and subleases of approximately $1,021,000, $252,000 and
$34,000, respectively. At January 1, 2000, our future minimum lease payments
due under operating leases with noncancellable terms in excess of one year
were as follows: 2000, $6.7 million; 2001, $4.5 million; 2002, $4.2 million;
2003, $3.9 million; 2004, $3.7 million; and later, $16.6 million.
Stock Repurchase Program
In August 1999, our board of directors authorized the repurchase from time
to time of up to $10.0 million aggregate market value of our Class A Common
Stock in open market transactions on the NYSE. Shares repurchased pursuant to
this program are retired and constitute authorized but unissued shares.
Pursuant to the terms of our credit facility, we may not utilize more than
$5.0 million to repurchase shares in any fiscal year. As of January 1, 2000 we
had repurchased 753,919 shares having an aggregate market value of $5.0
million. Any further repurchases will depend among prevailing market
conditions at the time of the proposed repurchase.
Risk Management
Interest Rate Risk
We have exposure to floating interest rates through our borrowings under our
credit facility. Therefore, interest expense will fluctuate with changes in
LIBOR and the prime rate. At January 1, 2000, we had interest rate swap
agreements that terminate in the first quarter of fiscal 2000 which
effectively convert variable rate interest payable on $65.0 million of
existing debt to a fixed rate. As of January 1, 2000 a 10% increase in
interest rates in effect on our variable rate borrowings would increase
interest expense by $1.4 million on an annual basis.
Commodity Price Risk
We use many types of fiber, both natural and man-made, in the manufacture of
our textile products. We believe that future price levels of all fibers will
depend primarily upon supply and demand conditions, weather conditions,
general inflation and domestic and foreign governmental regulations and
agricultural programs. We manage our exposure to changes in commodity prices
primarily through our procurement practices.
We enter into contracts to purchase cotton under the Southern Mill Rules
ratified and adopted by the American Textile Manufacturers Institute, Inc. and
American Cotton Shippers Association. Under these contracts and rules,
nonperformance by either the buyer or seller may result in a net cash
settlement of the difference between the current market price of cotton and
the contract price. If we had a net cash settlement of our open firm
commitment cotton contracts at January 1, 2000, and market prices of
contracted cotton decreased by 10%, we would be required to pay a net
settlement provision of approximately $2.3 million.
25
<PAGE>
Impact of Year 2000
Like most owners of computer software, we have replaced or modified a
significant portion of our computer software to handle the Year 2000 issue.
This included business applications and embedded systems such as manufacturing
equipment, voice and data communications and ERP systems. Most of our efforts
in this area have been directed toward implementing new or improved systems
which not only achieve Year 2000 compliance, but significantly improve and
expand operational capabilities of certain of our computer systems and,
therefore, have been capitalized. Costs associated strictly with our Year 2000
remediation program (excluding costs relating to capital improvements to
systems that are not directly related to remediating Year 2000 problems in
such systems) have been expensed as incurred and were not material.
Specifically, we have successfully implemented an ERP system for corporate
financial and material management systems, which are warranted by the vendor
to be Year 2000 compliant and are operational. We have also successfully
implemented the ERP system for our home fashions operations for customer order
management, inventory management, manufacturing and distribution.
Since January 1, 2000, we have not experienced any material disruptions due
to the Year 2000 issue. While the primary risk to us with respect to the Year
2000 issue continues to be the inability of external parties to provide goods
and services in a timely and accurate manner, to date, we are not aware of any
such disruption. As a result, we do not believe that the Year 2000 issue
presents a material risk to us.
Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of
the Securities Act and the Exchange Act. These statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those included in such forward-looking statements. The words
"believes," "expects," "intends," "estimates," or "anticipates" and similar
expressions, as well as future or conditional verbs such as "will," "should,"
"would," and "could," are intended to identify forward-looking statements.
Specific forward-looking statements contained in this Annual Report include,
among others:
. the timing of pending acquisitions and the expected benefits of those
acquisitions,
. expected increased demand for our products during fiscal 2000,
. expected reductions in apparel fabrics manufacturing costs and improved
customer service due to our planned shift of a substantial portion of our
manufacturing capacity to Mexico,
. the timing and costs associated with building manufacturing facilities in
Mexico,
. estimated capital expenditures for fiscal 2000,
. expected expenditures for environmental, health and safety law
compliance, and
. the anticipated outcome of pending environmental matters and litigation.
With respect to forward-looking statements contained in this Annual Report,
management has made assumptions regarding, among other things, the timing and
outcome of our negotiations with acquisition candidates, our ability to
integrate acquired companies, expected construction costs for new facilities
in Mexico, expected labor costs in Mexico, the level of customer demand for
our products, the amount and timing of expected capital expenditures, the
estimated cost of compliance with environmental, health and safety laws and
the expected resolution of various pending environmental matters and
litigation. There can be no assurance that the assumptions made by us are
correct.
The forward-looking statements in this Annual Report are also subject to
certain risks and uncertainties including, among others, that our performance
in future periods may be adversely impacted by:
. the cyclical nature of the textile industry,
. adverse changes in domestic or international economic conditions
generally,
26
<PAGE>
. intense domestic and international competition within the textile
industry,
. fluctuations in the price and availability of cotton and other raw
materials,
. the termination of license agreements,
. our inability to make capital improvements necessary to maintain
competitiveness,
. possible adverse changes in governmental regulation regarding the import
of cotton and textile products,
. difficulties in integrating acquired businesses and achieving cost
savings,
. changes in environmental regulations,
. deterioration of relationships with or the loss of material customers,
. conditions in Mexico affecting our new Mexican manufacturing operations,
. our inability or the inability of our customers to compete effectively
with imported textile products, and
. adverse changes in general market and industry conditions.
We believe that the forward-looking statements in this Annual Report are
reasonable; however, such statements are based on current expectations and
undue reliance should not be placed on such statements. We undertake no
obligation to update publicly any forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
27
<PAGE>
CONSOLIDATED BALANCE SHEETS
January 1, 2000 and January 2, 1999
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands,
except per share
data)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 2,084 $ 3,356
Accounts receivable (less allowance of $9,693 and
$10,020).................................................. 77,009 94,374
Inventories................................................ 168,487 175,045
Prepaid expenses and other current assets.................. 2,132 11,283
Deferred income taxes...................................... 15,381 20,653
-------- --------
Total current assets..................................... 265,093 304,711
Property, plant and equipment:
Land....................................................... 10,113 8,063
Building and improvements.................................. 87,706 71,915
Machinery and equipment.................................... 369,410 347,842
Construction in progress................................... 9,209 9,951
-------- --------
476,438 437,771
Less accumulated depreciation and amortization............. 179,705 141,131
-------- --------
Net property, plant and equipment........................ 296,733 296,640
Goodwill..................................................... 110,384 110,727
Other assets................................................. 12,372 8,132
-------- --------
$684,582 $720,210
======== ========
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt....................... $ 22,368 $ 2,329
Accounts payable........................................... 33,464 33,825
Accrued compensation and related benefits.................. 22,411 27,219
Other accrued expenses..................................... 12,485 19,484
-------- --------
Total current liabilities................................ 90,728 82,857
Long-term debt............................................... 292,416 351,939
Deferred income taxes........................................ 19,555 15,126
Other liabilities............................................ 10,931 11,514
Shareholders' equity:
Preferred stock, $.01 par value; authorized 50,000,000
shares; no shares issued.................................. -- --
Common stock, Class A, $.01 par value; authorized
175,000,000 shares; issued and outstanding 20,574,020
shares (21,157,198 shares at January 2, 1999)............. 206 212
Common stock, Class B, $.01 par value; authorized
35,000,000 shares; issued and outstanding 2,062,070
shares.................................................... 21 21
Common stock, Class C, $.01 par value; authorized 5,000,000
shares; no shares outstanding............................. -- --
Additional paid-in capital................................. 213,620 215,906
Retained earnings.......................................... 57,105 42,635
-------- --------
Total shareholders' equity............................... 270,952 258,774
-------- --------
$684,582 $720,210
======== ========
</TABLE>
See accompanying notes.
28
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Net sales....................................... $628,899 $517,443 $476,448
Costs and expenses:
Cost of sales................................. 512,977 406,619 372,165
Selling, general and administrative expenses.. 64,547 58,410 54,231
Amortization of goodwill...................... 2,859 589 --
Other operating costs, net.................... (2,267) 5,347 7,012
-------- -------- --------
Operating income................................ 50,783 46,478 43,040
Other income (expense), net..................... 603 334 (290)
Interest expense................................ (28,416) (18,713) (21,135)
-------- -------- --------
Income before income taxes and extraordinary
item........................................... 22,970 28,099 21,615
Provision for income taxes...................... 8,255 10,998 8,351
-------- -------- --------
Income before extraordinary item................ 14,715 17,101 13,264
Extraordinary item, net of income taxes:
Loss on early extinguished of debt............ -- (405) (243)
-------- -------- --------
Net income...................................... $ 14,715 $ 16,696 $ 13,021
======== ======== ========
Earnings per share--basic:
Income before extraordinary item.............. $ 0.64 $ 0.86 $ 0.90
Extraordinary item............................ -- (0.02) (0.01)
-------- -------- --------
Net income per share--basic................... $ 0.64 $ 0.84 $ 0.89
======== ======== ========
Earnings per share--diluted:
Income before extraordinary item.............. $ 0.63 $ 0.85 $ 0.89
Extraordinary item............................ -- (0.02) (0.01)
-------- -------- --------
Net income per share--diluted................. $ 0.63 $ 0.83 $ 0.88
======== ======== ========
</TABLE>
See accompanying notes.
29
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class Class Class Accumulated
A B C Additional Other
Common Common Common Paid-in Retained Comprehensive
Stock Stock Stock Capital Earnings Loss Total
------ ------ ------ ---------- -------- ------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28,
1996................... $ 127 $ -- $ 14 $ 64,668 $ 13,698 $ (609) $ 77,898
Net income.............. -- -- -- -- 13,021 -- 13,021
Other comprehensive
income--pension
liability adjustment... -- -- -- -- -- 609 609
---------
Comprehensive income.... 13,630
---------
Initial public
offering............... 41 21 (14) 64,436 -- -- 64,484
Termination of put
rights................. -- -- -- 9,726 -- -- 9,726
Tax effect of stock
options exercised...... -- -- -- 310 -- -- 310
Retirement of common
stock.................. -- -- -- -- (218) -- (218)
----- ----- ---- --------- -------- ------ ---------
Balance at January 3,
1998................... 168 21 -- 139,140 26,501 -- 165,830
Net income and
comprehensive income... -- -- -- -- 16,696 -- 16,696
Stock issued for
acquisition............ 44 -- -- 75,394 -- -- 75,438
Exercise of stock
options................ -- -- -- 544 -- -- 544
Tax effect of stock
options exercised...... -- -- -- 828 -- -- 828
Retirement of common
stock.................. -- -- -- -- (562) -- (562)
----- ----- ---- --------- -------- ------ ---------
Balance at January 2,
1999................... 212 21 -- 215,906 42,635 -- 258,774
Net income and
comprehensive income... -- -- -- -- 14,715 -- 14,715
Exercise of stock
options................ 2 -- -- 1,919 -- -- 1,921
Tax effect of stock
options exercised...... -- -- -- 787 -- -- 787
Retirement of common
stock.................. -- -- -- -- (245) -- (245)
Repurchase of common
stock.................. (8) -- -- (4,992) -- -- (5,000)
----- ----- ---- --------- -------- ------ ---------
Balance at January 1,
2000................... $ 206 $ 21 $-- $ 213,620 $ 57,105 $ -- $ 270,952
===== ===== ==== ========= ======== ====== =========
</TABLE>
See accompanying notes.
30
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 14,715 $ 16,696 $ 13,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Noncash interest expense...................... 753 772 1,359
Depreciation and amortization of property,
plant and equipment.......................... 38,912 30,220 27,508
Amortization of goodwill...................... 2,859 589 --
Deferred income taxes......................... 10,756 3,463 (59)
Writedown/disposal of assets.................. (25) 164 149
Other operating costs, net.................... (2,267) 5,347 7,012
Extraordinary loss on extinguishment of debt.. -- 659 397
Changes in operating assets and liabilities,
excluding effects of business acquired:
Accounts receivable......................... 17,209 13,704 473
Inventories................................. 3,399 (27,391) (8,790)
Prepaid expenses and other assets........... (187) (1,291) (2,701)
Accounts payable and accrued expenses....... (16,557) (32,653) 4,646
Other liabilities........................... 1,334 (374) 1,632
-------- --------- --------
Net cash provided by operating
activities............................... 70,901 9,905 44,647
-------- --------- --------
Cash flows from investing activities:
Capital expenditures.......................... (36,729) (39,454) (24,231)
Proceeds from sale of assets.................. 7,801 2,803 4,005
Acquisition of business....................... -- (164,605) (64,583)
-------- --------- --------
Net cash used by investing activities..... (28,928) (201,256) (84,809)
-------- --------- --------
Cash flows from financing activities:
Payments of long-term debt.................... (2,327) (41,054) (89,177)
Net proceeds from issuance of long-term debt.. -- 207,458 62,972
Net borrowings (payments)--working capital
facility..................................... (37,000) 26,000 (1,400)
Proceeds from exercise of stock options....... 1,082 544 --
Repurchase of common stock.................... (5,000) -- --
Net proceeds from issuance of common stock.... -- -- 64,484
-------- --------- --------
Net cash provided (used) by financing
activities............................... (43,245) 192,948 36,879
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (1,272) 1,597 (3,283)
Cash and cash equivalents at beginning of year.. 3,356 1,759 5,042
-------- --------- --------
Cash and cash equivalents at end of year........ $ 2,084 $ 3,356 $ 1,759
======== ========= ========
</TABLE>
See accompanying notes.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2000, January 2, 1999 and January 3, 1998
NOTE 1. Significant Accounting Policies and Other Matters
Basis of presentation
The consolidated financial statements include the accounts of Dan River Inc.
and its wholly owned subsidiaries (collectively, the "Company"). All
significant intercompany items have been eliminated in consolidation.
Fiscal year
The Company's fiscal year ends on the Saturday nearest to December 31. All
references to fiscal 1999, 1998 and 1997 mean the 52 weeks ended January 1,
2000, 52 weeks ended January 2, 1999, and 53 weeks ended January 3, 1998,
respectively.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash equivalents
All highly liquid cash investments purchased with an initial maturity of
three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method. Inventories at January 1, 2000 and
January 2, 1999, respectively, by component are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Finished goods........................................... $ 55,710 $ 60,914
Work in process.......................................... 92,707 96,534
Raw materials............................................ 8,475 4,007
Supplies................................................. 11,595 13,590
-------- --------
Total inventories........................................ $168,487 $175,045
======== ========
</TABLE>
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the estimated useful lives of the related
assets, ranging from 10 to 35 years for buildings and improvements, and 3 to
14 years for machinery and equipment. Leasehold improvements are amortized on
a straight-line basis over the lease term or estimated useful life, whichever
is less.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired in connection with the acquisition of The Bibb Company on
October 14, 1998 (Note 2). Goodwill is being amortized over forty years on the
straight-line method. Accumulated amortization at January 1, 2000 and January
2, 1999 was
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$3,448,000 and $589,000, respectively. Goodwill is reviewed for impairment
whenever events or circumstances indicate that the carrying amount may not be
recoverable. The Company evaluates the recoverability of goodwill by comparing
its carrying amount to estimated future undiscounted cash flows. The Company
believes that no material impairment of goodwill existed at January 1, 2000.
Deferred financing fees
Debt financing fees are amortized over the term of the related debt.
Revenue recognition
The Company generally recognizes revenues from product sales when goods are
shipped, at which time sales are final.
Stock-based compensation
The Company continues to follow the accounting method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and has presented the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123").
Income taxes
Deferred income taxes are accounted for under the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Cotton futures contracts
In connection with the purchasing of cotton for anticipated manufacturing
requirements, the Company may enter into cotton futures and option contracts
in order to reduce the risk associated with future price fluctuations. These
contracts are accounted for as hedges and, accordingly, gains or losses are
deferred and reflected in cost of sales as an element of the cost of the
finished product. Transactions related to cotton futures and option contracts
during the three year period ended January 1, 2000 were not material.
Recent accounting pronouncements
Effective January 3, 1999, the Company prospectively adopted Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP No. 98-1 requires that certain
costs incurred in connection with developing or obtaining software for
internal use be capitalized and amortized over the estimated useful life of
the software. The effect of adopting SOP No. 98-1 was to increase net income
for fiscal 1999 by $0.4 million.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which the
Company will be required to adopt in fiscal 2001. Under the Statement, all
derivatives must be recognized on the balance sheet at fair value. Depending
on the nature of the Company's derivative instruments at the time of adoption,
the Statement could affect earnings. The Company has not yet determined the
impact SFAS No. 133 will have on its results of operations or financial
position.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2. Acquisitions
On October 14, 1998, the Company acquired all of the capital stock of The
Bibb Company ("Bibb") for $86,497,000 in cash, including transaction costs,
and the issuance of approximately 4,257,000 shares of the Company's Class A
common stock. In connection with the acquisition, the Company also retired
$78,612,000 of Bibb indebtedness, and paid $2,025,000 in cash and issued
104,000 shares of Class A common stock in cancellation of nonqualified Bibb
stock options. The cash portion of the acquisition was funded at closing from
borrowings under a new credit agreement (Note 4). Bibb was a manufacturer and
marketer of: consumer products for the home, principally sheets, bedding and
bedding accessories; textile products for the hospitality and healthcare
industries; and specialty engineered textile products used in making high-
pressure hoses and other industrial products.
The acquisition of Bibb has been accounted for as a purchase, and the
results of operations of the acquired business have been included in the
consolidated financial statements since the date of acquisition. Assets
acquired and liabilities assumed have been recorded at their estimated fair
values. A summary of the assets acquired, liabilities assumed and
consideration paid follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Accounts receivable........................................... $ 37,230
Inventories................................................... 52,279
Other current assets.......................................... 20,805
Property, plant and equipment................................. 84,605
Goodwill...................................................... 113,832
Other assets.................................................. 10,636
Accounts payable.............................................. (35,054)
Other current liabilities..................................... (28,629)
Noncurrent liabilities........................................ (15,661)
--------
Total......................................................... 240,043
Issuance of 4,361 shares of Class A common stock.............. (75,438)
--------
Cash paid, net of $2,529 in cash acquired..................... $164,605
========
</TABLE>
On February 3, 1997, the Company acquired substantially all the assets of
The New Cherokee Corporation ("Cherokee"), a manufacturer of yarn-dyed
shirting and sportswear fabrics, for $64,583,000 in cash, including
transaction costs, and the assumption of certain operating liabilities. The
acquisition was funded at closing with $12,100,000 of cash on hand, and
borrowings under a working capital line of credit and term loan. The
acquisition of Cherokee has been accounted for as a purchase and the results
of operations of the acquired business have been included in the consolidated
financial statements since the date of acquisition. The purchase price was
allocated to the assets acquired and liabilities assumed based on their fair
values at the date of the acquisition and did not result in the recording of
goodwill.
The following summarized, unaudited pro forma results of operations assume
the acquisitions of Bibb and Cherokee had occurred at the beginning of each
year presented:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(in thousands,
except per share
data)
<S> <C> <C>
Net sales................................................. $696,404 $734,494
Income before extraordinary item.......................... 11,126 6,169
Net income................................................ 10,721 5,926
Earnings per share:
Basic................................................... 0.46 0.31
Diluted................................................. 0.46 0.31
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma information is presented for informational purposes and is not
indicative of results which would have occurred or which may occur in the
future.
NOTE 3. Public Offering and Capitalization
On November 20, 1997 the Company completed an initial public offering of its
Class A common stock to the public (the "Offering"), which included the sale
of 4,700,000 shares by the Company and 2,619,200 shares by certain selling
shareholders. The Company used the net proceeds from the Offering,
$64,484,000, to retire indebtedness.
In connection with the Offering, the shareholders of the Company approved a
multi-step recapitalization plan which became effective on November 3, 1997
(the "Recapitalization"). Prior to the Recapitalization, the Company's
outstanding capital stock included 1,500,000 authorized shares of voting
stock, par value $.01 per share ("Old Voting Stock") (726,454 shares of which
were outstanding), and 1,500,000 authorized shares of nonvoting common stock,
par value $.01 per share ("Old Nonvoting Stock") (82,413 shares of which were
outstanding).
The Company first amended and restated its Articles of Incorporation (the
"Restated Articles"). Upon filing of the Restated Articles: (1) Class A Common
Stock, par value $.01 per share, entitled to one vote per share, Class B
Common Stock, par value $.01 per share, entitled to 4.39 votes per share, and
Class C Common Stock, par value $.01 per share, nonvoting, were created; (2)
each outstanding share of Old Voting Stock was reclassified and exchanged for
17.5 shares of Class A Common Stock of the Company ("Class A Common") and (3)
each outstanding share of Old Nonvoting Stock was reclassified and exchanged
for 17.5 shares of Class C Common Stock of the Company ("Class C Common") (the
"Reclassification"). All share and per share amounts in the accompanying
financial statements and the related notes have been adjusted to reflect the
impact of the Reclassification on the number of shares outstanding and the per
share amounts. Shares of Class C Common automatically converted into shares of
Class A Common on a share-for-share basis upon consummation of the Offering.
Upon consummation of the Offering, the Company completed an exchange offer
(the "Exchange Offer") pursuant to which certain members of senior management
of the Company (and certain of their family members) that held Old Voting
Stock prior to the Reclassification exchanged 2,062,070 shares of Class A
Common for shares of supervoting Class B Common Stock ("Class B Common") on a
share-for-share basis.
The Company has the option until September 2001 to purchase the common
shares held prior to the Offering by certain shareholders at a price equal to
the fair market value at the date the option is exercised. The Company's call
option may only be exercised once during any 12-month period. Mr. Joseph L.
Lanier, Jr., Chairman and Chief Executive Officer, has a similar call option
on certain issued and outstanding common shares, which has priority to the
Company's call option. In addition, certain shareholders have the right to
require the Company to register, at its expense, their shares under the
Securities Act of 1933. Prior to the Offering, certain shareholders had the
right to require the Company to repurchase annually a portion of their shares
at the then fair market value, as defined. As a result of certain financial
covenants and other restrictions contained in the put agreement and the
Company's debt agreements, the Company was not required to repurchase any
securities. Upon consummation of the Offering the put agreement terminated.
In August 1999, the Board of Directors approved a share repurchase program
authorizing the Company to utilize up to $10,000,000 to repurchase shares of
Class A common stock. Shares repurchased pursuant to this program are retired
and constitute authorized but unissued shares. As of January 1, 2000 the
Company had repurchased 753,919 shares for $5,000,000.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4. Long-Term Debt
Long-term debt at January 1, 2000 and January 2, 1999, consists of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Senior subordinated notes................................. $120,000 $120,000
Working capital facility.................................. 54,500 91,500
Term loan................................................. 125,000 125,000
Capital leases............................................ 11,029 13,178
Other borrowings with various rates and maturities........ 4,255 4,590
-------- --------
314,784 354,268
Less current maturities................................... 22,368 2,329
-------- --------
Total long-term debt...................................... $292,416 $351,939
======== ========
</TABLE>
The senior subordinated notes (the "Notes") consist of $120,000,000 in non-
amortizing ten-year notes issued pursuant to an indenture dated December 15,
1993, bearing interest at 10 1/8%, payable semi-annually.
The Company entered into a $275,000,000 Credit Agreement (the "Agreement")
on October 14, 1998, which consists of a $125,000,000 term loan facility and a
$150,000,000 working capital facility. Borrowings under the Agreement bear
interest at a Base Rate plus an Applicable Percentage, as defined, or LIBOR
plus an Applicable Percentage, as defined, at the option of the Company. The
obligations of the Company under the Agreement are secured by substantially
all accounts receivable and inventory.
The working capital facility as established October 14, 1998 consists of a
long-term $150,000,000 working capital line of credit. At January 1, 2000,
$54,500,000 was outstanding and $94,123,000 was available. All borrowings
under the working capital facility are non-amortizing and are due September
30, 2003. The weighted average interest rate of the borrowings under the
working capital facility at January 1, 2000 was 7.65%. The Company pays a
commitment fee on the unused portion of the $150,000,000 working capital line
of credit. The working capital facility also provides for the issuance of
letters of credit up to $10,000,000 outstanding of which $1,377,000 was
outstanding at January 1, 2000. This facility replaced a $90,000,000 working
capital facility which was terminated on October 14, 1998.
The Company entered into interest rate swap agreements in fiscal 1999 to
manage its exposure to interest rate changes. The swaps involve the exchange
of fixed and variable interest rate payments without exchanging the notional
principal amount. At January 1, 2000, the Company had outstanding interest
rate swap agreements maturing in the first quarter of 2000 against existing
outstanding debt of $65,000,000.
The weighted average interest rate of the borrowings under the $125,000,000
term loan facility at January 1, 2000 was 7.58%. Scheduled principal payments
by fiscal year are: 2000, $20,000,000; 2001, $23,000,000; 2002, $40,000,000;
2003, $42,000,000. The final payment is due September 30, 2003.
The Agreement and the Notes contain certain restrictive covenants which,
among other things, require the Company to meet earnings ratios, impose
limitation on debt incurrence and restrict certain payments, including
dividends and payments for the repurchase of capital stock. At January 1,
2000, $52,105,000 of the Company's retained earnings was so restricted.
In fiscal 1998 the early retirement of debt obligations with proceeds from
the Agreement resulted in an extraordinary loss of $659,000 less related
income taxes of $254,000. The repayment of debt obligations in fiscal 1997
with the proceeds of the Company's Offering resulted in an extraordinary loss
of $396,000, less related income taxes of $153,000.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate annual scheduled principal repayments of long-term debt for
2000, 2001, 2002, 2003 and 2004 are $22,368,000, $25,749,000, $41,242,000,
$217,675,000 (which includes $54,500,000 under the working capital facility
and $120,000,000 under the Notes), and $2,084,000 respectively.
Cash payments of interest on debt were $28,706,000, $15,199,000 and
$19,791,000 in fiscal 1999, 1998 and 1997, respectively.
NOTE 5. Income Taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Current:
Federal.......................................... $(2,336) $ 5,770 $7,395
State............................................ (793) 1,765 1,011
------- ------- ------
(3,129) 7,535 8,406
------- ------- ------
Deferred:
Federal.......................................... 9,484 3,568 (267)
State............................................ 1,900 (105) 212
------- ------- ------
11,384 3,463 (55)
------- ------- ------
Provision for income taxes......................... $ 8,255 $10,998 $8,351
======= ======= ======
</TABLE>
A reconciliation of the differences between the provision for income taxes
and income taxes computed using the statutory federal income tax rate of 35%
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Amount computed using the statutory rate........... $ 8,040 $ 9,835 $7,565
Increase (decrease) in taxes resulting from:
State taxes...................................... 719 1,079 795
Amortization of goodwill......................... 1,001 206 --
Donation of real estate.......................... (1,400) -- --
Other, net....................................... (105) (122) (9)
------- ------- ------
Provision for income taxes......................... $ 8,255 $10,998 $8,351
======= ======= ======
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at January 1, 2000 and
January 2, 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards............. $18,944 $16,679
Accrued compensation and benefits....................... 7,856 8,950
Inventory valuation and reserves........................ 4,924 5,353
Accounts receivable allowances.......................... 1,779 3,285
Other nondeductible reserves and accruals............... 3,598 5,827
Other................................................... 1,724 883
------- -------
Total deferred tax assets............................. 38,825 40,977
------- -------
Deferred tax liabilities:
Book carrying value in excess of tax basis of property,
plant and equipment.................................... 38,696 30,745
Other................................................... 4,303 4,705
------- -------
Total deferred tax liabilities........................ 42,999 35,450
------- -------
Net deferred tax asset (liability).................... $(4,174) $ 5,527
======= =======
</TABLE>
At January 1, 2000 the Company had available federal net operating loss
carryforwards of $28,200,000 which may be used to offset future taxable
income. These carryforwards expire beginning in fiscal 2010. In addition, the
Company had available a minimum tax credit carryforward of $8,300,000 which
may be used to reduce future federal regular income taxes over an indefinite
period.
Most of the net operating loss carryforwards were generated by The Bibb
Company prior to its acquisition by the Company in fiscal 1998 (Note 2), and
the related tax benefit has been credited to goodwill. Because the acquisition
constituted a "change in ownership" under Section 382 of the Internal Revenue
Code, the annual utilization of these carryforwards is subject to certain
restrictions. However, such restrictions are not expected to cause any of the
carryforwards to expire.
The federal income tax returns of the Company for fiscal 1995 and prior
years are closed to assessment by the Internal Revenue Service. However, the
net operating loss and credit carryforwards that existed at the end of fiscal
1995 remain open to adjustment. The Company believes that it has adequately
provided for income taxes, and that any potential adjustments or assessments
that might be made by the Internal Revenue Service or other taxing authorities
would not have a material impact on the Company's financial position or
results of operations.
The Company received $260,000 in income tax refunds during fiscal 1999, and
made income tax payments of $6,200,000 and $4,815,000 during fiscal 1998 and
1997, respectively.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6. Benefit Plans
Retirement plans
The Company sponsors qualified noncontributory defined benefit pension plans
that cover the majority of its full-time employees. The following tables set
forth the changes in benefit obligations and plan assets of the plans for
fiscal 1999 and 1998, and the funded status of the plans as of January 1, 2000
and January 2, 1999.
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Change in benefit obligations:
Benefit obligations at beginning of year............... $34,641 $22,109
Service cost........................................... 2,449 1,787
Interest cost.......................................... 2,567 1,829
Actuarial loss (gain).................................. (4,553) 211
Acquisition of Bibb.................................... -- 10,791
Benefits paid.......................................... (1,568) (2,086)
------- -------
Benefit obligations at end of year..................... 33,536 34,641
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year......... 33,175 21,941
Actual return on plan assets........................... 4,032 4,404
Company contributions.................................. 1,607 65
Acquisition of Bibb.................................... -- 8,851
Benefits paid.......................................... (1,568) (2,086)
------- -------
Plan assets at end of year............................. 37,246 33,175
------- -------
Funded status............................................ 3,710 (1,466)
Unrecognized actuarial loss.............................. (5,640) (226)
Unrecognized prior service cost.......................... (5) (4)
------- -------
Net amount recognized at end of year..................... $(1,935) $(1,696)
======= =======
Amounts recognized in the consolidated statement of
financial position consist of:
Prepaid pension cost................................... $ 935 $ 1,504
Accrued pension cost................................... (2,870) (3,200)
------- -------
Net amount recognized at end of year................... $(1,935) $(1,696)
======= =======
</TABLE>
The projected benefit obligations and fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets were
$13,479,000 and $13,122,000, respectively, as of January 1, 2000, and
$22,592,000 and $20,220,000, respectively, as of January 2, 1999. As of
January 1, 2000, the fair value of plan assets exceeded the accumulated
benefit obligation for each pension plan. The accumulated benefit obligations
and fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets as of January 2, 1999 were $9,513,000 and
$8,421,000, respectively.
Weighted average assumptions used in measuring benefit obligations as of
year-end are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Discount rate.................................................. 8.0% 7.0%
Expected return on plan assets................................. 9.5% 9.5%
Rate of compensation increase.................................. 5.0% 4.0%
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net periodic benefit cost included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service cost...................................... $ 2,449 $ 1,787 $ 1,501
Interest cost..................................... 2,567 1,829 1,541
Expected return on assets......................... (3,170) (2,214) (1,582)
Actuarial loss.................................... -- -- 18
------- ------- -------
Net periodic benefit cost......................... $ 1,846 $ 1,402 $ 1,478
======= ======= =======
</TABLE>
The Company also sponsors 401(k) plans for most salary paid employees and
certain hourly paid employees not covered under defined benefit plans.
Beginning in fiscal 1998, certain participants were eligible for company
matching contributions, which amounted to $557,000 and $292,000, respectively,
for fiscal 1999 and 1998.
Supplemental retirement plan
The Company sponsors an unfunded supplemental retirement plan for certain
former employees that provides for payments upon retirement, death or
disability over the longer of the employee's life or ten years. The projected
benefit obligations of $2,492,000 and $3,052,000 at January 1, 2000 and
January 2, 1999, respectively, are accrued in the accompanying consolidated
balance sheets. The Company is a beneficiary of life insurance policies on
certain participants in this plan.
Stock option plans
The Company adopted stock incentive plans in fiscal 1997 (the "1997 Plans")
for key employees and non-employee directors that allow for the grant of stock
options, restricted stock, stock appreciation rights and stock. There are
1,925,000 shares of Class A common stock reserved for issuance under the 1997
Plans, and as of January 1, 2000, nonqualified options to purchase 1,554,600
shares had been granted and were outstanding. Employee options generally vest
in one-fourth increments annually beginning on the second December 31 after
the date of grant, except that fiscal 1997 grants vest in one-third increments
annually beginning December 31, 1999. Non-employee director options generally
vest ratably over a 3-year period from the date of grant. All outstanding
options under the 1997 Plans have an exercise price equal to the fair market
value of the stock on the grant date and expire at the end of 10 years.
The Company also maintains a nonqualified stock option plan pursuant to
which options to purchase Class A common stock were granted prior to fiscal
1997. Effective with establishment of the 1997 Plans, options are no longer
granted under this plan. All options to purchase unissued shares granted under
this plan have an exercise price of $6.85 per share, generally vested on
December 31, 1999, and expire on December 31, 2001. Prior to December 30,
1994, the plan also provided for the granting of options to purchase shares of
the Company's Class A common stock from a certain principal shareholder at an
exercise price of $0.57 per share. All of these options were either exercised
or forfeited by December 31, 1999.
In connection with the acquisition of Bibb (Note 2), outstanding incentive
stock options ("ISO's") held by Bibb employees were converted into fully
vested and exercisable options to purchase Class A common stock of the
Company. The ISO's expire in 2007.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has applied APB 25 in accounting for stock options and,
accordingly, no compensation expense has been recorded in fiscal 1999, 1998 or
1997. If the Company had determined compensation expense based on fair value
at the grant date for its stock options under SFAS 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands, except
per share data)
<S> <C> <C> <C>
Net income:
As reported........................................ $14,715 $16,696 $13,021
Pro forma.......................................... 13,817 16,033 12,949
Per share:
As reported--
Basic............................................ 0.64 0.84 0.89
Diluted.......................................... 0.63 0.83 0.88
Pro forma--
Basic............................................ 0.60 0.81 0.88
Diluted.......................................... 0.59 0.80 0.87
</TABLE>
The pro forma results reflect amortization of the fair value of stock
options over the vesting period, and only take into consideration options
granted after fiscal 1994. The weighted average fair value of options granted
in fiscal 1999, 1998 and 1997, was estimated to be $2.62, $3.82 and $6.63,
respectively. The fair value of each option grant was estimated on the date of
grant using a Black-Scholes option pricing model, assuming no expected
dividends.
The following weighted average assumptions were used in the valuation of
options:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected option life in years........................... 6.0 6.0 6.0
Risk-free interest rate................................. 6.13% 4.73% 5.89%
Expected stock price volatility......................... 40.00% 37.00% 34.00%
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Options Exercisable Options Exercisable
Against Unissued Against Principal
Shares Shareholder
--------------------- --------------------
Weighted-- Weighted--
Average Number Average
Number of Exercise of Exercise
Shares Price Shares Price
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Outstanding at December 28, 1996... 594,825 $ 6.85 456,750 $0.57
Granted............................ 599,000 15.00 -- --
Exercised.......................... -- -- (57,250) 0.57
Forfeited.......................... (11,375) 6.85 -- --
--------- ------ -------- -----
Outstanding at January 3, 1998..... 1,182,450 10.98 399,500 0.57
Conversion of Bibb ISO's........... 347,586 5.46 -- --
Granted............................ 502,500 8.66 -- --
Exercised.......................... (63,799) 6.08 (178,450) 0.57
Forfeited.......................... (3,500) 15.00 -- --
--------- ------ -------- -----
Outstanding at January 2, 1999..... 1,965,237 9.56 221,050 0.57
Granted............................ 521,000 5.37 -- --
Exercised.......................... (197,492) 5.51 (221,050) 0.57
Forfeited.......................... (102,103) 8.09 -- --
--------- ------ -------- -----
Outstanding at January 1, 2000..... 2,186,742 $ 9.00 $ -- $ --
========= ====== ======== =====
Options exercisable at January 3,
1998.............................. 3,333 $15.00 399,500 $0.57
========= ====== ======== =====
Options exercisable at January 2,
1999.............................. 758,896 $ 6.38 221,050 $0.57
========= ====== ======== =====
Options exercisable at January 1,
2000.............................. 964,934 $ 8.66 $ -- $0.57
========= ====== ======== =====
</TABLE>
A summary of stock options outstanding against unissued shares at January 1,
2000 follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------- --------------------
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices Outstanding life (years) price exercisable price
- --------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.31 -- $7.19........... 1,139,242 5.9 $ 6.07 642,142 $ 6.60
$8.31 -- $9.81........... 451,500 8.9 $ 8.37 114,125 $ 8.38
$15.00 -- $20.13......... 596,000 7.9 $15.08 208,667 $15.10
</TABLE>
NOTE 7. Other Operating Costs, Net
Other operating costs, net for fiscal 1999 includes a $1,764,000 pre-tax
gain from reversal of reserves established in fiscal 1997 in connection with
the closure of the Company's Riverside apparel fabrics weaving facilities in
Danville, Virginia. During fiscal 1999 the Company donated the Long Mill, one
of two mill complexes which make up the Riverside facilities, to a local
nonprofit historical organization for future renovation and development into a
multi-use retail and residential facility. At the time of the donation,
$1,662,000 remained of a $3,106,000 reserve that was established in fiscal
1997 for the estimated cost of demolishing the mill buildings and related
costs. Due to the donation of the Long Mill, it is no longer anticipated that
the remaining Riverside property will be demolished. Accordingly, the Company
reversed the remaining reserve. In fiscal 1999, the Company also reversed
$102,000 of the reserve established in fiscal 1997 for severance and benefit
costs associated with the Riverside closure, due to lower-than-anticipated
actual costs. The
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company could potentially be reimbursed by the developer of the Long Mill
property for $1,200,000 of demolition and related costs that the Company
incurred before the donation. Under the Company's agreement with the
developer, such reimbursement will only occur if the developer begins
receiving revenues from the development of the Riverside property, will not
commence until at least 2004, and will be paid in installments of $10,000 per
month.
Other operating costs, net for fiscal 1999 also includes a $503,000 pre-tax
gain from reversal of a portion of the loss recorded in fiscal 1998 for
closure of the Company's apparel fabrics weaving facility in Spindale, North
Carolina. Included in this amount is a $467,000 gain caused by better-than-
anticipated proceeds on the sale of equipment that was written down in
connection with the plant closure. The remainder of the gain ($36,000) is from
reversal of a portion of the reserve established for severance and benefit
costs.
Other operating costs, net for fiscal 1998 included a $5,747,000 charge
resulting from the Company's decision to close its apparel fabrics weaving
facility in Spindale, North Carolina, and a $400,000 gain from the early
termination of a lease. The charge for the Spindale facility closure included
a $5,446,000 non-cash write-down of assets, and $301,000 for estimated
severance and other benefits associated with the termination of approximately
130 employees. By the end of January 1999, all production at the facility had
ceased. The payout of severance and benefit costs to terminated employees was
completed by the end of fiscal 1999.
During fiscal 1997 the Company recorded a charge of $7,594,000 relating to
the Closure of its Riverside apparel fabrics weaving facilities in Danville,
Virginia. Also in fiscal 1997, the Company sold its yarn mill in Wetumpka,
Alabama, resulting in a gain of $583,000. The charge for the Riverside
facilities closure included a $4,194,000 non-cash write-down of assets, and
$294,000 for severance and other benefits associated with the termination of
approximately 200 employees. The remainder of the charge ($3,106,000) related
to estimated expenditures for demolition of the buildings and environmental
expense (principally asbestos removal). By the end of fiscal 1997, the closure
of the facilities and the termination of affected employees had been
completed. As noted above, the Company donated a portion of the Riverside
facilities to a nonprofit historical organization in fiscal 1999, and reversed
a portion of the reserves originally established in fiscal 1997.
At January 1, 2000, $570,000 remained in a reserve established in fiscal
1995 for removal of asbestos and equipment from an idle building which is
located in the same historic district as the Riverside facilities discussed
above. Work on this project was suspended for a period of time while the
Virginia Department of Transportation considered various sites for relocating
a bridge, one of which would have resulted in the condemnation of the
property. The asbestos and equipment removal is currently on hold pending
other decisions concerning the historic district.
Following is a summary of activity in the reserve accounts relating to
charges included in Other Operating Costs, Net.
<TABLE>
<CAPTION>
Environmental
Lease and Demolition Severance
Commitments Costs and Benefits Other Total
----------- -------------- ------------ ----- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 28,
1996................... $ 544 $ -- $ -- $570 $ 1,114
Expense accrued......... -- 3,106 294 -- 3,400
Expenditures............ (469) (38) (74) -- (581)
----- ------- ----- ---- -------
Balance at January 3,
1998................... 75 3,068 220 570 3,933
Expense accrued......... -- -- 301 -- 301
Expenditures............ (75) (432) (118) -- (625)
----- ------- ----- ---- -------
Balance at January 2,
1999................... -- 2,636 403 570 3,609
Expenditures............ -- (974) (265) -- (1,239)
Change in estimate...... -- (1,662) (138) -- (1,800)
----- ------- ----- ---- -------
Balance at January 1,
2000................... $ -- $ -- $ -- $570 $ 570
===== ======= ===== ==== =======
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(in thousands except per share
data)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per
share--income before extraordinary item...... $ 14,715 $ 17,101 $ 13,264
========== ========== ==========
Denominator:
Denominator for basic earnings per share--
weighted-average shares.................... 23,145,636 19,802,684 14,710,843
Effect of dilutive securities:
Employee stock options...................... 90,234 232,632 127,943
---------- ---------- ----------
Denominator for diluted earnings per share--
weighted average shares adjusted for
dilutive securities........................ 23,235,870 20,035,316 14,838,786
========== ========== ==========
Basic earnings per share...................... $ 0.64 $ 0.86 $ 0.90
========== ========== ==========
Diluted earnings per share.................... $ 0.63 $ 0.85 $ 0.89
========== ========== ==========
</TABLE>
NOTE 9. Leases
The Company leases certain manufacturing equipment, warehouses and office
facilities under operating leases that expire at various dates through 2014.
Rental expense for fiscal 1999, 1998 and 1997 amounted to approximately
$8,344,000, $7,730,000 and $7,422,000, respectively, net of rental income on
noncancelable leases and subleases of approximately $1,021,000, $252,000 and
$34,000, respectively.
The Company also leases certain manufacturing equipment and a manufacturing
facility under arrangements treated as capital leases. The manufacturing
equipment leases expire at various dates through 2005, and the manufacturing
facility lease expires in 2018.
Assets under capital leases included in property, plant and equipment at
January 1, 2000 and January 2, 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Land........................................................... $ 609 $ 609
Buildings and improvements..................................... 2,281 2,281
Machinery and equipment........................................ 14,820 15,222
------- -------
17,710 18,112
Less accumulated depreciation.................................. 1,908 402
------- -------
Net assets under capital leases................................ $15,802 $17,710
======= =======
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The future minimum lease payments due under leases that have initial or
remaining noncancelable lease terms in excess of one year at January 1, 2000,
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
2000.......................................................... $ 3,010 $ 6,728
2001.......................................................... 3,169 4,530
2002.......................................................... 1,482 4,176
2003.......................................................... 1,321 3,910
2004.......................................................... 2,131 3,670
Later......................................................... 2,840 16,576
------- -------
Total minimum lease payments.................................. 13,953 $39,590
=======
Less: amount representing interest............................ 2,924
-------
Present value of minimum lease payments....................... $11,029
=======
</TABLE>
Future minimum lease payments under operating leases have not been reduced
for sublease income of approximately $1,239,000.
NOTE 10. Contingencies
The Company is subject to various legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. It is impossible at this time for the Company to predict with any
certainty the outcome of such litigation. However, management is of the
opinion, based upon information presently available, that it is unlikely that
any such liability, to the extent not provided for through insurance or
otherwise, would be material in relation to the Company's consolidated
financial position or results of operations.
NOTE 11. Financial Instruments
Off balance sheet risk
In connection with the purchase of cotton for anticipated manufacturing
requirements, the Company enters into cotton forward purchase commitments,
futures and option contracts in order to reduce the risk associated with
future price fluctuations. The Company does not engage in speculation. There
were no material cotton futures or options contracts outstanding at January 1,
2000 or January 2, 1999. See Note 1 for information on the Company's
accounting policy with respect to cotton futures and option contracts.
Concentrations of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of temporary cash investments
and trade accounts receivable. The Company places its temporary cash
investments with high credit quality financial institutions. Concentration of
credit risk with respect to trade accounts receivable is managed by an in-
house professional credit staff. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral.
Fair values
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximate fair values due to the short-term nature of these
instruments. The fair value of the Company's senior subordinated notes, based
on quoted market prices, was $120,000,000 and $123,000,000 at January 1, 2000
and January 2,
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999, respectively, compared to a carrying value of $120,000,000. Based on
rates available for similar types of borrowings, the carrying values of the
Company's other debt approximated fair value at January 1, 2000 and January 2,
1999. The fair value of the interest rate swap agreements was determined based
on the estimated receipts or payments that would be made to terminate the
agreements. At January 1, 2000, the Company would have received approximately
$30,000 to terminate the agreements.
NOTE 12. Segment Information
The Company operates in three major segments within the textile industry:
home fashions, apparel fabrics, and engineered products. Each segment has a
separate management team, and although certain aspects of the manufacturing
process are similar, each segment can be differentiated by the products it
sells and the nature of its customers. Home fashions products consist mostly
of packaged bedroom furnishings, which are sold to domestic retailers, and
bedding products for the hospitality and healthcare industries. Apparel
fabrics products include a broad range of woven cotton and cotton-blend
fabrics, and are distributed primarily to clothing manufacturers. The Company
began operating the engineered products business upon completing the
acquisition of Bibb on October 14, 1998. The engineered products segment
produces specially-treated engineered yarns and fabrics for industrial uses,
including high-pressure hoses and conveyer belts, which are sold primarily to
automobile and tire manufacturers.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates the performance of each segment based on
operating income excluding: amortization of goodwill; plant closure charges
and other one-time items reflected on the Consolidated Statements of Income as
"Other Operating Costs, Net"; depreciation on the write-up of the Company's
fixed assets from when it was acquired in 1989; and other certain other items,
such as idle facility costs. Assets attributable to the Company's operating
segments consist primarily of: accounts receivable; inventories; and property
plant and equipment, including an allocable share of shared facilities and
corporate headquarters assets. Assets not attributable to segments include:
cash; miscellaneous receivables; certain inventories of raw materials; prepaid
expenses and other current assets; deferred income taxes; book value
attributable to the write-up of the Company's fixed assets from when it was
acquired in 1989; goodwill; and other noncurrent assets.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized information by reportable segment is shown in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales
Home fashions.................................. $431,828 $321,807 $255,766
Apparel fabrics................................ 150,401 186,491 220,682
Engineered products............................ 46,670 9,145 --
-------- -------- --------
Consolidated net sales......................... $628,899 $517,443 $476,448
======== ======== ========
Operating income
Home fashions.................................. $ 50,878 $ 33,848 $ 32,468
Apparel fabrics................................ 4,358 23,656 23,446
Engineered products............................ 2,725 169 --
Corporate items not allocated to segments:
Amortization of goodwill..................... (2,859) (589) --
Other operating costs, net................... 2,267 (5,347) (7,012)
Depreciation................................. (5,162) (4,822) (5,566)
Other........................................ (1,424) (437) (296)
-------- -------- --------
Consolidated operating income................ $ 50,783 $ 46,478 $ 43,040
======== ======== ========
Depreciation and amortization of property, plant
and equipment
Home fashions.................................. $ 20,358 $ 12,150 $ 9,634
Apparel fabrics................................ 12,401 13,137 12,308
Engineered products............................ 991 111 --
Corporate depreciation not allocated to
segments...................................... 5,162 4,822 5,566
-------- -------- --------
Consolidated depreciation and amortization of
property, plant and equipment................. $ 38,912 $ 30,220 $ 27,508
======== ======== ========
Capital expenditures
Home fashions.................................. $ 25,723 $ 26,444 $ 16,181
Apparel fabrics................................ 10,637 12,910 8,050
Engineered products............................ 369 100 --
-------- -------- --------
Consolidated capital expenditures in cash...... $ 36,729 $ 39,454 $ 24,231
======== ======== ========
Assets at end of year
Home fashions.................................. $368,956 $385,040 $186,233
Apparel fabrics................................ 138,540 149,813 160,939
Engineered products............................ 21,226 12,849 --
Corporate assets not allocated to segments:.... 155,860 172,508 45,123
-------- -------- --------
Consolidated assets............................ $684,582 $720,210 $392,295
======== ======== ========
</TABLE>
One customer accounted for approximately 13% and 15% of consolidated net
sales in fiscal 1999 and 1998, respectively. No single customer accounted for
10% or more of consolidated net sales in fiscal 1997. Sales to customers
outside of the United States amounted to less than 4% of consolidated net sales
in fiscal 1999, 1998 and 1997. Assets located outside of the United States are
insignificant.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 13. Quarterly Financial Data (unaudited)
The Company's unaudited consolidated results of operations are presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended January 1, 2000
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................... $169,536 $154,104 $155,766 $149,493
Gross Profit................................ 27,895 28,847 32,765 26,415
Net income.................................. 1,550 2,927 8,246 1,992
Per share:
Net income--
Basic................................... 0.07 0.13 0.36 0.09
Diluted................................. 0.07 0.12 0.36 0.09
</TABLE>
<TABLE>
<CAPTION>
Year ended January 2, 1999
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................. $120,943 $118,596 $118,589 $159,315
Gross Profit.............................. 26,046 27,137 27,821 29,820
Income (loss) before extraordinary item... 5,402 6,478 5,826 (605)
Net income (loss)......................... 5,402 6,478 5,826 (1,010)
Per share:
Income (loss) before extraordinary item
--
Basic................................. 0.29 0.34 0.31 (0.03)
Diluted............................... 0.28 0.34 0.31 (0.03)
Net income (loss) --
Basic................................. 0.29 0.34 0.31 (0.04)
Diluted............................... 0.28 0.34 0.31 (0.04)
</TABLE>
The interim earnings (loss) per share amounts were computed as if each
quarter was a discrete period. As a result, the sum of the earnings (loss) per
share by quarter will not necessarily total the annual earnings per share.
Results for the third quarter of fiscal 1999 include; a tax benefit of
$1,524,000 from the charitable donation of the Company's Riverside Long Mill;
a pre-tax gain of $1,764,000 ($1,084,000 after tax, or $0.05 per share)
associated with reversal of reserves established in prior years for the
demolition of the Riverside property; and a pre-tax gain of $503,000 ($309,000
after tax, or $0.01 per share) due to better than anticipated recovery on
equipment written down in fiscal 1998 in connection with closure of the
Company's apparel fabrics weaving facility in Spindale, North Carolina.
Results for the second quarter of fiscal 1998 include a pre-tax gain of
$400,000 ($246,000 after tax, or $0.01 per share) from the early termination
of a lease. Results for the fourth quarter of fiscal 1998 include: a pre-tax
charge of $5,747,000 ($3,532,000 after tax benefits, or $0.16 per share)
relating to the Company's decision to close its apparel fabrics weaving
facility in Spindale, North Carolina; and an extraordinary loss of $405,000
after tax ($0.02 per share) from the early retirement of debt.
NOTE 14. Subsequent Events
On January 12, 2000, the Company entered into an agreement with Grupo
Industrial Zaga, S.A. de C.V. ("Zaga"), in which we formed DanZa Textil S. de
R.L. de C.V. ("DanZa") to build and operate a plant in Mexico for the
production of apparel fabrics. The facility will contain yarn-dyeing and
weaving operations for the production of light and medium weight apparel
fabrics, and is expected to be fully operational in the second
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
half of fiscal 2001. The Company owns slightly over 50% of DanZa and is
responsible for the same percentage of the capital contributions and other
costs. The cost to build the new facility is estimated to be $25,000,000. In
addition, the Company has agreed to sell 275 of its looms and related
equipment to DanZa for the new facility at their fair market value of
approximately $15,000,000 to $20,000,000, and expects to loan DanZa up to
$20,000,000 during fiscal 2000 for capital expenditures. A portion of the
Company's selling, general and administrative expenses will be allocated and
billed to DanZa, and the Company will have the exclusive right to market
DanZa's products. DanZa will be reported as a consolidated subsidiary of the
Company.
Also on January 12, 2000, the Company entered into an agreement with Zaga in
which we formed Zadar S. de R.L. de C.V. ("Zadar") to build and operate a
manufacturing plant in Mexico for the production of finished garments,
primarily sports shirts and blouses, for sale to retailers. The new facility
will contain sewing and laundry operations and is expected to be fully
operational by the end of fiscal 2000. The Company owns slightly less than 50%
of Zadar and is responsible for the same percentage of the capital
contributions and other costs. The cost to build the new facility is estimated
to be $4,000,000. A portion of the Company's selling, general and
administrative expenses will be allocated and billed to Zadar. The Company
will account for its interest in Zadar under the equity method.
On March 1, 2000, the Company entered into an agreement to purchase
substantially all of the assets of Import Specialists, Inc. ("ISI") for
$17,000,000 in cash, subject to a working capital adjustment, and the
assumption of certain liabilities. ISI imports home fashions products,
including doormats, throws and rugs, primarily from China and India. The
Company expects to complete the acquisition of ISI by the end of April, 2000.
49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dan River Inc.
We have audited the accompanying consolidated balance sheets of Dan River
Inc. as of January 1, 2000 and January 2, 1999, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended January 1, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dan River
Inc. at January 1, 2000 and January 2, 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 1, 2000, in conformity with accounting principles generally
accepted in the United States. 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.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 4, 2000, except for the last
paragraph in Note 14, as to which the
date is March 1, 2000.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
The following table sets forth information concerning our directors and
executive officers:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Joseph L. Lanier,
Jr.(1)................. 68 Chairman, Chief Executive Officer and Director
Richard L. Williams(2).. 66 President, Chief Operating Officer and Director
Barry F. Shea........... 51 Executive Vice President--Chief Financial Officer
Gregory R. Boozer....... 44 Executive Vice President--Manufacturing
Anthony J. Bender....... 42 Vice President--Information Systems
Joseph C. Bouknight..... 47 Vice President--Human Resources
Harry L. Goodrich....... 49 Vice President, Secretary and General Counsel
George R. Herron........ 59 Vice President--Cotton Procurement
Denise Laussade......... 41 Vice President--Finance
Larry W. Van de Visser.. 63 Vice President--Administration
Gary D. Waldman......... 43 Controller
Donald J. Keller(1)..... 68 Director
Edward J. Lill(3)....... 67 Director
John F. Maypole(3)...... 60 Director
</TABLE>
- --------
(1) Term as a director expires at our annual shareholders meeting in 2001.
(2) Term as a director expires at our annual shareholders meeting in 2002.
(3) Term as a director expires at our annual shareholders meeting in 2000.
Joseph L. Lanier, Jr. has been chairman of the board of directors and chief
executive officer of our company and its predecessor since 1989. Mr. Lanier is
also a director of SunTrust Bank, Inc. (a bank holding company), Flowers
Industries, Inc. (a food company), Torchmark Corporation (an insurance
company), Dimon Incorporated (a tobacco products company) and Waddell & Reed
Financial, Inc., a mutual fund company.
Richard L. Williams has been a director and president and chief operating
officer of our company and its predecessor since 1989.
Barry F. Shea was vice president--finance, chief financial officer and
assistant secretary of our company and its predecessor from 1989 until 1996
and was vice president--chief financial officer from 1996 until October 1998,
when he was elected executive vice president--chief financial officer.
Gregory R. Boozer was vice president--manufacturing services of our company
from 1989 until October 1998, when he was elected executive vice president--
manufacturing.
Anthony J. Bender has been vice president--information systems of our
company since 1995. Mr. Bender was director of systems development of Springs
Industries, Inc. (a manufacturer and distributor of textile products) from
1993 until 1995.
Joseph C. Bouknight has been vice president--human resources of our company
since January 1999. Mr. Bouknight was staff vice president--organization
effectiveness with Sonoco Products Company from 1994 until 1999. Prior to that
he served as director of international human resources of Sonoco from 1992
until 1994.
51
<PAGE>
Harry L. Goodrich has been secretary and general counsel of our company and
its predecessor since 1989 and has been vice president since 1995.
George R. Herron has been vice president--cotton procurement of our company
since 1987.
Denise Laussade has been vice president--finance of our company since
October 1999 and was assistant treasurer of Darden Restaurants, Inc. from 1995
to 1999. From July to October 1999, Ms. Laussade served as director--marketing
analysis for a subsidiary of Darden Restaurants, Inc.
Larry W. Van de Visser was controller from 1990 until 1995 and vice
president--controller of our company from 1995 to 1996. He has been vice
president--administration since 1996.
Gary D. Waldman has been controller of our company since 1996. He was
assistant controller from 1992 until 1996, and director of taxes from 1990
until 1992.
Donald J. Keller has been a director of our company since 1998. Since March
1998 Mr. Keller has served as chairman of Vlasic Foods, International. From
March 1993 until 1998 he was chairman of B. Manischewitz Company, a food
manufacturer, and was co-chief executive officer of B. Manischewitz Company
from 1992 until 1993. From 1995 until 1997 he was chairman of the board of
Prestone Products Corporation, an automotive chemicals manufacturer.
Edward J. Lill has been a director of our company since 1997. Mr. Lill is
presently a consultant to Metropolitan Life Insurance Company with respect to
accounting and other related matters. Mr. Lill was a senior partner and vice
chairman of the accounting firm, Deloitte & Touche, from 1988 until his
retirement in 1995.
John F. Maypole has been a director of our company since 1992. Mr. Maypole
is a consultant to Metropolitan Life Insurance Company and has over the past
five years served as a consultant to and/or director of various other
corporations and providers of financial services. Mr. Maypole also serves as a
director of Bell Atlantic Corporation, a telecommunications company,
Massachusetts Mutual Life Insurance Company, and Church and Dwight Co., Inc.,
a household consumer product and specialty chemical company.
Other significant employees are:
.Robert E. Major, who has headed our engineered products operations since
1987 and is 57 years old,
.James E. Martin, who has headed our apparel fabrics operations since 1990
and is 50 years old, and
.Thomas L. Muscalino, who has headed our home fashions operations since
1993 and is 49 years old.
Our executive officers are elected by the board of directors and generally
hold office until the next annual meeting of our shareholders or until their
successors are elected and qualified.
Our board of directors currently has 5 members. The directors are divided
into three classes with the directors in each class serving a term of three
years. Directors for each class are elected at the annual meeting of
shareholders held in the year in which the term for their class expires.
Compensation of Directors
Directors who are not employees of our company receive an annual retainer of
$20,000 and $1,000 for each board and committee meeting attended. Directors
who are also employees of our company are not separately compensated for their
service as directors. In 1999 the board of directors granted to each of
Messrs. Keller, Lill and Maypole non-qualified options to purchase 5,000
shares of Class A Common Stock pursuant to the 1997 Stock Plan for Outside
Directors. Those options vest and become exercisable in three equal increments
on December 31, 1999, 2000 and 2001, have an exercise price of $5.3125 per
share and expire on October 29, 2009. These options vest and become
immediately exercisable if we experience a change of control.
52
<PAGE>
Committees of the Board
The board of directors has established a compensation committee and an audit
committee. The full board of directors acts as a nominating committee.
Compensation Committee. The compensation committee is composed of Messrs.
Maypole (Chairman) and Keller with Mr. Lill serving as an alternate member in
the event one of the regular members cannot attend a meeting of the
compensation committee. The compensation committee is responsible for:
. reviewing annually and approving our compensation strategy to ensure that
our executive compensation strategy supports our business objectives as
well as shareholder interests,
. the approval of salary, bonuses and other compensation of our executive
officers and key management personnel,
. the administration of our option and benefit plans, and
. considering issues pertaining to succession planning upon retirement or
termination of the employment of senior managers.
Audit Committee. The Audit Committee is composed of Messrs. Lill (Chairman)
and Maypole, with Mr. Keller serving as an alternate member of the Audit
Committee. The audit committee is responsible for:
. recommending independent auditors,
. reviewing with the independent auditors the scope and results of the
audit engagement,
. monitoring our financial policies and control procedures, and
. reviewing and monitoring the provision of non-audit services by our
auditors.
.
53
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation earned during fiscal 1999, fiscal
1998 and fiscal 1997 by our chief executive officer and our four other most
highly compensated executive officers. These individuals are called the named
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
CompensationAwards(3)
------------------------------
Annual Compensation(1) Other Securities
---------------------- Annual Underlying All Other
Fiscal Salary Bonus Compen- Options Compen-
Name and Principal Position Year ($) ($)(2) sation(4) (#) sation(5)
- --------------------------- ------ ------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Lanier, Jr....... 1999 513,139 94,830 -- 65,000 1,600
Chairman and Chief 1998 485,385 413,350 -- 65,000 1,600
Executive Officer 1997 442,410 442,410 -- 100,000 1,600
Richard L. Williams........ 1999 402,462 74,370 -- 45,000 1,600
President and Chief 1998 397,693 338,680 61,950 45,000 1,600
Operating Officer 1997 366,306 366,310 -- 70,000 1,600
Barry F. Shea.............. 1999 241,477 44,620 -- 17,500 1,600
Executive Vice President-- 1998 235,962 200,950 -- 17,500 1,600
Chief Financial Officer 1997 215,447 215,450 -- 30,000 1,600
Gregory R. Boozer.......... 1999 201,231 37,190 48,923 15,000 1,600
Executive Vice President-- 1998 187,500 159,680 142,740 12,500 1,600
Manufacturing 1997 160,770 160,770 -- 25,000 1,600
Harry L. Goodrich.......... 1999 179,308 33,140 108,726 10,000 1,600
Vice President, Secretary 1998 157,692 134,290 81,655 10,000 1,577
and General Counsel 1997 132,689 132,690 -- 10,000 1,327
</TABLE>
- --------
(1) The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each named executive officer and has therefore been
omitted.
(2) Bonuses are based on operating income targets approved by the board of
directors at the beginning of each fiscal year. Based upon operating
income targets established at the beginning of the 1999 fiscal year, each
of the named executive officers was paid a bonus equal to approximately
18.5% of his base salary for the 1999 fiscal year.
(3) No restricted stock or SARs have been granted.
(4) Represents the difference between:
. the fair market value of Class A Common Stock purchased upon exercise of
non-qualified stock options during the applicable fiscal year (based
upon the closing price of the Class A Common Stock in trading on the New
York Stock Exchange on the date of exercise) and
. the exercise price of the option.
(5) Represents amounts accrued during applicable fiscal years to each named
executive officer pursuant to the Dan River Salary Retirement Plan.
54
<PAGE>
Option Grants Table
The following table shows certain information relating to the options
granted to each of the named executive officers during fiscal 1999.
<TABLE>
<CAPTION>
Option/SAR Grants In Last Fiscal Year
----------------------------------------------
Individual Grants Option Term Potential Realizable
------------------------- -------------------- Value of Assumed
Number of % of Annual Rates of
Securities Total Exercise Stock Price
Underlying Options or Base Appreciation for
Options/SARs Granted to Price Per Option Term
Granted Employees in Share Expiration ---------------------
Name (#)(1)(2) Fiscal Year ($/Sh) Date 5% 10%
- ---- ------------ ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Lanier, Jr.... 65,000 13% $5.31 10/29/09 $ 217,165 $ 550,339
Richard L. Williams..... 45,000 9% $5.31 10/29/09 150,345 381,004
Barry F. Shea........... 17,500 3% $5.31 10/29/09 58,468 148,168
Gregory R. Boozer....... 15,000 3% $5.31 10/29/09 50,115 127,001
Harry L. Goodrich....... 10,000 2% $5.31 10/29/09 33,410 84,668
</TABLE>
- --------
(1) We have not granted any SARs.
(2) All options granted are options to purchase Class A Common Stock. The
options vest and become exercisable in four equal increments on December
31, 2000, 2001, 2002 and 2003. However, the options vest and become
exercisable immediately in the event of a Change of Control as defined in
the indenture governing our 10 1/8% senior subordinated notes due 2003.
The options are automatically revoked to the extent they are not vested at
the time of an optionee's death, disability, retirement or termination of
employment. The optionee or his estate will be entitled to exercise such
options within six months after the date of the event resulting in
termination of employment.
Aggregated Options Table
The following table shows certain information with respect to options
exercised during fiscal 1999 and options held at the end of fiscal 1999 by
each named executive officer. There were no stock appreciation rights
outstanding at the end of fiscal 1999.
Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year End
Option/SAR Values Table
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options At Fiscal
Year-End (#)(2)
Shares Acquired Value -------------------------
Name On Exercise (#) Realized(1)($) Exercisable Unexercisable
---- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph L. Lanier, Jr.. -- -- 137,083 180,417
Richard L. Williams... -- -- 76,583 125,417
Barry F. Shea......... -- -- 40,625 50,625
Gregory R. Boozer..... 8,250 48,923 33,333 41,042
Harry L. Goodrich..... 17,750 108,726 18,958 24,167
</TABLE>
- --------
(1) Represents the difference between:
. fair market value of Class A Common Stock purchased upon exercise of non-
qualified stock options during fiscal 1999 (based upon the closing price
of the Class A Common Stock in trading on the New York Stock Exchange on
the date of exercise) and
. the exercise price of the option.
(2) There were no unexercised in the money stock options outstanding at fiscal
year end based on the closing price on the New York Stock Exchange of our
Class A Common Stock on December 31, 1999 of $5.125 per share and the
respective option exercise price.
55
<PAGE>
Retirement Plan
The Dan River Inc. Salary Retirement Plan provides noncontributory defined
benefits based on both years of service and the employee's career average
monthly earnings, which we refer to as average compensation. Average
compensation includes salary and commissions but excludes bonuses. Estimated
annual benefits payable upon retirement at age 65 for each of the named
executive officers are as follows, based upon a single life annuity:
. Joseph L. Lanier, Jr.--$16,369;
. Richard L. Williams--$16,292;
. Barry F. Shea--$36,713;
. Gregory R. Boozer--$43,890; and
. Harry L. Goodrich--$36,355.
Employment Agreements
Executive Employment Agreements. We have employment agreements with Joseph
L. Lanier, Jr., Richard L. Williams and Barry F. Shea, each of which became
effective on November 20, 1997, and terminate five years thereafter, unless
earlier terminated as described below. Each employment agreement provides for
the employee to be retained in certain specified capacities by us and to
devote his full business time and attention to our business. Each of the
employment agreements provides that we shall pay the employee a bonus under
the Dan River Inc. Management Incentive Plan, which we refer to as the Bonus
Plan, and reimburse certain business related expenses. The Bonus Plan provides
for the payment of an annual cash bonus to our executive officers and key
employees based upon our achievement of operating income and working capital
management goals established at the beginning of each fiscal year and approved
by the board of directors. Participation in the Bonus Plan, as well as award
levels and performance criteria, are recommended by the chief executive
officer and approved by the compensation committee of the board of directors.
Mr. Lanier's employment agreement provides that he will serve as the chief
executive officer and chairman of the board of directors at a base salary of
$460,000 per year, which may be increased at the discretion of the board of
directors, subject to certain cost of living adjustments.
The employment agreements with Messrs. Williams and Shea provide for their
employment as president and chief operating officer and chief financial
officer, respectively. Each employment agreement provides that the employee
shall receive a base salary determined by the chief executive officer, subject
to approval by the compensation committee of the board of directors.
The employment agreements are terminable upon the death or disability of the
employee, by us for "good cause," as defined in the employment agreements, by
us without cause, by the employee for "good reason," as defined in the
employment agreements, by the employee without good reason or upon the
occurrence of a "change in control," as defined in the employment agreements.
Each employment agreement provides that, in the event the employee's
employment is terminated for no cause, a change in control, or for good
reason, such employee will be paid an amount equal to two times his annual
base salary in effect at the time of termination, plus any incentive bonus
prorated to the date on which employment is terminated. The employee would
also be entitled to participate for a period of up to twenty-four months after
termination of his employment in various welfare, pension and savings plans
and programs offered by us.
Post-Employment Agreements. We have entered into agreements with Messrs.
Boozer and Goodrich, as well as certain other executive officers and key
employees. These agreements provide certain assurances to the employee in the
event Mr. Lanier ceases for any reason to be chief executive officer, which we
refer to as an Employment Event, including an agreement not to arbitrarily
reduce the salary of or relocate the employee, and to allow the employee to
participate in certain incentive and other benefit plans at a level
commensurate with his level of participation at the time the Employment Event
occurred. In the event employment of the employee is terminated by us without
"good cause," as defined in the post-employment agreements, or by the employee
upon breach of the agreement by us, the employee is entitled to a severance
payment of up to two years salary, plus any bonus otherwise earned for the
year in which the termination occurs. The employee would also be entitled to
continue to participate for a period of up to twenty-four months in various
welfare, pension and savings plans and programs offered by us.
56
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of February 25, 2000, how many shares of each
class of our common stock were beneficially owned by our directors, named
executive officers, owners of 5% or more of our Common Stock and our directors
and executive officers as a group. Under the rules of the SEC, a person
"beneficially owns" securities if that person has or shares the power to vote
or dispose of the securities. The person also "beneficially owns" securities
which that person has the right to purchase within 60 days. Under these rules,
more than one person may be deemed to beneficially own the same securities,
and a person may be deemed to beneficially own securities in which he or she
has no financial interest. Except as shown in the table, the shareholders
named below have the sole power to vote or dispose of the shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership
Beneficial Ownership of of Class B Common Percent
Class A Common Stock(1) Stock of
------------------------------------- -------------------------- Combined
Number of Percent of Number of Percentage Voting
Shares Class(2) Shares of Class Power(2)
-------------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Donald J. Keller........ 26,667(11) * -- -- *
Joseph L. Lanier,
Jr.(3)(4).............. 2,230,253(7)(8)(11) 9.5 2,062,070(8)(9) 100.0% 30.3
Edward J. Lill.......... 10,333(11) * -- -- *
John F. Maypole......... 54,708(11) * -- -- *
Richard L.
Williams(3)(5)......... 600,564(11) 2.6 465,981(9) 22.6 7.2
Barry F. Shea(3)(6)..... 215,537(11) * 174,912(9) 8.5 2.7
Gregory R. Boozer....... 59,583(11) * -- -- *
Harry L. Goodrich....... 46,708(11) * -- -- *
Mezzanine Investment
Limited Partnership-
BDR(10)................ 6,708,723 28.6 -- -- 22.0
Dimensional Fund
Advisors, Inc.(12)..... 1,588,200 7.7 -- -- 5.2
T. Rowe Price
Associates, Inc.(13)... 2,088,900 8.9 -- -- 6.9
Wellington Management
Company, LLP(14)....... 1,507,800 6.4 -- -- 5.0
All executive officers
and Directors as a
group (14 Persons)..... 2,670,462(7)(11) 11.4 2,062,070(8)(9) 100.0 31.7
</TABLE>
- --------
*Less than 1%.
(1) Under our articles of incorporation, shares of Class B Common Stock are
convertible into shares of Class A Common Stock on a share-for-share basis
at any time subject to compliance with certain first offer rights. As a
result, shares of Class A Common Stock shown in the table as beneficially
owned by any individual include shares of Class A Common Stock issuable
upon conversion of Class B Common Stock beneficially owned by such
individual.
(2) Based on an aggregate of 20,574,020 shares of Class A Common Stock issued
and outstanding as of February 25, 2000 plus, for each individual,
. the number of shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by such individual,
and
. the number of shares of Class A Common Stock issuable upon exercise of
outstanding stock options which are or will become exercisable prior to
April 25, 2000.
(3) The business address of Messrs. Lanier, Williams and Shea is 2291 Memorial
Drive, Danville, Virginia 24541
(4) Mr. Lanier disclaims beneficial ownership of 96,553 shares that are held
by his wife, Mrs. Ann M. Lanier.
(5) Mr. Williams disclaims beneficial ownership of 96,250 shares that are held
by his wife, Mrs. Suzanne S. Williams.
(6) Mr. Shea disclaims beneficial ownership of 50,000 shares that are held by
his wife, Mrs. Nellie C. Shea.
57
<PAGE>
(7) Includes:
. 840,180 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by Mr. Joseph L.
Lanier, Jr.,
. 65,553 shares of Class A Common Stock issuable upon conversion of shares
of Class B Common Stock beneficially owned by Mrs. Ann M. Lanier,
. 257,722 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by Mr. Joseph Lanier,
III,
. 257,722 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by Mrs. Ann L.
Jackson,
. 96,250 shares of Class A Common Stock issuable upon conversion of shares
of Class B Common Stock beneficially owned by Mrs. Suzanne S. Williams,
. 369,731 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by Mr. Richard L.
Williams,
. 124,912 shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock beneficially owned by Mr. Barry F. Shea,
and
. 50,000 shares of Class A Common Stock issuable upon conversion of shares
of Class B Common Stock beneficially owned by Mrs. Nellie C. Shea.
We refer to the beneficial owners listed in the preceding bullets as the
Senior Management Group. With respect to the shares described above Mr.
Lanier has sole voting power pursuant to the terms of a Voting Agreement
dated November 20, 1997 between the Company and the members of the Senior
Management Group, as amended, which we refer to as the Voting Agreement.
(8) Includes shares of Class B Common Stock beneficially owned by the members
of the Senior Management Group with respect to which Mr. Joseph L. Lanier,
Jr. has sole voting power pursuant to the Voting Agreement. See Footnote 7
above.
(9) Joseph L. Lanier, Jr. has sole voting power with respect to these shares
pursuant to the terms of the Voting Agreement.
(10) Reflects shares of Class A Common Stock beneficially owned by Mezzanine
Investment Limited Partnership-BDR, which we refer to as MILP, whose
address is One Madison Avenue, New York, New York 10010. According to
Schedule 13D filed on behalf of Metropolitan Life Insurance Company,
which we refer to as MetLife, the general partner of MILP is 23rd Street
Investments, Inc., a wholly-owned subsidiary of MetLife. 23rd Street
Investments has sole voting and investment power with respect to the
Class A Common Stock beneficially owned by MILP. As a result, 23rd Street
Investments is deemed to beneficially own the shares of Class A Common
Stock beneficially owned by MILP.
(11) Includes options exercisable within 60 days.
(12) Based solely on Schedule 13G filed with the SEC on February 2, 2000. The
address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401.
(13) Based solely on Schedule 13G/A filed with the SEC on February 4, 2000.
The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street,
Baltimore, Maryland 21202.
(14) Based solely on Schedule 13G/A filed with the SEC on February 11, 2000.
The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts 02109.
58
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General. We, certain members of senior management, which we refer to as the
Management Shareholders, MILP, and all other holders of our common stock prior
to the initial public offering of our common stock in November 1997, are
parties to a registration rights agreement, dated September 3, 1991, as
amended. All provisions of the registration rights agreement described below
terminate on the earlier of:
. September 3, 2006 or
. the date when shares of Class A Common Stock which are held by the above-
described holders other than Management Shareholders constitute less than
10% of the outstanding Common Stock, subject to limited exceptions.
The registration rights agreement is applicable only with respect to shares
of Common Stock held prior to the initial public offering. It contains, among
others, the following provisions:
Dan River's and Mr. Lanier's Call Rights. Joseph L. Lanier, Jr. has the
right to purchase the Class A Common Stock beneficially owned by certain
specified shareholders, which we refer to as the Lanier Call. We have a
similar call right, which we refer to as the Company Call. In the case of a
Company Call, the call price is the fair market value (as defined) of the
Common Stock. In the case of a Lanier Call, the call price is 105% of the fair
market value of the Common Stock. Under certain circumstances, the Company
Call may be assigned to or preempted by Mr. Lanier. In addition, Mr. Lanier
has a first offer right to purchase any Class A Common Stock offered for sale
by certain of our shareholders. Our rights and the rights of Mr. Lanier under
the call provisions of the registration rights agreement terminate on
September 3, 2001 or, in the case of a Lanier Call, if earlier, Mr. Lanier's
death or total disability or termination of employment for Good Cause (as
defined in Mr. Lanier's employment agreement).
Demand and Piggyback Registration Rights. The holders (not including the
Management Shareholders) of at least 20% of the Class A Common Stock held by
such holders immediately prior to the initial public offering may, on seven
occasions, demand that we prepare and file a registration statement under the
Securities Act. These demand registration rights are applicable to such number
of shares of Class A Common Stock held by such holders prior to the initial
public offering as are designated by the holders of a majority of such shares
of Class A Common Stock after consultation with the book running lead
underwriter of any such offering and the demanding holders. Once every 12
months, we may delay the filing of any such registration statement for up to
60 days if we would be required in the opinion of counsel to disclose
information in the registration statement that it would not otherwise be
required to publicly disclose and the board of directors determines that such
disclosure is not in our best interests. In addition, such holders of Class A
Common Stock are entitled to offer and sell their Class A Common Stock in any
underwritten public offering involving the offering of any securities by us or
by any of our subsidiaries, subject to certain limitations. We may also offer
and sell our Class A Common Stock in any underwritten public offering effected
at the request of such holders of Class A Common Stock, subject to certain
limitations.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are filed under Item 8 of this Report:
Consolidated Balance Sheets as of January 1, 2000 and January 2, 1999.
Consolidated Statements of Income for the fiscal years ended January 1,
2000, January 2, 1999 and January 3, 1998
Consolidated Statements of Shareholders' Equity for the fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
Consolidated Statements of Cash Flows for the fiscal years ended January 1,
2000, January 2, 1999 and January 3, 1998.
Notes to Consolidated Financial Statements for the fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
Report of Independent Auditors.
2. The following Financial Statement Schedule is filed as part of this
Report:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as part of
this Annual Report.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed in the last quarter of
fiscal 1999.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DAN RIVER INC.
/s/ Joseph L. Lanier, Jr.
By: _________________________________
Joseph L. Lanier, Jr.
Chairman and Chief Executive
Officer
Date: March 15, 2000
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.
<TABLE>
<S> <C> <C>
/s/ Donald J. Keller Director March 15, 2000
____________________________________
Donald J. Keller
/s/ Joseph L. Lanier, Jr. Chairman, Chief Executive March 15, 2000
____________________________________ Officer and Director
Joseph L. Lanier, Jr. (Principal Executive
Officer)
/s/ Edward J. Lill Director March 15, 2000
____________________________________
Edward J. Lill
/s/ John F. Maypole Director March 15, 2000
____________________________________
John F. Maypole
/s/ Barry F. Shea Executive Vice President-- March 15, 2000
____________________________________ Chief Financial Officer
Barry F. Shea (Principal Financial and
Accounting Officer)
/s/ Richard L. Williams President and Chief March 15, 2000
____________________________________ Operating Officer and
Richard L. Williams Director
</TABLE>
61
<PAGE>
SCHEDULE II
DAN RIVER INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
Additions
Balance at -----------------------
Beginning Charged to Costs Balance at
Description of Year and Expenses Other Deductions(B) End of Year
----------- ---------- ---------------- ------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts,
discounts and claims
(deducted from accounts
receivable):
Year Ended January 1,
2000................... $10,020 $15,761 $ -- $16,088 $ 9,693
======= ======= ====== ======= =======
Year Ended January 2,
1999................... $ 6,230 $11,980 $3,244(A) $11,434 $10,020
======= ======= ====== ======= =======
Year ended January 3,
1998................... $ 4,631 $ 8,096 $1,200(A) $ 7,697 $ 6,230
======= ======= ====== ======= =======
</TABLE>
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(A) Allowance related to receivables acquired through business combination.
(B) Includes writeoff of receivables (net of recoveries) and claims allowed.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page No.
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<C> <S> <C>
2.1 Asset Purchase Agreement dated January 10, 1997 by and
between Dan River Inc. and The New Cherokee Corporation
(incorporated by reference to Exhibit 2.1 in Dan
River's Current Report on Form 8-K dated February 3,
1997)
2.2 First Amendment to Asset Purchase Agreement between Dan
River Inc. and The New Cherokee Corporation dated as of
February 2, 1997 (incorporated by reference to Exhibit
2.2 in Dan River's Current Report on Form 8-K dated
February 3, 1997)
2.3 Agreement and Plan of Merger, dated as of June 28, 1998,
as amended August 14, 1998, by and between Dan River
Inc. and The Bibb Company (incorporated by reference to
Annex A to the Joint Proxy Statements/Prospectus
forming a part of Registration Statement on Form S-4,
Amendment No. 1 (File No. 333-58855))
2.4 Second Amendment to Agreement and Plan of Merger, dated
as of September 3, 1998, among Dan River Inc., DR
Acquisition Corp. and The Bibb Company (incorporated by
reference to Annex S-A to the Supplement to Joint Proxy
Statement/Prospectus forming a part of Registration
Statement on Form S-4, Post-Effective Amendment No. 1
(File No. 333-58855))
3.1 Amended and Restated Articles of Incorporation of Dan
River Inc. (incorporated by reference to Exhibit 3.1 in
Amendment No. 1 to Dan River's Registration Statement
on Form S-1 (File No. 333-36479))
3.2 Bylaws of Dan River Inc. (incorporated by reference to
Exhibit 3.2 in Amendment No. 1 to Dan River's
Registration Statement on Form S-1 (File No. 333-36479))
4.1* Form of Indenture between Dan River Inc. and Marine
Midland Bank, N.A., as Trustee (including Form of Note)
10.1 Credit Agreement among Dan River Inc. and certain of its
subsidiaries, the several lenders parties thereto and
First Union National Bank as Agent dated as of October
14, 1998 (incorporated by reference to Exhibit 10.1 in
Dan River's Annual Report on Form 10-K for the fiscal
year ended January 2, 1999)
10.2 First Amendment to the Credit Agreement dated as of May
21, 1999 to the Credit Agreement among Dan River Inc.
and certain of its subsidiaries, the several lenders
parties thereto and First Union National Bank as Agent
dated as of October 14, 1998 (incorporated by reference
to Exhibit 10 in Dan River's Quarterly Report on Form
10-Q filed August 6, 1999)
10.3* Second Amendment to the Credit Agreement dated as of
December 29, 1999 to the Credit Agreement among Dan
River Inc. and certain of its subsidiaries, the several
lenders parties thereto and First Union National Bank
as Agent dated as of October 14, 1998
10.4 Registration Rights Agreement, dated as of September 3,
1991, among Dan River Inc. and the parties named
therein (incorporated by reference to Exhibit 10.4 in
Dan River's Registration Statement on Form S-1 (File
No. 33-70442)
filed on October 15, 1993)
10.5 Amendment to Registration Rights Agreement dated as of
October 27, 1997, (incorporated by reference to Exhibit
10.4.1 in Dan River's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998)
10.6 Voting Agreement among Joseph L. Lanier, Jr., Richard L.
Williams and Barry F. Shea and certain members of their
families (incorporated by reference to Exhibit 10.5 in
Amendment No. 2 to Dan River's Registration Statement
on Form S-1 (File No. 333-36479))
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.7* Amendment to Voting Agreement among Joseph L. Lanier, Jr., Richard L.
Williams and Barry F. Shea and certain members of their families
10.8 Employment Agreement, dated as of October 29, 1997, between Dan River
Inc. and Joseph L. Lanier, Jr. (incorporated by reference to Exhibit
No. 10.7 in Amendment No. 2 to Dan River's Registration Statement on
Form S-1 (File No. 333-36479))
10.9 Employment Agreement, dated as of October 29, 1997, between Dan River
Inc. and Richard L. Williams (incorporated by reference to Exhibit No.
10.8 in Amendment No. 2 to Dan River's Registration Statement on Form
S-1 (File No. 333-36479))
10.10 Employment Agreement, dated as of October 29, 1997, between Dan River
Inc. and Barry F. Shea (incorporated by reference to Exhibit No. 10.9
in Amendment No. 2 to Dan River's Registration Statement on Form S-1
(File No. 333-36479))
10.11 Form of Post-employment Letter Agreement between the Dan River Inc. and
certain of its officers, including Messrs. Boozer and Goodrich
(incorporated by reference to Exhibit No. 10.10 in Dan River's
Registration Statement on Form S-1 (File No. 33-70442) filed on
October 15, 1993)
10.12 Dan River Inc. Amended and Restated Stock Option Plan and form of
Option Agreement in effect prior to December 30, 1994 (incorporated by
reference to Exhibit No. 10.14 in Dan River's Registration Statement
on Form S-1 (File No. 33-70442) filed on October 15, 1993)
10.13* Dan River Inc. Amended and Restated Stock Option Plan and form of
Option Agreement as amended as of December 30, 1994
10.14 Form of Dan River Inc. 1997 Stock Incentive Plan (incorporated by
reference to Exhibit No. 10.16 in Dan River's Registration Statement
on Form S-1 (File No. 333-36479))
10.15 Form of Dan River Inc. 1997 Stock Plan for Outside Directors
(incorporated by reference to Exhibit No. 10.19 in Dan River's
Registration Statement on Form S-1 (File No. 333-36479))
10.16* Dan River Inc. Management Incentive Plan
10.17* Dan River Inc. 2000 Long-Term Incentive Plan
10.18* Members Agreement dated as of January 5, 2000 between Dan River
International Ltd. and Grupo Industrial Zaga, S.A. de C.V. (regarding
DanZa S. de. R.L. de C.V.)
10.19* Members Agreement dated as of January 5, 2000 between Dan River
International Ltd. and Grupo Industrial Zaga, S.A. de C.V. (regarding
Zadar S. de R.L. de C.V.)
11 Statement regarding Computation of Earnings per share (incorporated by
reference to Note 8 to Dan River's Consolidated Financial Statements
in this Annual Report on Form 10-K for the fiscal year ended January
1, 2000)
21* List of Subsidiaries
23* Consent of Ernst & Young LLP
27* Financial Data Schedule
99.1* Cautionary Statements relating to Forward Looking Statements
</TABLE>
- --------
* filed herewith
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
INDENTURE
Dated as of December 15, 1993
between
DAN RIVER INC.,
as Issuer,
and
MARINE MIDLAND BANK, N.A.,
as Trustee
________________________
$120,000,000 10-1/8% Senior Subordinated Notes due 2003
________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions................................................................................ 1
Section 1.02. Other Definitions.......................................................................... 15
Section 1.03. Incorporation by Reference of Trust, Indenture Act......................................... 15
Section 1.04. Rules Of Construction...................................................................... 15
ARTICLE II
THE SECURITIES
Section 2.01. Form and Dating............................................................................ 16
Section 2.02. Execution and Authentication............................................................... 16
Section 2.03. Registrar and Paying Agent................................................................. 17
Section 2.04. Paying Agent to Hold Money in Trust........................................................ 17
Section 2.05. Securityholder Lists....................................................................... 17
Section 2.06. Registration of Transfer and Exchange...................................................... 18
Section 2.07. Replacement Securities..................................................................... 18
Section 2.08. Outstanding Securities..................................................................... 18
Section 2.09. Treasury Securities........................................................................ 19
Section 2.10. Temporary Securities....................................................................... 19
Section 2.11. Cancellation............................................................................... 19
Section 2.12. Defaulted Interest......................................................................... 19
Section 2.13. Persons Deemed Owners...................................................................... 20
Section 2.14. Computation of Interest.................................................................... 20
Section 2.15. Predecessor Securities..................................................................... 20
ARTICLE III
COVENANTS
Section 3.01. Payment of Securities...................................................................... 20
Section 3.02. Limitation on Indebtedness................................................................. 20
Section 3.03. Limitation on Guarantees by Subsidiaries of Issuer's Indebtedness.......................... 20
Section 3.04. Limitation on Liens........................................................................ 21
Section 3.05. Limitation on Sale and Leaseback Transactions.............................................. 22
Section 3.06. Limitation on Restricted Payments.......................................................... 22
Section 3.07. Limitation on Issuance and Sale of Capital Stock of Subsidiaries........................... 23
Section 3.08. Limitation on Specified Asset Sales........................................................ 23
Section 3.09. Transactions with Affiliates............................................................... 25
Section 3.10. Limitation on Dividend Restrictions Affecting Subsidiaries................................. 25
Section 3.11. Limitation on Certain Subordinated Indebtedness............................................ 26
</TABLE>
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Section 3.12. Repurchase of Securities at Option of the Holder upon Change of Control ................... 26
Section 3.13. Covenant to Comply with Securities Laws upon Purchase of Securities........................ 28
Section 3.14. Corporate Existence........................................................................ 28
Section 3.15. Sec Reports................................................................................ 28
Section 3.16. Compliance Certificates.................................................................... 28
Section 3.17. Notice of Defaults......................................................................... 28
Section 3.18. Payment of Taxes And Other Claims.......................................................... 28
Section 3.19. Maintenance of Properties; Insurance; Books and Records; Compliance with Law............... 29
Section 3.20. Waiver Of Stay, Extension Or Usury Laws.................................................... 29
ARTICLE IV
REDEMPTION
Section 4.01. Notice to Trustee.......................................................................... 30
Section 4.02. Selection of Securities to be Redeemed..................................................... 30
Section 4.03. Notice of Redemption....................................................................... 30
Section 4.04. Effect of Notice of Redemption............................................................. 31
Section 4.05. Deposit of Redemption Price................................................................ 31
Section 4.06. Securities Redeemed in Part................................................................ 31
ARTICLE V
MERGER, CONSOLIDATION AND SALE OF ASSETS
Section 5.01. When Issuer May Merge, etc................................................................. 32
Section 5.02. Successor Corporation Substituted.......................................................... 32
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.......................................................................... 32
Section 6.02. Acceleration............................................................................... 34
Section 6.03. Other Remedies............................................................................. 34
Section 6.04. Waiver of Past Defaults.................................................................... 35
Section 6.05. Control by Majority........................................................................ 35
Section 6.06. Limitation on Suits........................................................................ 35
Section 6.07. Rights of Holders to Receive Payment....................................................... 35
Section 6.08. Collection Suit by Trustee................................................................. 35
Section 6.09. Trustee May File Proofs of Claim........................................................... 36
Section 6.10. Application of Moneys Collected by Trustee................................................. 36
Section 6.11. Undertaking for Costs...................................................................... 36
Section 6.12. Parties May be Restored to Former Position and Rights in Certain Circumstances............. 37
</TABLE>
ii
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<TABLE>
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ARTICLE VII
TRUSTEE
Section 7.01. Duties of Trustee......................................................................... 37
Section 7.02. Rights of Trustee......................................................................... 38
Section 7.03. Individual Rights of Trustee.............................................................. 38
Section 7.04. Trustee's Disclaimer...................................................................... 38
Section 7.05. Notice of Default......................................................................... 38
Section 7.06. Reports by Trustee to Holders............................................................. 38
Section 7.07. Compensation and Indemnity................................................................ 39
Section 7.08. Replacement of Trustee.................................................................... 39
Section 7.09. Successor Trustee by Merger, etc.......................................................... 40
Section 7.10. Eligibility; Disqualification............................................................. 40
Section 7.11. Preferential Collection of Claims Against the Issuer...................................... 41
ARTICLE VIII
DEFEASANCE; SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
Section 8.01. Defeasance................................................................................ 41
Section 8.02. Satisfaction and Discharge................................................................ 42
Section 8.03. Application By Trustee of Funds Deposited for Payment of Securities....................... 43
Section 8.04. Paying Agent to Repay Moneys Held......................................................... 43
Section 8.05. Return of Unclaimed Moneys................................................................ 43
Section 8.06. Indemnity for Government Obligations...................................................... 43
Section 8.07. Reinstatement............................................................................. 43
ARTICLE IX
AMENDMENTS
Section 9.01. Without Consent of Holders................................................................ 43
Section 9.02. With Consent of Holders................................................................... 44
Section 9.03. Compliance with Trust Indenture Act....................................................... 45
Section 9.04. Revocation and Effect of Consents......................................................... 45
Section 9.05. Notation on or Exchange of Securities..................................................... 45
Section 9.06. Trustee to Sign Amendments, etc........................................................... 45
ARTICLE X
SUBORDINATION OF SECURITIES
Section 10.01. Agreement to Subordinate.................................................................. 45
Section 10.02. Liquidation, Dissolution, Bankruptcy...................................................... 46
Section 10.03. Payment and Non-payment Defaults.......................................................... 47
Section 10.04. Acceleration of Payment of Securities..................................................... 48
Section 10.05. Subrogation............................................................................... 48
Section 10.06. Relative Rights........................................................................... 48
</TABLE>
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<TABLE>
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Section 10.07. Subordination may not be Impaired......................................................... 48
Section 10.08. Rights of Trustee and Paying Agent........................................................ 49
Section 10.09. Distribution of Notice to Representative.................................................. 49
Section 10.10. Article X Not to Prevent Events of Default or Limit Right to Accelerate.................. 49
Section 10.11. Trust Moneys not Subordinated............................................................. 49
Section 10.12. Trustee Entitled to Rely.................................................................. 50
Section 10.13. Trustee to Effectuate Subordination....................................................... 50
Section 10.14. Trustee not Fiduciary for Holders of Senior Indebtedness.................................. 50
Section 10.15. Reliance by Holders of Senior Indebtedness on Subordination Provisions.................... 50
Section 10.16. Reinstatement............................................................................. 50
ARTICLE XI
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.............................................................. 51
Section 11.02. Notices................................................................................... 51
Section 11.03. Communication by Holders with Other Holders............................................... 52
Section 11.04. Certificate and Opinion as to Conditions Precedent........................................ 52
Section 11.05. Statements Required in Certificate or Opinion............................................. 52
Section 11.06. Rules by Trustee and Agents............................................................... 52
Section 11.07. Legal Holidays............................................................................ 52
Section 11.08. No Recourse Against Others................................................................ 52
Section 11.09. Duplicate Originals....................................................................... 53
Section 11.10. Governing Law............................................................................. 53
Section 11.11. Successors................................................................................ 53
Section 11.12. Severability.............................................................................. 53
Section 11.13. Counterpart Originals..................................................................... 53
</TABLE>
Exhibit A Form of Security
iv
<PAGE>
EXECUTION COPY
INDENTURE dated as of December 15, 1993, between DAN RIVER INC., a Georgia
corporation (the "Issuer"), as issuer, and MARINE MIDLAND BANK, N.A., a national
banking association, as trustee (the "Trustee").
Each party agrees for the benefit of the other party and for the equal
and ratable benefit of the Holders of the Issuer's 10-1/8% Senior Subordinated
Notes due 2003 (the "Securities"), as follows:
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions. The terms defined in this Section (except
-----------
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture shall have the respective meanings specified
in this Section. All other terms used in this Indenture which are defined in the
TIA or which are by reference therein defined in the Securities Act, shall have
the meanings (except as herein otherwise expressly provided or unless the
context otherwise requires) assigned to such terms in the TIA and in the
Securities Act (if applicable) as in force at the date of this Indenture as
originally executed.
"Acceptable Bank" means any bank or trust company organized under the
---------------
laws of the United States or any State thereof or the District of Columbia,
having capital, surplus and undivided profits totaling more than $100,000,000.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
---------------------
the time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from a Person, other than Indebtedness Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary or
such acquisition, as the case may be. Acquired Indebtedness shall be deemed to
have been Incurred on the date of the related acquisition of assets from the
Person or the date the acquired Person becomes a Subsidiary.
"Additional Assets" means any Property (other than cash, cash
-----------------
equivalents or securities) used in the textile or apparel business or any
business ancillary thereto, or securities representing 100% of the equity of an
issuer engaged in any such business.
"Affiliate" of any specified Person means (i) any other Person which,
---------
directly or indirectly, is in control of, is controlled by or is under common
control with, such Person or (ii) any other Person who is a director or officer
of such specified Person or of any Person described in clause (i) above. As used
in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise). For purposes of this definition,
beneficial ownership, direct or indirect, of 10% or more of the
<PAGE>
Voting Stock (on a fully diluted basis), or the right to acquire such Voting
Stock (whether or not currently exercisable), of the Parent or the Issuer shall
be deemed to be control of the Parent or the Issuer, respectively.
"Agent" means any Registrar, Paying Agent or agent for service of
-----
notices and demands.
"Asset Sale" means with respect to any Person, any transfer,
----------
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger) by such Person or any of
its Subsidiaries in any single transaction or series of transactions of (i)
shares of Capital Stock or other ownership interests of a Subsidiary, (ii) all
or substantially all of the Property of an operating unit or business of such
Person or any of its Subsidiaries, or (iii) any other Property (including,
without limitation, securities in or other ownership interests of another
Person) of such Person or any of its Subsidiaries outside the ordinary course of
business; provided, however, that the term "Asset Sale" shall not include (i)
-------- -------
any asset disposition (including, without limitation, dispositions pursuant to
any consolidation or merger) permitted pursuant to Section 5.01 which
constitutes a disposition of all or substantially all of the Issuer's assets,
(ii) sales (including pursuant to factoring arrangements) or other dispositions
of inventory, receivables and other current assets in the ordinary course of
business, (iii) a disposition by a Subsidiary to the Issuer or by the Issuer or
a Subsidiary to a wholly-owned Subsidiary, (iv) sales of obsolete equipment in
the ordinary course of business and (v) the disposition by the Issuer of its
vacant facility and yarn spinning plant located in Benton, Alabama and Wetumpka,
Alabama, respectively.
"Average Life" means, as of the date of determination, with reference
------------
to any debt security or Redeemable Stock, the quotient obtained by dividing (i)
the sum of the products of (x) the number of years from the date of
determination to the dates of each successive scheduled principal or redemption
payment (including any sinking fund or mandatory redemption payment
requirements) of such debt security or Redeemable Stock multiplied in each case
by (y) the amount of such principal or redemption payment by (ii) the sum of all
such principal or redemption payments; provided, however, that with respect to
-------- -------
any guarantee, the dates of scheduled principal payments shall be deemed to be,
for this purpose, the dates of scheduled principal payments of the Indebtedness
thereby guaranteed.
"Bank Credit Agreement" means the $60 million credit facility to be
---------------------
entered into on or about the Issue Date by the Issuer and Barclays Business
Credit, Inc., and other banks and financial institutions, as in effect on the
Issue Date, and as the same may be amended, restated, supplemented or otherwise
modified from time to time, and including any agreement with the same or
different lenders extending the maturity of, or restructuring or replacing all
or any portion of the Indebtedness under, such credit facility or any successor
credit facility.
"Board of Directors" means, with respect to any Person, the board of
------------------
directors of such Person or any duly authorized committee of such board of
directors.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the secretary or an assistant secretary of such Person
to have been duly adopted by
2
<PAGE>
the Board of Directors of such Person and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means a day that is not a Legal Holiday as defined in
------------
Section 11.07.
"Capital Expenditure Indebtedness" means Indebtedness Incurred by any
--------------------------------
Person to finance the purchase or construction of any Property acquired or
constructed by such Person so long as (a) the purchase or construction price for
such Property is or should be capitalized in accordance with GAAP, (b) the
acquisition or construction of such Property is not part of an acquisition of a
Person or business unit and (c) such Indebtedness is Incurred within 360 days of
the acquisition or completion of construction of such Property.
"Capital Lease Obligation" of any Person means any obligation to pay
------------------------
rent or other payment amounts under a lease of (or other arrangement conveying
the right to use) Property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with GAAP; and the amount of such obligation shall
be the capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests
-------------
(including partnership interests), rights to purchase, warrants, options,
participations or other equivalents of or interests in the equity (however,
designated, whether voting or non-voting, now outstanding or hereafter issued)
in such Person, including, without limitation, any Preferred Stock in such
person, but excluding any Redeemable Stock and any debt securities convertible
into or exchangeable for such equity.
"Change of Control" means (i) prior to an initial Public Equity
-----------------
Offering, if any, the Existing Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of a majority of the
Voting Stock of the Relevant Company, (ii) on and after an initial Public Equity
Offering, any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Existing Holders, becomes the
"beneficial owner" (defined as aforesaid), directly or indirectly, of more than
35% of the Voting Stock of the Relevant Company and such amount of Voting Stock
is greater than the aggregate amount of Voting Stock of the Relevant Company
then held by the Existing Holders, (iii) the Relevant Company consolidates with,
or merges with or into, another Person, or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person or Persons in any transaction or series of related transactions, or any
Person consolidates with, or merges with or into, the Relevant Company in a
transaction or series of related transactions with the effect that any "person"
or "group" (defined as aforesaid), other than the Existing Holders, becomes the
"beneficial owner" (defined as aforesaid), directly or indirectly, of a majority
of the Voting Stock of the surviving or transferee corporation, or (iv) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Relevant Company (together with
any new directors whose election to such Board of Directors or whose nomination
for election by the
3
<PAGE>
stockholders of the Relevant Company was approved by a vote of 66 2/3% of the
directors still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of the
Relevant Company then in office; provided, however, that for purposes the
-------- -------
foregoing clauses (i) through (iv), a Change of Control shall not exist so long
as either (i) MILP or (ii) the Management Stockholders continues to have the
right, directly or indirectly, to appoint at least one-half of the members of
the Board of Directors of the Relevant Company.
"Commodity Agreement" means, with respect to any Person, any forward
-------------------
contract, futures contract or option or other agreement or arrangement, or
combination thereof, entered into in the ordinary course of such Person's
business and designed to provide protection against fluctuations in the price of
any commodity, including, without limitation, cotton.
"Consolidated EBITDA" means with respect to any Person for any period,
-------------------
the Consolidated Net Income of such Person and its Subsidiaries for such period
plus, to the extent reflected in the consolidated income statement of such
Person and its Subsidiaries for such period from which Consolidated Net Income
is determined, without duplication, (i) Consolidated Interest Expense, (ii)
consolidated income tax expense, (iii) consolidated depreciation expense, (iv)
consolidated amortization expense and (v) all other consolidated non-cash
charges (excluding any non-cash charge to the extent that it requires an accrual
of or a reserve for cash disbursements for any future period).
"Consolidated Fixed Charge Coverage Ratio" means, as of the date of
----------------------------------------
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate
amount of Consolidated EBITDA of the Issuer and its consolidated Subsidiaries
for the four full fiscal quarters immediately prior to the Transaction Date to
(ii) the aggregate Consolidated Interest Expense of the Issuer and its
consolidated Subsidiaries for the four full fiscal quarters immediately prior to
the Transaction Date. In making the foregoing calculation, (A) pro forma effect
shall be given to: (1) any Indebtedness Incurred subsequent to the end of the
four-fiscal-quarter period referred to in clause (i) and prior to the
Transaction Date (other than Indebtedness Incurred under a revolving credit or
similar arrangement or any predecessor revolving credit or similar arrangement
to the extent of the commitment thereunder on the last day of such period); (2)
any Indebtedness Incurred during such four-fiscal-quarter period to the extent
such Indebtedness is outstanding at the Transaction Date; and (3) the Incurrence
of any Indebtedness giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio and, in each case, the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
was Incurred, and the application of such proceeds occurred, on the first day of
such four-fiscal-quarter period; (B) Consolidated Interest Expense attributable
to interest on any Indebtedness (whether existing or being Incurred) bearing a
floating interest rate shall be computed as if the rate in effect on the
Transaction Date (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness) had been the applicable rate for the entire
period; (C) subject to clause (D) below, there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such four-fiscal-quarter
period or thereafter but that is not outstanding or is to be repaid on the
Transaction Date; and (D) Consolidated Interest Expense attributable to interest
on any
4
<PAGE>
Indebtedness under a revolving credit or similar arrangement (or any predecessor
revolving credit or similar arrangement) shall be computed based upon the
average daily balance of such Indebtedness during the four-fiscal-quarter
period. In addition, if since the beginning of such four-fiscal-quarter period,
the Issuer or any of its Subsidiaries shall have (x) engaged in any Asset Sale
or (y) acquired any material assets out of the ordinary course of business, then
(1) in the case of any such Asset Sale, Consolidated EBITDA for such period
shall be reduced by an amount equal to the Consolidated EBITDA (if positive), or
increased by an amount equal to the Consolidated EBITDA (if negative), directly
attributable to the assets which are the subject of such Asset Sale for such
period calculated on a pro forma basis as if such Asset Sale and any related
refinancing, retirement or discharge of Indebtedness had occurred on the first
day of such period and (2) in the case of any such asset acquisition,
Consolidated EBITDA shall be calculated on a pro forma basis as if such asset
acquisition had occurred on the first day of such four-fiscal-quarter period.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, without duplication, the sum of (i) the aggregate amount of cash and
non-cash interest expense (including capitalized interest) of such Person and
its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP (including, without limitation, (v) any amortization of
debt discount, (w) net costs associated with Interest Rate Protection Agreements
(including any amortization of discounts), (x) the interest portion of any
deferred payment obligation, (y) all accrued interest and (z) all commissions,
discounts, commitment fees, origination fees and other fees and charges owed
with respect to Indebtedness) paid or accrued, or scheduled to be paid or
accrued, during such period, plus (ii) dividends in respect of Preferred Stock
and Redeemable Stock of such Person (and of its Subsidiaries if paid to a Person
other than such Person or its wholly-owned Subsidiaries) declared and payable in
cash or, in the case of Redeemable Stock, in kind, plus (iii) the portion of any
rental obligation of such Person and its Subsidiaries in respect of any Capital
Lease Obligation allocable to interest expense as determined on a consolidated
basis in accordance with GAAP, plus (iv) to the extent any Indebtedness of any
other Person is guaranteed by such Person or any of its Subsidiaries, the
aggregate amount of interest paid, accrued or scheduled to be paid or accrued,
by such other Person during such period attributable to any such Indebtedness,
plus (v) the amount of any cash contribution by such Person or any of its
Subsidiaries to an employee stock ownership plan to the extent such
contributions are used by an employee stock ownership plan to pay interest.
"Consolidated Net Income" of any Person means, for any period, the
-----------------------
aggregate net income (or net loss) of such Person and its Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income (or net loss), by excluding,
without duplication (a) all items classified as extraordinary, (b) the portion
of net income (or net loss) of such Person and its consolidated Subsidiaries
attributable to minority interests in unconsolidated Persons, except to the
extent that, in the case of net income, cash dividends or distributions have
actually been received by such Person or one of its consolidated Subsidiaries
(subject, in the case of a dividend or distribution received by a Subsidiary of
such Person, to the limitation contained in clause (f) below) and, in the case
of net loss, such Person or any Subsidiary of such Person has actually
contributed, lent or transferred cash to such unconsolidated Person, (c) the net
income (or net loss) of any other Person acquired by such Person or any of its
Subsidiaries in a pooling-of-interests transaction for any period prior to the
date of such acquisition, (d) any gain or loss, net of taxes, realized on the
5
<PAGE>
termination of any employee pension benefit plan, (e) net gains or losses in
respect of Asset Sales by such Person or its Subsidiaries, and (f) the net
income of any Subsidiary of such Person to the extent that the declaration or
payment of dividends or other distributions to such Person is restricted,
directly or indirectly, by operation of the term of its charter or by-laws or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders.
"Consolidated Net Tangible Assets" means the total amount of assets of
--------------------------------
the Issuer and its Subsidiaries (less applicable depreciation, amortization and
other valuation reserves) after deducting therefrom (i) all liabilities of the
Issuer and its Subsidiaries and (ii) all goodwill, trade names, trademarks,
patents, patent applications, copyrights, licenses, non-compete agreements,
unamortized debt discount and expense and all like intangibles, all as set forth
on the most recently available consolidated balance sheet of the Issuer and its
Subsidiaries prepared in conformity with GAAP.
"Consolidated Net Worth" of any Person means the stockholders' equity
----------------------
of such Person and its Subsidiaries, as determined on a consolidated basis in
accordance with GAAP, less (to the extent included in stockholders' equity)
amounts attributable to Redeemable Stock of such Person or its Subsidiaries.
"Corporate Trust Office" means the office of the Trustee located in
----------------------
New York, New York, at which at any particular time its corporate services
business shall be principally administered which office at the date of execution
of this Indenture is located at, 140 Broadway, 12th Floor, New York, New York
10005, Attn: Corporate Trust Administration.
"Default" means any event, act or condition the occurrence of which
-------
is, or after notice or the passage of time or both would be, an Event of
Default.
"Defaulted Interest" means the interest provided for in Section 2.12.
------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Rate Contract" means, with respect to any Person, any
----------------------
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, entered into in the
ordinary course of such Person's business and designed to provide protection
against fluctuations in currency exchange rates.
"Existing Holders" means the Management Stockholders and MILP.
----------------
"Fair Market Value" means, with respect to any assets to be
-----------------
transferred pursuant to any Asset Sale or Sale and Leaseback Transaction or any
non-cash consideration or Property received by any Person, the fair market value
of such consideration or Property as determined in good faith by the Board of
Directors of the Issuer, including a majority of the disinterested directors, as
evidenced by a Board Resolution; provided that if such resolution indicates that
such Fair Market Value exceeds $25 million, such resolution shall be accompanied
by the written opinion of a nationally recognized firm of investment bankers,
accountants, industry
6
<PAGE>
consultants or other appropriately qualified experts that such consideration or
Property is fair to such Person.
"GAAP" means, unless the context otherwise requires, United States
----
generally accepted accounting principles as in effect on the date of this
Indenture.
"guarantee" means any obligation, contingent or otherwise, of a Person
---------
guaranteeing or having the economic effect of guaranteeing any Indebtedness or
other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and any obligation, direct or indirect,
contingent or otherwise of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or other
obligation of the primary obligor or to purchase (or advance or supply funds for
the purchase of) any security for the payment of such Indebtedness or other
obligation of the primary obligor (in each case whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take or pay, or to maintain financial
statement conditions or otherwise), (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part) (and "guaranteed", "guaranteeing" and
"guarantor" shall have meanings correlative to the foregoing); provided,
--------
however, that the term guarantee shall not include (i) endorsements for
- -------
collection or deposit, in either case, in the ordinary course of business or
(ii) the Issuer's obligations under the Processing Agreement effective as of
January 1, 1992, between the Issuer and E.I. DuPont de Nemours & Company.
"Holder" or "Securityholder" means the person in whose name a Security
------ --------------
is registered in the register maintained by the Registrar as provided in Section
2.03.
"Incur" means, with respect to any Indebtedness or other obligation of
-----
any Person, to create, issue, incur (by conversion, exchange or otherwise),
extend, assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "Incurrence", "Incurred" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
-------- -------
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means at any time (without duplication), with respect
------------
to any Person, whether or not contingent, (i) the principal of and premium (if
any) in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness and all other obligations of such Person evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
person is responsible or liable; (ii) all Capital Lease Obligations of such
Person; (iii) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable and other accrued liabilities arising in
the ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and
7
<PAGE>
to the extent drawn upon, such drawing is reimbursed no later than the fifth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of,
any Redeemable Stock; (vi) all obligations of the type referred to in clauses
(i) through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including guarantees of such
obligations and dividends; or (vii) all obligations of the type referred to in
clauses (i) through (vi) of other Persons secured by any Lien on any Property of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligations being deemed to be the lesser of the Fair Market
Value of such Property at such date of determination or the amount of the
obligation so secured. The amount of the Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date; provided, however, that the amount outstanding at any time of any
-------- -------
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Indenture" means this Indenture, as amended, supplemented or modified
---------
from time to time.
"Interest Rate Protection Agreement" means, with respect to any
----------------------------------
Person, any interest rate swap agreement, interest rate cap or collar agreement
or other financial agreement or arrangement designed to protect such Person or
its Subsidiaries against fluctuations in interest rates, as in effect from time
to time.
"Investment" in any Person means any direct or indirect loan or
----------
advance to, any net payment on a guarantee of, the acquisition of any stock,
bonds, notes, debentures, other securities or equity interest or obligation of,
or capital contribution to or other investment in, such Person; provided,
--------
however, that investments shall not include extensions of trade credit on
- -------
commercially reasonable terms in accordance with normal trade practices. The
term "Invest" has a correlative meaning.
"Issue Date" means the date of original issue of the Securities by the
----------
Issuer.
"Issuer" means the party named as such in this Indenture, until a
------
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Lien" means, with respect to any Property, any mortgage or deed of
----
trust, pledge, hypothecation, assignment, security interest, lien (statutory or
other), charge, easement, encumbrance, preference, priority or other security or
similar agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such Property (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
8
<PAGE>
"Management Stockholders" means (i) Joseph L. Lanier, Jr., Richard L.
-----------------------
Williams and Barry F. Shea and certain of their family members who beneficially
own Voting Stock of the Parent on the date of this Indenture (or, in the case of
the death or incompetence of any such person or family member, the estate,
heirs, executor, administrator, committee or other personal representative of
such person or family member (collectively "heirs")) or any Person controlled,
directly or indirectly, by such person or family member or his heirs and (ii)
any employee of the Issuer who acquires common stock of the Issuer pursuant to
the Parent's Amended and Restated Stock Option Plan, to the extent such common
stock is required to be, and is, surrendered by Joseph L. Lanier, Jr. to the
Parent. Notwithstanding the foregoing, no person who is employed by a competitor
of the Issuer shall be considered to be a Management Stockholder.
"MILP" means Mezzanine Investment Limited Partnership-BDR, its
----
successors and assigns, provided that Mezzanine Investment Limited Partnership-
--------
BDR or such successor or assign is either Metropolitan Life Insurance Company or
an Affiliate of Metropolitan Life Insurance Company.
"Moody's" means Moody's Investors Service, Inc., or any successor
-----
thereto.
"Net Cash Proceeds" from any Asset Sale by any Person or its
-----------------
Subsidiaries means cash and cash equivalents received in respect of the
Properties sold net of (i) all reasonable out-of-pocket fees and expenses of
such Person or such Subsidiary Incurred in connection with such Asset Sale,
including, without limitation, all legal, title and recording tax expenses,
brokerage commissions, underwriting discounts and other fees and expenses
Incurred (but excluding any finder's fee or broker's fee payable to any
Affiliate of such Person) and all federal, state provincial, foreign and local
taxes arising in connection with such Asset Sale that are paid or required to be
accrued as a liability under GAAP by such Person or its Subsidiaries, (ii) all
payments made by such Person or its Subsidiaries on any Indebtedness which is
secured by such Properties in accordance with the terms of any Lien upon or with
respect to such Properties or which must, by the terms of such Lien, or in order
to obtain a necessary consent to such Asset Sale or by applicable law, be repaid
out of the proceeds from such Asset Sale, (iii) all contractually required
distributions and other payments made to minority interest holders (but
excluding distributions and payments to Affiliates of such Person) in
Subsidiaries of such Person as a result of such Asset Sale and (iv) appropriate
amounts provided by such Person or its Subsidiary as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and retained
by such Person or such Subsidiary after such transaction, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
relating to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale; provided, however, that, in the
-------- -------
event that any consideration for an Asset Sale (which would otherwise constitute
Net Cash Proceeds) is required, to be held in escrow pending determination of
whether a purchase price adjustment will be made, such consideration (or any
portion thereof) shall become Net Cash Proceeds only at such time as it is
released to such Person or its Subsidiaries from escrow; and provided further,
-------- -------
however, that any non-cash consideration received in connection with an Asset
- -------
Sale which is subsequently converted to cash shall be deemed to be Net Cash
Proceeds at such time and shall thereafter be applied in accordance with Section
3.08.
9
<PAGE>
"Non-Payment Default" means any event of default (other than a Payment
-------------------
Default) the occurrence of which entitles one or more Persons to accelerate
immediately (all required notices having been given and all applicable grace
periods having expired) the maturity of any Specified Senior Indebtedness
without any further notice (except such notice as may be required to effect such
acceleration).
"Officer" of any Person means the Chief Executive Officer, the
-------
President, any Vice President, the Treasurer, the Director of Finance, the
Secretary or the Controller of such Person.
"Officers' Certificate" means a certificate signed by two Officers or
---------------------
by an Officer and an Assistant Treasurer, Assistant Secretary or Assistant
Controller of any Person that shall comply with the applicable provisions of
Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion from legal counsel
------------------
prepared in accordance with Sections 11.04 and 11.05. The counsel may be an
employee of or counsel to the Issuer.
"Parent" means Braelan Corp., a Delaware corporation and the sole
------
shareholder of the Issuer, and any successor.
"Payment Default" means any default in the payment of principal of,
---------------
premium (if any) or interest on any Senior Indebtedness beyond any applicable
grace period with respect thereto whether at stated maturity or as a result of
acceleration or otherwise.
"Permitted Indebtedness" means any and all of the following: (i)
----------------------
Indebtedness Incurred by the Issuer under the Bank Credit Agreement not to
exceed the greater of (A) $60 million at any one time outstanding and (B) 85% of
the book value of the Issuer's consolidated accounts receivable plus 55% of the
book value of the Issuer's consolidated inventory; (ii) Indebtedness evidenced
by the Securities; (iii) Indebtedness of the Issuer and its Subsidiaries under
Interest Rate Protection Agreements, provided that the obligations under such
agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of this Section; (iv) Indebtedness of the Issuer and its
Subsidiaries to any of the Issuer's wholly-owned Subsidiaries or the Parent so
long as such Indebtedness is held by one of the Issuer's wholly-owned
Subsidiaries or the Parent and (in the case of Indebtedness of the Issuer) is
subordinated in right of payment to the Securities; (v) Indebtedness of the
Issuer and its Subsidiaries outstanding on the date of this Indenture; (vi)
Indebtedness of the Issuer and its Subsidiaries under Exchange Rate Contracts
and Commodity Agreements; (vii) Indebtedness of any Person which shall merge
into or consolidate with the Issuer in accordance with Section 5.01, which
Indebtedness was not Incurred in anticipation of such merger or consolidation
and was outstanding prior to such merger or consolidation; (viii) Indebtedness
of the Issuer Incurred in connection with a prepayment of Securities pursuant to
a Change of Control, provided that the principal amount of such Indebtedness
does not exceed 101% of the principal amount of the Securities prepaid plus the
amount of customary fees and expenses payable by the Issuer in connection
therewith, and such Indebtedness (A) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of the Securities and
(B) has a final maturity date later than the final maturity date of the
Securities; (ix) Acquired Indebtedness, provided that
10
<PAGE>
after giving pro forma effect to the Incurrence thereof, the Issuer could Incur
$1.00 of additional Indebtedness pursuant Section 3.02 (other than as Permitted
Indebtedness); (x) Indebtedness of the Issuer or any Subsidiary in respect of
Capital Lease obligations or Capital Expenditure Indebtedness directly Incurred
by the Issuer or such Subsidiary, provided that (A) the principal amount of such
Indebtedness does not exceed the Fair Market Value of the Property leased,
acquired or constructed, (B) the Property so leased, acquired or constructed is
to be used in the textile or apparel business or any business ancillary thereto
and (C) the aggregate principal amount of all Indebtedness Incurred pursuant to
this clause (x) does not exceed $35 million at any one time outstanding; (xi)
Indebtedness of the Issuer Incurred pursuant to industrial revenue or similar
tax-free obligations not to exceed $10 million at any one time outstanding;
(xii) Indebtedness of the Issuer not otherwise permitted to be Incurred pursuant
to this Section in an aggregate principal amount not to exceed $25 million; and
--
(xiii) Indebtedness Incurred by the Issuer or a Subsidiary in exchange for, or
the proceeds of which are used to refinance, Indebtedness Incurred by the Issuer
or such Subsidiary, respectively, referred to in clauses (i) through (xii) of
this paragraph, provided that (A) such Indebtedness is in an aggregate principal
amount not in excess of the aggregate principal amount then outstanding of the
Indebtedness being exchanged or refinanced plus any premium required by the
terms thereof and the amount of customary fees and expenses payable by the
Issuer in connection therewith and (B) if the Indebtedness being exchanged or
refinanced is a Subordinated Obligation, (1) such Indebtedness is subordinate to
the Securities to at least the same extent, (2) such Indebtedness has a final
maturity date later than the final maturity date of the Indebtedness being
exchanged or refinanced and (3) such Indebtedness has an Average Life to Stated
Maturity at the time such Indebtedness is Incurred that is greater than the
Average Life to Stated Maturity of the Indebtedness being exchanged or
refinanced.
"Permitted Investments" means any and all of the following: (a)
---------------------
U.S. Government Obligations maturing within one year of the date of purchase;
(b) certificates of deposit from or acceptances accepted or guaranteed by
Acceptable Banks due within one year, or demand deposits maintained in the
ordinary course of business with Acceptable Banks; (c) commercial paper maturing
within 180 days of original issue rated at the time of acquisition A-1 by S&P or
P-1 by Moody's; (d) Investments in a wholly-owned Subsidiary or in any other
Person as a result of which such other Person becomes a wholly-owned Subsidiary;
(e) Investments in money market funds organized under the laws of the United
States or any State thereof that invest substantially all their assets in any of
the Investments described in clause (a), (b) or (c) above; (f) loans or advances
to employees made in the ordinary course of business and not to exceed $1
million in the aggregate at any one time outstanding; and (g) negotiable
instruments held for collection, lease, utility and similar deposits, or stock,
obligations or securities received in settlement of debts owing to the Issuer or
a Subsidiary as a result of foreclosure, perfection or enforcement of any Lien,
in each case as to debt that arose in the ordinary course of business of the
Issuer or such Subsidiary.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock" of any Person means Capital Stock of such
---------------
Person of any class or series (however designated, whether voting or non-voting,
now outstanding or hereafter
11
<PAGE>
issued) which is preferred as to the payment of dividends or distributions, or
as to the distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, over shares of Capital Stock of any
other class or series of such Person; provided, however, that "Preferred Stock"
-------- -------
shall not include Redeemable Stock.
"Property" means, with respect to any Person, any interest of
--------
such Person in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, including, without limitation, Capital Stock in any
other Person.
"Public Equity Offering" means a bona fide underwritten public
----------------------
offering of Capital Stock of the Issuer or the Parent pursuant to an effective
registration statement under the Securities Act, as a result of which Capital
Stock of the Issuer or the Parent, as applicable, is distributed to the public.
"Redeemable Stock" of any Person means any equity security of
----------------
such Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including upon the
happening of an event), is required to be redeemed or is redeemable at the
option of the holder thereof, in whole or part, on or prior to the first
anniversary of the Stated Maturity of the Securities, or is exchangeable for
debt at any time, in whole or in part, on or prior to the first anniversary of
the Stated Maturity of the Securities.
"Relevant Company" means either (A) if the Issuer is a wholly-
----------------
owned subsidiary of the Parent, the Parent, or (B) if the Issuer is not a
wholly-owned subsidiary of the Parent, the Issuer.
"Representative" means the trustee, agent or representative (if
--------------
any) for an issue of Senior Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution
------------------
declared and paid on the Capital Stock of the Issuer (including any payment in
connection with any merger or consolidation involving the Issuer) or to the
Issuer"s shareholders (other than dividends, distributions or payments made
solely in Capital Stock of the Issuer), or declared and paid to any Person other
than the Issuer or any of its wholly-owned Subsidiaries on the Capital Stock of
any Subsidiary, (ii) a payment made by the Issuer or any of its Subsidiaries to
purchase, redeem, acquire or retire for value any Capital Stock of the Issuer or
of any Affiliate of the Issuer (other than a purchase, redemption or acquisition
of Capital Stock from a wholly-owned Subsidiary of the Issuer), (iii) a payment
made by the Issuer or any of its Subsidiaries to redeem, repurchase, defease or
otherwise acquire or retire for value (including pursuant to mandatory
repurchase covenants), prior to any scheduled maturity, scheduled sinking fund
or mandatory redemption payment, any Subordinated Obligation or any Indebtedness
of the Parent, or (iv) any Investment other than a Permitted Investment by the
Issuer or a Subsidiary in any Person. The amount of any Restricted Payment, if
other than in cash, shall be the Fair Market Value of the Property transferred
by the Issuer or a Subsidiary, as the case may be.
"S&P" means Standard & Poor"s Corporation, or any successor
---
thereto.
"Sale and Leaseback Transaction" means, with respect to any
------------------------------
Person, any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a
12
<PAGE>
Subsidiary of such Person and is thereafter leased back from the purchaser or
transferee thereof by such Person or one of its Subsidiaries.
"SEC" means the Securities and Exchange Commission and any
---
government agency succeeding to its functions.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Senior Indebtedness" means, at any date, the principal of,
-------------------
premium (if any) and interest on (including interest accruing after the filing
of a petition initiating any proceeding under any Bankruptcy Law, whether or not
such interest is an allowed claim in such proceeding) any Indebtedness (other
than as otherwise provided in this definition) of the Issuer (or any successor
Issuer under this Indenture), whether outstanding on the date of this Indenture
or thereafter Incurred and whether at any time owing, actually or contingent,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Securities. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include all obligations of every nature of the Issuer from
time to time owed to the lenders under the Bank Credit Agreement, including fees
and expenses owing thereunder, and obligations with respect to any letters of
credit issued for the account of the Company under the Bank Credit Agreement,
whether outstanding on the date of this Indenture or thereafter Incurred;
provided, however, that any Indebtedness under any refinancing, refunding, or
- -------- -------
replacement of the Bank Credit Agreement shall not constitute Senior
Indebtedness to the extent that the payment of the Indebtedness thereunder is
expressly subordinate to any other Indebtedness of the Issuer. Notwithstanding
the foregoing, "Senior Indebtedness" shall not include (i) Indebtedness
evidenced by the Securities, (ii) Indebtedness that is expressly subordinate or
junior in right of payment to any Indebtedness of the Issuer, (iii) Indebtedness
which, when Incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Issuer, (iv)
Indebtedness which is represented by Redeemable Stock, (v) to the extent that it
might constitute Indebtedness, any liability for foreign, federal, state, local
or other taxes owed or owing by the Issuer, (vi) that portion of any
Indebtedness which at the time of Incurrence is in violation of this Indenture,
(vii) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), and (viii) Indebtedness of or amounts owed by the
Issuer for compensation to employees or for services.
"Special Record Date" for the payment of any Defaulted Interest
-------------------
means a date fixed by the Issuer pursuant to Section 2.12.
"Specified Asset Sale" means an Asset Sale by the Issuer or any
--------------------
of its Subsidiaries in which the Fair Market Value of the shares, ownership
interests or other Property being sold, leased or otherwise disposed of, in a
single transaction or series of related transactions, exceeds $1 million.
"Specified Senior Indebtedness" means (i) all Senior Indebtedness
-----------------------------
under the Bank Credit Agreement and (ii) any other Senior Indebtedness which, at
the time of Incurrence, has an aggregate principal amount outstanding, together
with any commitments to lend additional
13
<PAGE>
amounts, of at least $20,000,000 and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Specified Senior
Indebtedness" by the Issuer.
"Stated Maturity" means, when used with respect to any security
---------------
or debt obligation, the date specified in such security or obligation as the
fixed date on which the principal or redemption price of such security or
obligation is due and payable and, when used with respect to any installment of
interest on a security or debt obligation, the fixed date on which such
installment of interest is due and payable. The Stated Maturity of the deemed
principal amount of a Capital Lease Obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The Stated Maturity of the deemed principal amount of any Redeemable
Stock shall be the earlier of (i) the date on which such Redeemable Stock could
be redeemed and (ii) the Stated Maturity of any debt securities into which such
Redeemable Stock is convertible or exchangeable. With respect to any guarantee,
the dates on which principal or interest is due or payable shall be deemed, for
this purpose, to be the dates on which principal or interest is due on the
Indebtedness thereby guaranteed.
"Subordinated Obligation" means any Indebtedness of the Issuer
-----------------------
(whether outstanding on the date of this Indenture or thereafter Incurred) which
is subordinate or junior in right of payment to the Securities.
"Subsidiary" means, with respect to any Person any corporation,
----------
association, partnership or other business entity a majority of whose Voting
Stock is at the time, directly or indirectly, owned or controlled by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person. Unless the context otherwise indicates,
"Subsidiary" or "Subsidiaries" refer to Subsidiaries of the Issuer.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb), as in effect on the date of this Indenture (except as otherwise
provided in Section 9.03).
"Trustee" means the party named as such above until a successor
-------
replaces it pursuant to this Indenture and thereafter means the successor.
"Trust Officer" means any officer in the Corporate Trust Office
-------------
of the Trustee or any other officer of the Trustee assigned by the Trustee to
administer this Indenture.
"U.S. Government Obligations" means direct obligations of the
---------------------------
United States of America or any agency thereof for the payment of which the full
faith and credit of the United States of America is pledged and which are
noncallable at the option of the issuer thereof.
"Voting Stock" of any Person means any class or classes of
------------
Capital Stock which entitle the holders thereof under ordinary circumstances to
elect at least a majority of the Board of Directors of such Person (irrespective
of whether or not, at the time, stock of any other class or classes shall have,
or might have, voting power by reason of the happening of any contingency).
14
<PAGE>
"wholly-Owned Subsidiary" means any Subsidiary of the Issuer of
-----------------------
which 100% of the outstanding Capital Stock (other than directors' qualifying
shares) is owned by the Issuer and/or another wholly-owned Subsidiary of the
Issuer.
SECTION 1.02. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Term Defined in
- ----
Section
-----------
<S> <C>
"Bankruptcy Law"......................................... 6.01
"Change of Control Offer"................................ 3.11(a)
"Change of Control Payment Date"......................... 3.12(b)(ii)
"Custodian".............................................. 6.01
"Discharged"............................................. 8.01
"Event of Default"....................................... 6.01
"Excess Proceeds"........................................ 3.08(a)
"Expiration Date"........................................ 3.08(b)
"Interest Payment Date".................................. Section 1 of Exh. A hereto
"Legal Holiday".......................................... 11.07
"Paying Agent"........................................... 2.03
"Prepayment offer"....................................... 3.08(a)
"Prepayment Offer Notice"................................ 3.08(b)
"Purchase Date".......................................... 3.08(b)
"Registrar".............................................. 2.03
"Repurchase Price"....................................... 3.12(a)
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
--------------------
"indenture security holder" means a Securityholder;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee;
-----------------
and
"obligor" on the Securities means the Issuer and any other
-------
obligor on the indenture securities.
SECTION 1.04. Rules of Construction. Unless the context
---------------------
otherwise requires: (i) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP and all accounting calculations will be
determined in accordance with such principles; and (ii) words in the singular
include the plural, and in the plural include the singular.
15
<PAGE>
ARTICLE II
The Securities
--------------
SECTION 2.01. Form and Dating. The Securities and the Trustee's
---------------
certificate of authentication shall be substantially in the form of Exhibit A,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, which Exhibit A is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule,
usage or as may, consistently herewith, be determined by the Officers executing
such Securities, as evidenced by their execution of the Securities in accordance
with Section 2.02. Any portion of the text of any Security may be set forth on
the reverse thereof, with an appropriate reference thereto on the face of the
Security. Each Security shall be dated the date of its authentication.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which such
Securities may then be listed, all as determined by the Officers executing such
Securities, as evidenced by their execution of such Securities in accordance
with Section 2.02.
SECTION 2.02. Execution and Authentication. The Chief Executive
----------------------------
Officer, President or any Vice President of the Issuer shall sign the Securities
for the Issuer. The Issuer's seal shall be reproduced on the Securities and may
be in facsimile form and shall be attested by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Issuer. The
signatures required by this paragraph may be by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall be
valid nevertheless.
No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose until authenticated by the manual
signature of a duly authorized signatory of the Trustee. This signature shall be
conclusive evidence, and the only evidence, that the Security has been
authenticated under this Indenture and is entitled to the benefits hereunder.
The Trustee shall authenticate and deliver Securities for
original issue, in the aggregate principal amount of not more than $120,000,000,
pursuant to a written order of the Issuer signed by an Officer of the Issuer.
The order shall specify the amount of Securities to be authenticated and the
date upon which the original issue of Securities is to be authenticated. The
aggregate principal amount of Securities which may be outstanding at any time
pursuant to this Indenture may not exceed $120,000,000, except as provided in
Section 2.07.
With the approval of the Issuer, the Trustee may appoint an
authenticating agent to authenticate Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Issuer.
16
<PAGE>
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and integral multiples thereof.
SECTION 2.03. Registrar and Paying Agent. The Issuer shall
--------------------------
maintain in the Borough of Manhattan, New York, New York, an office or agency
where Securities shall be registered and may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"), and the Issuer
shall maintain in the Borough of Manhattan, New York, New York, an office or
agency where notices or demands to or upon the Issuer in respect of the
Securities and this Indenture may be served. The Registrar shall keep a register
for the Securities and of their transfer and exchange. The Issuer may appoint
one or more co-registrars and one or more additional paying agents, which may be
located either within or outside the Borough of Manhattan, New York, New York.
The term "Paying Agent" includes any additional paying agent and the term
"Registrar" includes any additional registrar. The Issuer may change any Paying
Agent or Registrar without prior notice to any Securityholder.
The Issuer shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall incorporate the
applicable terms of the TIA. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Issuer shall give prompt written
notice to the Trustee of the name and address of any Agent who is not a party to
this Indenture. If the Issuer fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Issuer or any
Affiliate of the Issuer may act as Paying Agent or Registrar.
The Issuer initially appoints the Trustee at the address
specified in Section 11.02 as Registrar and Paying Agent, and as agent for
service of notices and demands.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to the
-----------------------------------
Stated Maturity of principal of, premium (if any) and interest on any Security,
the Issuer shall deposit with the Paying Agent money sufficient to pay such
principal, premium (if any) and interest so becoming due. The Issuer shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent shall hold in trust for the benefit of Securityholders or the
Trustee all money held by the Paying Agent for the payment of principal of,
premium (if any) and interest on the Securities (whether such money has been
paid to it by the Issuer or any other obligor on the Securities) and shall
notify the Trustee of any failure by the Issuer (or any other obligor on the
Securities) in making any such payment. While any such failure continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee
and to account for any funds disbursed. The Issuer at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Issuer) shall have no further
liability for the money so paid over to the Trustee. If the Issuer acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Securityholders all money held by it as Paying Agent.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in
--------------------
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Registrar shall furnish to the Trustee or the Paying Agent on or
before each interest payment date for the Securities and at such other
17
<PAGE>
times as the Trustee may reasonably request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Securityholders.
SECTION 2.06. Registration of Transfer and Exchange. When
-------------------------------------
Securities are presented to the Registrar with a request to register their
transfer or to exchange them for an equal principal amount of Securities of
other authorized denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transaction are met; provided
that a Security surrendered for registration of transfer or exchange shall be
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing. To permit registrations of transfer and
exchange, the Issuer shall issue Securities and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange, but the Issuer may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with registration of transfer or exchange of Securities other than
exchanges pursuant to Section 2.10, 3.08(d), 3.12(e), 4.06 or 9.05 not involving
any transfer. The Issuer shall not be required to make and the Registrar need
not register transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portions thereof
not to be redeemed) or any Securities for a period of 15 days before a selection
of Securities to be redeemed.
SECTION 2.07. Replacement Securities. If a mutilated Security is
----------------------
surrendered to the Trustee or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Issuer shall issue
and the Trustee, at the Issuer's written order signed by an Officer, shall,
subject to requirements of law, authenticate a replacement Security if the
requirements of the Trustee and the Issuer are met. The Trustee or the Issuer
may require the Holder to provide an indemnity bond sufficient in the judgment
of each of the Trustee and the Issuer to protect the Issuer, the Trustee, any
Agent or any authenticating agent from any loss which any of them may suffer if
a Security is replaced. The Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation to
the issuance of any new Security under this Section and any other expense
(including the fees and expenses of the Trustee) in connection therewith. In
case any such lost, destroyed or wrongfully taken Security has become or within
15 days is to become due and payable, the Issuer in its discretion may, instead
of issuing a replacement Security, pay such Security. The provisions of this
Section are exclusive and shall preclude (to the extent lawful) all other rights
and remedies with respect to the replacement or payment of lost, destroyed or
wrongfully taken Securities.
Every replacement Security is an additional obligation of the
Issuer and shall be entitled to the benefits of this Indenture.
SECTION 2.08. Outstanding Securities. The Securities outstanding
----------------------
at any time are all the Securities duly authenticated by the Trustee except for
those cancelled by it, those delivered to it for cancellation and those
described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to
be outstanding and interest ceases to accrue unless the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona fide purchaser.
18
<PAGE>
If all principal of, premium (if any) and interest on any of the
Securities is considered paid under Section 3.01, such Securities shall cease to
be outstanding and interest on them shall cease to accrue.
Except as provided in Section 2.09, a Security does not cease to
be outstanding because the Issuer or an Affiliate of the Issuer holds such
Security.
SECTION 2.09. Treasury Securities. In determining whether the
-------------------
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Issuer or any other
obligor, or by an Affiliate of the Issuer or such other obligor, shall be
considered as though they are not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded.
SECTION 2.10. Temporary Securities. Until definitive Securities
--------------------
are ready for delivery, the Issuer may prepare and execute and the Trustee, at
the Issuer's written order signed by an officer, shall authenticate temporary
Securities, substantially in the form of definitive Securities, with such
variations that the Issuer considers appropriate for temporary Securities, as
conclusively evidenced by the execution of such temporary Securities by Officers
of the Issuer in accordance with Section 2.02.
If temporary Securities are issued, the Issuer will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for such definitive Securities upon surrender of such temporary
Securities at the Corporate Trust Office, without charge to the Holder. Upon
surrender for exchange of any one or more temporary Securities, the Issuer shall
execute and the Trustee, at the Issuer's written order signed by an Officer,
shall authenticate and deliver in exchange therefor a like aggregate principal
amount of definitive Securities having the same date as such temporary
Securities. Until so exchanged, temporary securities shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities.
SECTION 2.11. Cancellation. The Issuer at any time may deliver
------------
Securities to the Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange, payment or repurchase. The Trustee shall promptly cancel all
Securities surrendered for registration of transfer, exchange, payment,
repurchase, replacement or cancellation and shall destroy canceled Securities
unless the Issuer directs them to be returned to it by written order signed by
an Officer. The Trustee shall from time to time as requested by the Issuer, but
not less frequently than annually, provide the Issuer with a certificate of
destruction. The Issuer may not issue new Securities to replace Securities that
it has paid or that have been delivered to the Trustee for cancellation, except
as otherwise provided herein.
SECTION 2.12. Defaulted Interest. If and to the extent the Issuer
------------------
fails to make or duly provide for a payment of interest on the Securities, it
shall pay such interest, plus interest payable on the defaulted interest (to the
extent permitted by law) at the rate borne by the Securities, to the Persons who
are Securityholders at the close of business on a special record date (the
"Special Record Date"), which the Issuer shall establish for such payment,
notice of
19
<PAGE>
which shall be delivered by the Trustee to each Holder of a Security, not less
than 10 days prior to the Special Record Date.
SECTION 2.13. Persons Deemed Owners. Prior to due presentment for
---------------------
registration of transfer, the Issuer, the Trustee, the authenticating agent, if
any, and any Agent may treat the Holder of a Security as the owner of such
Security for the purpose of receiving payment of principal of, premium (if any)
and, subject to Section 2.12, interest on, such Security and for all other
purposes whatsoever whether or not such Security is overdue, and none of the
Issuer, the Trustee, the authenticating agent, if any, or any Agent shall be
affected by notice to the contrary.
SECTION 2.14. Computation of Interest. Interest on the Securities
-----------------------
shall be computed on the basis of a 360-day year of twelve 30-day months.
SECTION 2.15. Predecessor Securities. All Securities issued upon
----------------------
any registration of transfer or exchange of Securities or in replacement of a
lost, destroyed or stolen Security pursuant to Section 2.07 shall evidence the
same debt, and be entitled to the same benefits under this Indenture, as the
predecessor Security or Securities surrendered upon such registration of
transfer or exchange or lost, destroyed or stolen, as the case may be.
ARTICLE III
Covenants
SECTION 3.01. Payment of Securities. The Issuer shall pay the
---------------------
principal of, premium (if any) and interest on, the Securities on the dates and
in the manner provided in the Securities and in this Indenture. Principal,
premium (if any) and interest shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Issuer or an Affiliate of the Issuer)
holds on that date money designated for and sufficient to pay all principal,
premium (if any) and interest then due.
SECTION 3.02. Limitation on Indebtedness. The Issuer shall not,
--------------------------
directly or indirectly, Incur any Indebtedness and the Issuer shall not permit
any Subsidiary, directly or indirectly, to Incur any Indebtedness or Preferred
Stock, other than Permitted Indebtedness, except that, the Company may Incur
Indebtedness if (a) after giving pro forma effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
Consolidated Fixed Charge Coverage Ratio exceeds 2.25 to 1 or (b) such
Indebtedness or Preferred Stock is Permitted Indebtedness.
For purposes of determining compliance with this Section 3.02, in
the event that an item of Indebtedness is described in more than one clause of
the definition of Permitted Indebtedness, the Issuer, in its sole discretion,
shall classify such item of Indebtedness and only be required to include the
amount and type of such of Indebtedness in one of such clauses.
SECTION 3.03. Limitation on Guarantees by Subsidiaries of
-------------------------------------------
Issuer's Indebtedness. The Issuer shall not permit any of its Subsidiaries to
- ---------------------
Incur or permit to exist any guarantee of any Indebtedness of the Issuer unless
such Subsidiary contemporaneously guarantees the Securities on a senior
subordinated basis. Notwithstanding the foregoing, any
20
<PAGE>
guarantee by a Subsidiary of the Securities pursuant to this Section 3.03 shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Issuer, of all of the Issuer's Capital Stock in, or all or
substantially all of the assets of, such Subsidiary (which sale, exchange or
transfer is not prohibited by this Indenture) or (ii) the release or discharge
of the guarantee that resulted in the creation of the guarantee required by this
Section, except a discharge or release by or as a result of payment under such
guarantee. The requirements of this Section 3.03 shall not apply to any
Subsidiary that has issued a guarantee unless and until (i) as of the end of the
most recently completed fiscal quarter for which financial statements of the
Issuer have been published, the total consolidated assets of such Subsidiary
exceeded 5% of the Issuer's consolidated total assets or (ii) for the most
recently completed four fiscal quarters for which financial statements have been
published (including as part of annual financial statements), consolidated net
sales of such Subsidiary exceeded 5% of the Issuer's consolidated net sales, in
each case determined in accordance with GAAP on a basis consistent with past
practices. All calculations made pursuant to the immediately preceding sentence
shall give pro forma effect to (x) any Asset Sale or (y) any acquisition of
material assets out of the ordinary course of business that has occurred during
such four fiscal quarter period or is probable as if such Asset Sale or
acquisition had occurred (A) as of the end of such period in the case of clause
(i) of the immediately preceding sentence or (B) as of the beginning of such
four fiscal quarter period in the case of clause (ii) of the immediately
preceding sentence.
SECTION 3.04. Limitation on Liens. The Issuer shall not, and shall not
-------------------
permit any of its Subsidiaries to, directly or indirectly, Incur any Lien on or
with respect to any Property of the Issuer or such Subsidiary, or any interest
therein or any income or profits therefrom, unless the Securities are secured
equally and ratably with (or, in the case of Liens securing Subordinated
Obligations, prior to) any and all other Indebtedness secured by such Lien,
except for: (i) any Lien existing on any Property of a Person at the time such
Person is merged or consolidated with or into the Issuer or any Subsidiary or
becomes a Subsidiary (and not Incurred concurrently with or in anticipation of
such transaction), provided that such Liens are not extended to other Property
of the Issuer and its other Subsidiaries; (ii) any Lien existing on any Property
at the time of the acquisition thereof (and not Incurred concurrently with or in
anticipation of such transaction); (iii) any Lien Incurred to secure the
performance of statutory obligations, performance bonds or other obligations of
a like nature Incurred in the ordinary course of business; (iv) any Lien to
secure a Capital Lease Obligation or Capital Expenditure Indebtedness permitted
by clause (x) of the definition of Permitted Indebtedness; (v) Liens for taxes
not yet due or which are being contested in good faith by appropriate
proceedings, so long as reserves have been established to the extent required by
GAAP; (vi) Liens existing as of the date of this Indenture; (vii) Liens on
Property of the Issuer to secure Senior Indebtedness; and (viii) Liens to secure
any permitted extension, renewal, refinancing, refunding or exchange, in whole
or in part, of or for any Indebtedness secured by Liens referred to in the
foregoing clauses (i) through (vii) (except with respect to Senior Indebtedness
referred to in clause (vii) which, after any such extension, renewal,
refinancing, refunding or exchange, is subordinate in right of payment to any
other Indebtedness of the Issuer), provided that such Liens do not extend to any
other Property and that the principal amount of the Indebtedness secured by such
Liens is not increased.
21
<PAGE>
SECTION 3.05. Limitation on Sale and Leaseback Transactions. The
---------------------------------------------
Issuer shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, enter into, assume, guarantee or otherwise become liable with
respect to any Sale and Leaseback Transaction, unless the net proceeds from such
transaction are at least equal to the Fair Market Value of the Property being
transferred and, at the Issuer's option, (i) the obligations of the Issuer or
such Subsidiary with respect thereto are included as Indebtedness under Section
3.02 and would be permitted thereunder and the Issuer or such Subsidiary would
be permitted to Incur a Lien to secure such Indebtedness under Section 3.04
without equally and ratably securing the Securities or (ii) the Issuer treats
such transaction as an Asset Sale and complies with the provisions of Section
3.08 with respect thereto.
SECTION 3.06. Limitation on Restricted Payments. (a) The Issuer shall
---------------------------------
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
make any Restricted Payment if, at the time of and after giving-effect to the
proposed Restricted Payment: (i) any Default or Event of Default has occurred
and is continuing; or (ii) the Issuer could not Incur at least $1.00 of
additional Indebtedness pursuant to Section 3.02 (other than as Permitted
Indebtedness); or (iii) the aggregate amount expended or declared for all
Restricted Payments from the date of this Indenture exceeds the sum of (A) the
aggregate net proceeds (including the Fair Market Value of Property other than
cash) from sales of Capital Stock of the Issuer (other than to a Subsidiary of
the Issuer) and cash capital contributions to the Issuer from its stockholders,
plus (B) 50% of the aggregate cumulative Consolidated Net Income of the Issuer
(or, if Consolidated Net Income shall be a deficit, minus 100% of such deficit)
beginning on the first day of the fiscal quarter beginning immediately after the
date of this Indenture and ending on the last day of the fiscal quarter
immediately preceding the date of such Restricted Payment, plus (C) $1 million.
(b) The foregoing shall not prohibit any of the following (and none
of the following shall be included in calculating the amount of Restricted
Payments made or available to be made pursuant to Section 3.06(a)(iii)):
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations out of the proceeds from the substantially concurrent sale of
Capital Stock;
(ii) any purchase or redemption of Subordinated Obligations out of
the proceeds from the substantially concurrent sale of Subordinated
Obligations; and
(iii) dividends paid by the Issuer on or within one Business Day
following the Issue Date out of proceeds of the offering of the Securities.
(c) So long as no Default or Event of Default shall have occurred
and be continuing (or would result therefrom), the foregoing shall not prohibit
any of the following (but the following shall be included in calculating the
amount of Restricted Payments made and available to be made pursuant to Section
3.06(a)(iii)):
(iv) dividends paid by the Issuer within 60 days after declaration if
they were permitted at the time of declaration;
(v) dividends paid by the Issuer to the Parent to be used by the
Parent to pay any tax liability of the Parent or the Issuer;
22
<PAGE>
(vi) dividends paid by the Issuer to the Parent, in an aggregate
amount not to exceed $500,000 in any 12 month period, to be used by the
Parent to repurchase Capital Stock of the Parent from employees and
management of the Parent or the Issuer, at the Fair Market Value thereof,
upon any such individual's death, disability or termination of employment;
and
(vii) Restricted Payments not otherwise permitted to be made by
Section 3.06(a), made on or after the third anniversary of the Issue Date,
in an aggregate amount not to exceed $7 million.
SECTION 3.07. Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Subsidiaries. The Issuer shall not (i) permit any wholly-owned Subsidiary to
- ------------
issue any Capital Stock other than to the Issuer or one of its wholly-owned
Subsidiaries or (ii) permit any Person other than the Issuer or a wholly-owned
Subsidiary to own any Capital Stock of a wholly-owned Subsidiary (other than
directors' qualifying shares), except for (a) a sale of 100% of the Capital
Stock of a wholly-owned Subsidiary effected in accordance with the provisions of
Section 3.08, and (b) an issuance of Preferred Stock permitted under the
provisions of Section 3.02.
SECTION 3.08. Limitation on Specified Asset Sales. (a) The Issuer
-----------------------------------
shall not, and shall not permit any Subsidiary to, consummate any Specified
Asset Sale-unless: (i) the Issuer or such Subsidiary, as the case may be,
receives consideration at the time of such Specified Asset Sale at least equal
to the Fair Market Value of the Property disposed of and (ii) at least 75% of
the consideration received by the Issuer or such Subsidiary for such Property is
in the form of cash or cash equivalents. The Issuer or such Subsidiary may,
within 360 days of such Specified Asset Sale, at its option, (1) reinvest an
amount equal to the Net Cash Proceeds (or any portion thereof) from such
disposition in Additional Assets so long as the Issuer has notified the Trustee
in writing within 330 days of such Asset Sale that it has determined to apply
Net Cash Proceeds from such Asset Sale to an investment in such Additional
Assets and/or (2) offer to apply an amount equal to such Net Cash Proceeds (or
remaining Net Cash Proceeds) to the repayment of any Senior Indebtedness of the
Issuer or Indebtedness of Subsidiaries, and repay such Indebtedness of any
lender or debtholder who accepts such offer. Any Net Cash Proceeds from any
Specified Asset Sale that are not used in accordance with (1) or (2) above shall
constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds
exceeds the greater of $10 million and 15% of Consolidated Net Tangible Assets,
the Issuer shall make an offer in accordance with the provisions of paragraphs
(b), (c) and (d) of this Section 3.08 (the "Prepayment Offer") to purchase on a
pro rata basis according to the principal amount of the Securities validly
tendered by each Securityholder and not properly withdrawn, from all holders of
the Securities, an aggregate principal amount of Securities equal to the Excess
Proceeds, at a price in cash at least equal to 100% of the outstanding principal
amount thereof plus accrued interest, if any, to the Purchase Date (as defined
in paragraph (b) below). To the extent that any portion of the amount of Net
Cash Proceeds remains after compliance with the preceding sentence and provided
that all Holders have been given the opportunity to tender their Securities for
repurchase as provided in accordance with this Indenture, the Issuer or such
Subsidiary may use such remaining amount for general corporate purposes and the
amount of Excess Proceeds shall be reset to zero.
23
<PAGE>
(b) Within five Business Days after 360 days from the date of a
Specified Asset Sale, the Issuer shall, if it chooses (or is obligated pursuant
to paragraph (a) above) to apply an amount equal to any remaining Net Cash
Proceeds (or any portion thereof) to fund an offer to repurchase the Securities,
send written notice (a "Prepayment Offer Notice") to the Holders of the
Securities offering to purchase from such Holders the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased with the
aggregate Excess Proceeds at a price, payable in cash, equal to at least 100% of
the principal amount of the Securities plus accrued and unpaid interest, if any,
to the Purchase Date. The Prepayment Offer Notice will contain all instructions
and materials necessary to enable such Holder to tender pursuant to the
Prepayment Offer. The Prepayment Offer Notice will also state (i) that the
Issuer is offering to purchase Securities pursuant to the provisions of this
Section 3.08, (ii) that, to the extent Securities in an aggregate amount in
excess of the Excess Proceeds are validly tendered and not properly withdrawn,
the Issuer will repurchase Securities on a pro rata basis according to the
principal amount of the Securities validly tendered by each Securityholder and
not properly withdrawn, (iii) that any Security (or any portion thereof)
accepted for payment (and duly paid on the Purchase Date (as defined below))
pursuant to the Prepayment Offer will cease to accrue interest after the
Purchase Date, (iv) the expiration date (the "Expiration Date") of the
Prepayment Offer, which will be, subject to any contrary requirements of
applicable law, not less than 30 days nor more than 60 days after the date of
such Prepayment Offer, (v) a settlement date (the "Purchase Date") for the
purchase of Securities within five Business Days after the Expiration Date, (vi)
the maximum aggregate principal amount of Securities to be purchased and the
purchase price thereof and (vii) a description of the procedures which a Holder
must follow to tender all or any portion of such Holder's Securities. At the
Issuer's written order signed by an Officer, the Trustee shall give the
Prepayment Offer Notice required by this paragraph (b) in the Issuer's name and
at the Issuer's expense. In such event, the Issuer shall provide the Trustee
with the information required by this paragraph (b).
To tender any Security, a Holder must surrender such Security, with
the form entitled "Election of Holder to Require Repurchase" on the reverse of
the Security completed, at the place or places specified in the Prepayment Offer
Notice prior to the close of business on the Expiration Date. Any Holder will be
entitled to withdraw all or any portion of the Securities tendered by such
Holder if the Paying Agent receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Securities the Holder
tendered, the certificate numbers of the Securities tendered and a statement
that such Holder is withdrawing all or a portion of such tender. Any portion of
Securities so tendered or withdrawn must be tendered or withdrawn in an integral
multiple of $1,000 principal amount.
On the Purchase Date, the Issuer shall (i) accept for payment any
Security (or a portion thereof) tendered pursuant to the Prepayment offer and
not validly withdrawn, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price thereof and (iii) deliver to the Trustee each Security so
accepted together with an Officers' Certificate that states the aggregate
principal amount of Securities tendered to the Issuer. The Paying Agent shall
promptly mail to each Holder of Securities so accepted payment in an amount
equal to the purchase price thereof.
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(c) Notwithstanding the foregoing, if any Security (or any portion
thereof) accepted for payment shall not be so paid pursuant to the provisions of
Section 3.08(b), then, from the Purchase Date until the principal of, premium
(if any) and interest on such Security is paid, interest shall be paid on the
unpaid principal and premium (if any) and, to the extent permitted by law, on
any accrued but unpaid interest thereon, in each case, at the rate prescribed
therefor by such Security.
(d) Upon surrender of any Security tendered or accepted in part, the
Issuer shall execute, and the Trustee shall authenticate and deliver, a new
Security, of any authorized denomination, in an aggregate principal amount equal
to the unpaid portion of the surrendered Security.
SECTION 3.09. Transactions with Affiliates. The Issuer shall not, and
----------------------------
shall not permit any of its Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including, but not limited
to, the sale, transfer, disposition, purchase, exchange or lease of assets or
Property, the making of any Investment, the giving of any guarantee or the
rendering of any service) with or for the benefit of any Affiliate of the
Issuer, unless (i) such transaction or series of related transactions is in the
best interest of the Issuer or such Subsidiary, (ii) such transaction or series
of related transactions is on terms no less favorable to the Issuer or such
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Issuer and (iii) (A)
with respect to a transaction or series of related transactions involving
aggregate payments or Fair Market Value in excess of $1 million, the Issuer
delivers an Officers' Certificate to the Trustee to the effect that such
transaction or series of related transactions complies with clauses (i) and (ii)
of this paragraph, (B) with respect to a transaction or series of related
transactions involving aggregate payments or Fair Market Value in excess of $5
million the Board of Directors, including a majority of the disinterested
members of the Board of Directors, of the Issuer approves such transaction or
series of related transactions and, in its good faith judgment, believes that
such transaction or series of related transactions complies with clauses (i) and
(ii) above, as evidenced by a Board Resolution and (C) with respect to a
transaction or series of related transactions involving aggregate payments or
Fair Market Value in excess of $10 million or, with respect to a transaction or
series of related transactions involving aggregate payments or Fair Market Value
in excess of $5 million as to which no member of the Board of Directors of the
Issuer is disinterested, the Issuer shall receive the written opinion of a
nationally recognized firm of investment bankers, accountants, industry
consultants or other appropriately qualified experts that such transaction (or
series of related transactions) is fair to the Issuer or such Subsidiary.
Notwithstanding the foregoing, the purchase by the Issuer or any Subsidiary of
insurance from an Affiliate of the Issuer, in the ordinary course of business of
the Issuer or such Subsidiary, need only comply with clauses (i) and (ii) above.
For purposes of this Section 3.09, the Issuer and its wholly-owned Subsidiaries
shall be deemed not to be Affiliates.
SECTION 3.10. Limitation on Dividend Restrictions Affecting
---------------------------------------------
Subsidiaries. The Issuer shall not, and shall not permit any of its Subsidiaries
- ------------
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Subsidiary to (i) pay dividends or make any other distribution on its Capital
Stock, (ii) pay any Indebtedness owed to the Issuer or a Subsidiary, (iii) make
any Investment in the Issuer or a Subsidiary or (iv) transfer any Property to
the Issuer or any Subsidiary, except (a)
25
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any encumbrance or restriction pursuant to an agreement in effect on the date of
this Indenture; (b) any encumbrance or restriction with respect to a Subsidiary
that is not a Subsidiary of the Issuer on the date of this Indenture in
existence at the time such Person becomes a Subsidiary of the Issuer and not
Incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary; (c) restrictions contained in security agreements or leases securing
Indebtedness or rental payments of a Subsidiary to the extent such restrictions
restrict the transfer of the specific Property under lease or being financed and
only if the Incurrence of such Indebtedness and such Lien were permitted by the
terms of this Indenture; (d) any encumbrance or restriction existing under any
agreement that extends, renews refinances or replaces the agreements containing
the restrictions in the foregoing clauses, provided that the terms and
conditions of any such restriction are not materially less favorable to the
Securityholders than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced; and (e) any
restriction with respect to the transfer of all or substantially all the Capital
Stock of a Subsidiary or any of the assets of a Subsidiary imposed pursuant to
an agreement entered into for the sale or disposition of such Capital Stock or
such assets pending the closing of such sale or disposition.
SECTION 3.11. Limitation on Certain Subordinated Indebtedness. The
-----------------------------------------------
Issuer shall not Incur any Indebtedness that is expressly by its terms (i)
subordinate or junior in right of payment to any of its Indebtedness and (ii)
senior in right of payment to the Securities.
SECTION 3.12. Repurchase of Securities at Option of the Holder upon
-----------------------------------------------------
Change of Control. (a) Upon the occurrence of a Change of Control, each Holder
- -----------------
shall have the right to require the Issuer to repurchase such Holder's
Securities, in whole or in part, in integral multiples of $1,000, pursuant to
the offer described in paragraph (b) below (the "Change of Control Offer") at a
purchase price (the "Repurchase Price") in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the Change of Control Payment Date (as defined below).
(b) Within 30 calendar days following any Change of Control, the
Issuer shall mail a notice to each Holder and to the Trustee stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 3.12, and that all Securities
that are timely tendered will be accepted for payment;
(ii) the Repurchase Price and the repurchase date, which shall be a
date occurring no earlier than 30 days and no later than 60 days subsequent
to the date on which such notice is mailed (the "Change of Control Payment
Date");
(iii) that any Security (or any portion thereof) not tendered will
continue to accrue interest;
(iv) that any Security (or any portion thereof) accepted for payment
pursuant to the Change of Control Offer (and duly paid on the Change of
Control Payment Date) will cease to accrue interest after the Change of
Control Payment Date;
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(v) that any Holder electing to have a Security (or any portion
thereof) repurchased pursuant to a Change of Control Offer will be required
to surrender the Security, with the form entitled "Election of Holder to
Require Repurchase" on the reverse of the Security completed, to the Paying
Agent at the address specified in the notice on or prior to the close of
business on the fifth Business Day prior to the Change of Control Payment
Date;
(vi) that any Holder will be entitled to withdraw all or a portion
(in a principal amount in an integral multiple of $1,000) of the Securities
delivered for repurchase if the Paying Agent receives, not later than the
close of business on the third Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Securities the Holder
delivered for repurchase, the certificate numbers of such Securities and a
statement that such Holder is withdrawing all or a portion of the
Securities delivered for repurchase; and
(vii) that any Holder that elects to have a portion of its Securities
repurchased must specify the principal amount that is being tendered for
repurchase, which principal amount must be in an integral multiple of
$1,000.
At the Issuer's written order signed by an Officer, the Trustee shall
give the notice required in this clause (b) in the Issuer's name and at the
Issuer's expense. In such event, the Issuer shall provide the Trustee with the
information required by clauses (i) - (vii) above.
(c) On the Change of Control Payment Date, the Issuer shall (i)
accept for payment any Security (or portion thereof) tendered pursuant to the
Change of Control Offer and not validly withdrawn, (ii) deposit with the Paying
Agent money sufficient to pay the Repurchase Pride of any Security so tendered
and (iii) deliver to the Trustee each Security so accepted together with an
Officers' Certificate that states the aggregate principal amount of Securities
tendered to the Issuer. The Paying Agent shall promptly mail to each Holder of
Securities so accepted payment in an amount equal to the Repurchase Price
therefor. The Trustee shall notify the Holders of the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this Section 3.12, the Trustee shall act as the Paying
Agent.
(d) Notwithstanding the foregoing, if any Security (or any portion
thereof) accepted for payment shall not be so paid pursuant to the provisions of
this Section 3.12, then, from the Change of Control Payment Date until the
principal of (and premium) and interest on such Note is paid, interest shall be
paid on the unpaid principal (and premium) and, to the extent permitted by law,
on any accrued but unpaid interest thereon, in each case at the rate prescribed
therefor by such Security.
(e) Upon surrender of any Security tendered in part, the Issuer shall
execute, and the Trustee shall authenticate and deliver, a new Security, of any
authorized denomination, in an aggregate principal amount equal to the
untendered portion of the surrendered Security.
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SECTION 3.13. Covenant to Comply with Securities Laws upon Purchase
-----------------------------------------------------
of Securities. In connection with any purchase of Securities under Section 3.08
- -------------
or Section 3.12 by the Issuer, the Issuer shall, to the extent then applicable,
comply with all applicable tender offer rules, including Rule 14e-1 (which term,
as used herein, includes any successor provisions thereto) under the Exchange
Act.
SECTION 3.14. Corporate Existence. Subject to Article V, the Issuer
-------------------
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate existence of each of
its Subsidiaries, and each of their respective corporate rights (charter-and
statutory), licenses and franchises; provided, however, that the Issuer shall
-------- -------
not be required to preserve any such existence (except of itself) or any such
corporate right, license or franchise, if its Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of its
business and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 3.15. SEC Reports. The Issuer shall file with the SEC the
-----------
annual reports, quarterly reports and the information, documents and other
reports required to be filed with the SEC pursuant to Sections 13 and 15(d) of
the Exchange Act and the rules and regulations promulgated thereunder, whether
or not the Issuer has a class of securities registered under the Exchange Act.
The Issuer shall make available without cost to each Holder and shall file with
the Trustee within 15 days after the Issuer files them with the SEC, copies of
the annual reports, quarterly reports and of the information, documents, and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe), if any, which the Issuer is required to
file with the SEC either pursuant to Section 13 or 15(d) of the Exchange Act and
the rules and regulations promulgated thereunder or pursuant to the preceding
sentence. The Issuer also shall comply with the other provisions of TIA
(S) 314(a).
SECTION 3.16. Compliance Certificates. The Issuer shall deliver to
-----------------------
the Trustee, within 120 days after the end of each fiscal year of the Issuer, an
Officers' Certificate (one signatory to which shall be its principal executive
officer, principal financial officer or principal accounting officer) stating
that a review of the activities of the Issuer and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
officers with a view to determining whether the Issuer has complied with all its
covenants and conditions under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of such Officer's
knowledge, the Issuer has complied with each applicable covenant and condition
contained in this Indenture and no Default or Event of Default exists (or, if a
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he may have knowledge and the nature and status
thereof).
SECTION 3.17. Notice of Defaults. Upon the occurrence of any Default
------------------
or Event of Default under this Indenture, the Issuer promptly after it becomes
aware thereof shall deliver to the Trustee an Officers' Certificate specifying
such Default or Event of Default and what action the Issuer is taking or
proposes to take with respect thereto.
SECTION 3.18. Payment of Taxes and Other Claims. The Issuer shall pay
---------------------------------
or discharge or cause to be paid or discharged, before any penalty accrues from
the failure to so pay or discharge, (a) all taxes, assessments and governmental
charges levied or imposed upon the
28
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Issuer or any of its Subsidiaries or upon the income, profits or property of the
Issuer or any of its Subsidiaries, and (b) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon the
property of the Issuer or any Subsidiary; provided, however, that the Issuer
-------- -------
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim the amount, applicability or validity of
which is being contested in good faith by appropriate proceedings and for which
adequate provision has been made to the extent required by GAAP or where the
failure to effect such payment or discharge is not adverse in any material
respect to the Holders.
SECTION 3.19. Maintenance of Properties; Insurance; Books and
-----------------------------------------------
Records; Compliance with Law. (a) The Issuer shall, and shall cause each of its
- ----------------------------
Subsidiaries to, cause all properties and assets to be maintained and kept in
good condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment, and shall cause to be made all necessary
repairs, renewals, replacements, additions, betterments and improvements
thereto, as shall be reasonably necessary for the proper conduct of its
business; provided, however, that nothing in this Section 3.19(a) shall prevent
-------- -------
the Issuer or any of its Subsidiaries from discontinuing the operation and
maintenance of any of its properties if such discontinuance is (x) in the sole
discretion of the Issuer or such Subsidiary, desirable in the conduct of its
business and (y) if such discontinuance is not materially adverse to either the
Issuer and its Subsidiaries taken as a whole or the ability of the Issuer to
otherwise satisfy its obligations hereunder or under the Securities.
(b) The Issuer shall, and shall cause each of its Subsidiaries to,
maintain such insurance as may be required by law and such other insurance to
such extent and against such hazards and liabilities as is consistent with
industry practices (which may include self-insurance in the same form as is
consistent with industry practices).
(c) The Issuer shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries shall
be made of all business and financial transactions of the Issuer and each
Subsidiary and reflect on its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP consistently applied to
the Issuer and its Subsidiaries taken as a whole.
SECTION 3.20. Waiver of Stay, Extension or Usury Laws. The Issuer
---------------------------------------
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, or plead, or in any manner whatsoever claim, and shall resist
any and all efforts to be compelled to take the benefit or advantage of, any
stay or extension law or any usury law or other law which would prohibit or
forgive the Issuer from paying all or any portion of the principal of, premium
(if any) or interest on the Securities as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Issuer hereby expressly waives all benefit or advantage of any such law and
covenants that it shall not hinder, delay or impede the execution of any power
herein granted to the Trustee but shall suffer and permit the execution of every
such power as though no such law had been enacted.
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ARTICLE IV
Redemption
----------
SECTION 4.01. Notice to Trustee. If the Issuer elects to redeem
-----------------
Securities pursuant to paragraph 5(a) or (b) of the Securities it shall notify
the Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Issuer shall give each notice to the Trustee provided for in this
Section at least 45 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate to the effect that such redemption will comply with the conditions
herein. If fewer than all the Securities are to be redeemed, the record date
relating to such redemption for determining the Holders to whom notice of
redemption will be sent pursuant to Section 4.03 shall be selected by the Issuer
and given to the Trustee, which record date shall be not less than 15 days after
the date of notice to the Trustee.
SECTION 4.02. Selection of Securities to be Redeemed. If fewer than
--------------------------------------
all the Securities are to be redeemed, the Trustee in its discretion shall
select the Securities to be redeemed pro rata or by lot or by a method that
complies with applicable legal and securities exchange requirements, if any, and
that the Trustee considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances.
The Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions thereof the Trustee selects shall be in amounts of $1,000 or a
whole multiple of $1,000; except that if all the Notes of a Holder are to be
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not d multiple of $1,000, shall be redeemed. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Issuer promptly in writing
of the Securities or portions of Securities to be redeemed.
SECTION 4.03. Notice of Redemption. At least 30 days but not more
--------------------
than 60 days before a date for redemption of Securities, the Issuer shall mail a
notice of redemption to each Holder of Securities to be redeemed.
The notice shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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<PAGE>
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Issuer defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, interest on Securities (or portion thereof)
called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Issuer's written order signed by an Officer, the Trustee shall
give the notice of redemption in the Issuer's name and at the Issuer's expense.
In such event, the Issuer shall provide the Trustee with the information
required by this Section.
SECTION 4.04. Effect of Notice of Redemption. Once notice of
------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 4.05. Deposit of Redemption Price. On or prior to the
---------------------------
redemption date, the Issuer shall deposit with the Paying Agent (or, if the
Issuer or an Affiliate of the Issuer is the Paying Agent, shall segregate and
hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which have been delivered by the
Issuer to the Trustee for cancellation. If the Issuer complies with this Section
4.05, then, unless the Issuer defaults in the payment of such redemption price,
interest on the Securities to be redeemed will cease to accrue on and after the
applicable redemption date, whether or not such Securities are presented for
payment. If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium (if any) shall,
until paid, bear interest from the redemption date at the rate provided in the
Securities.
SECTION 4.06. Securities Redeemed in Part. Upon surrender of a
---------------------------
Security that is redeemed in part, the Issuer shall execute and the Trustee
shall authenticate for the Holder (at the Issuer's expense) a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
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ARTICLE V
Merger, Consolidation and Sale of Assets
----------------------------------------
SECTION 5.01. When Issuer May Merge, etc. The Issuer shall not merge
--------------------------
or consolidate with any other entity or sell, transfer, assign, lease, convey or
otherwise dispose of all or substantially all of its Property to any Person or
Persons, and the Issuer shall not permit any of its Subsidiaries to enter into
any such transaction or series of related transactions if such transaction or
series of related transactions, in the aggregate, would result in a sale,
transfer, assignment, lease, conveyance or other disposition of all or
substantially all of the Property of the Issuer to any Person or Persons, unless
(i) the entity formed by or surviving any such consolidation or merger (if the
Issuer is not the surviving entity) or to which such sale, transfer or
conveyance is made (the "Surviving Entity") shall be a corporation organized and
existing under the laws of the United States of America or a State thereof or
the District of Columbia and such corporation expressly assumes, by supplemental
indenture satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, the due and punctual payment of the principal of, premium (if
any) and interest on all the Securities, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Issuer; (ii) immediately after giving
effect to such transaction or series of transactions, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness Incurred or anticipated to be
Incurred in connection with such transaction or series of transactions), the
Issuer or the Surviving Entity, as the case may be, would be able to Incur at
least $1.00 of additional Indebtedness under clause (a) of the definition of
Permitted Indebtedness; and (iv) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness Incurred or anticipated to be Incurred in
connection with such transaction or series of transactions) the Issuer or the
Surviving Entity, as the case may be, shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Issuer immediately prior to
the transaction or series of transactions.
SECTION 5.02. Successor Corporation Substituted. Upon any
---------------------------------
consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the Property or assets of the
Issuer in accordance with Section 5.01, the successor corporation formed by such
consolidation or into which the Issuer is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture with the same effect as if such successor
corporation had been originally named as the Issuer herein. Thereafter, the
predecessor Issuer shall be discharged from all obligations and covenants under
this Indenture and the Securities.
ARTICLE VI
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
-----------------
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<PAGE>
(i) the Issuer defaults in the payment of interest on any Security
when it becomes due and payable and such default continues for a period of
30 days; or
(ii) the Issuer defaults in the payment of the principal of or
premium (if any) on any Security when the same becomes due and payable at
maturity, upon acceleration, required repurchase or otherwise; or
(iii) the Issuer fails to comply with Section 5.01 or fails to make
or consummate an offer to purchase securities required by Section 3.08 or
3.12; or
(iv) the Issuer fails to comply with any of the covenants and
agreements contained in Sections 3.02 through 3.11 and such Default
continues for the period and after the notice specified below; or
(v) the Issuer fails to comply with any of its agreements or
covenants in, or provisions of, the Securities or this Indenture (other
than obligations specified in clause (i), (ii), (iii) or (iv) above) and
such Default continues for the period and after the notice specified below;
or
(vi) any Indebtedness of the Issuer or any Subsidiary of the Issuer
in the outstanding principal amount of $5 million or more in the aggregate,
whether. such Indebtedness now exists or shall hereafter be created, is (A)
declared to be due and payable prior to its Stated Maturity or (B) not paid
when due by the Issuer or any Subsidiary (after giving effect to any
extension of such due date by the holder of such Indebtedness and after the
expiration of any grace period in respect of such due date contained in the
instrument under which such Indebtedness is outstanding), or any
combination of (A) and (B); or
(vii) one or more final judgments or orders for the payment of money
are entered by a court of competent jurisdiction (other than judgments or
orders which are fully and effectively covered by insurance) against the
Issuer or any Subsidiary which require the payment of money in an aggregate
amount in excess of $5 million and such final judgment or order is not
discharged, waived, stayed or satisfied for a period of 60 consecutive days
after judgment is entered; or
(viii) the Issuer or any Subsidiary, pursuant to or within the meaning
of any Bankruptcy Law: (A) commences a voluntary case or proceeding, (B)
consents to the entry of an order for relief against it in an involuntary
case or proceeding, (C) consents to the appointment of a Custodian of it or
for all or substantially all of its Property, (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing its
inability to pay its debts as they come due; or
(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Issuer or any
Subsidiary in an involuntary case or proceeding, (B) appoints a Custodian
of the Issuer or any Subsidiary or for all or substantially all of its
Property or (C) orders the liquidation of the Issuer or any Subsidiary; and
in case of (A), (B) or (C) the order or decree remains unstayed and in
effect for 60 days.
33
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The term "Bankruptcy Law" means Title 11 of the U.S. Code, or any
similar Federal, state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A Default under clause (iv) or (v) of this Section 6.01 is not an
Event of Default until the Trustee notifies the Issuer in writing, or the
Holders of at least 25% in principal amount of the Securities then outstanding
notify the Issuer and the Trustee, in writing, of the Default, and the Issuer
does not cure the Default within 30 days (in the case of a Default specified in
clause (iv)) or 60 days (in the case of a Default specified in clause (v)) after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default". Such notice to the
Issuer shall be given by the Trustee if so requested in writing by the Holders
of at least 25% of the principal amount of the Securities then outstanding.
Except for a Default under Section 6.01(i) or (ii) of this Indenture,
the Trustee shall not be deemed to know of a Default unless a Trust Officer has
received written notice of such Default with specific reference to this
Indenture and such Default.
SECTION 6.02. Acceleration. If an Event of Default (other than an
------------
Event of Default specified in clause (viii) or (ix) of Section 6.01 with respect
to the Issuer) occurs and is continuing, the Trustee or the Holders of at least
25% of the principal amount of the Securities then outstanding, by written
notice to the Issuer (and to the Trustee, if given by the Holders), may declare
due and payable all of the principal and premium (if any) of the Securities plus
any accrued interest to the date of payment. Upon a declaration of acceleration,
such principal, premium (if any) and accrued interest to the date of such
acceleration, shall immediately become due and payable. If an Event of Default
specified in clause (viii) or (ix) of Section 6.01 with respect to the Issuer
occurs, all of the principal and premium (if any) of the Securities plus any
accrued interest shall become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority of the outstanding principal amount of the Securities by written
notice to the Trustee may rescind an acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of principal of,
premium (if any) or interest on, the Securities which have become due solely
because of the acceleration, have been cured or waived, (ii) all sums paid or
advanced by the Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel are duly
reimbursed to the Trustee and (iii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium (if any) or interest
on, the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All remedies are cumulative to the extent
permitted by law.
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SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
-----------------------
and 9.02, the Holders of at least a majority in principal amount of the
Securities then outstanding by notice to the Trustee may waive an existing
Default or Event of Default and its consequences, except a Default in the
nonpayment of the principal of, premium (if any) or interest on any Security.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority. The Holders of at least a majority
-------------------
in principal amount of the Securities then outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on it. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture,
that the Trustee determines may be unduly prejudicial to the rights of other
Securityholders or that may involve the Trustee in personal liability.
SECTION 6.06. Limitation on Suits. A Holder of a Security may not
-------------------
pursue a remedy with respect to this Indenture or the Securities unless: (i) the
Holder gives to the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the Securities then
outstanding make a written request to the Trustee to pursue the remedy; (iii)
such Holder or Holders offer to the Trustee indemnity satisfactory to the
Trustee against any loss, liability, cost or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period the Holders of at least a
majority in principal amount of the Securities then outstanding do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
------------------------------------
any other provision of this Indenture, the right of any Holder of a Security to
receive payment of principal of, premium (if any) or interest on the Security on
or after the respective due dates expressed or provided for in such Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
--------------------------
specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Issuer or any other obligor on the Securities for the whole amount of principal,
premium (if any) and accrued interest remaining unpaid on the Securities. The
Issuer or any other obligor on the Securities shall pay interest on overdue
principal and premium, if any (including interest accruing on or after filing of
any petition in bankruptcy or reorganization relating to the Issuer or any other
obligor on the Securities, whether or not a claim for post-filing interest is
allowed in such proceeding), and the Issuer or any other obligor on the
Securities shall pay interest on overdue installments of interest, to the extent
permitted by law (including interest accruing on or after the filing of any
petition in bankruptcy or reorganization relating to the Issuer or any other
obligor on the Securities, whether or not a claim for post-filing interest is
allowed in such proceeding), in each case at the rate then borne by the
Securities, and such further amount as shall be sufficient to cover the costs
and expense of
35
<PAGE>
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
--------------------------------
such proofs of claim (including any claim for reasonable compensation to the
Trustee and each agent, attorney and counsel, and any expenses and liabilities
incurred and all advances made by the Trustee and all other amounts due to the
Trustee under Section 7.07 hereof) and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceeding relative to the Issuer or any
other obligor upon the Securities, its creditors or its Property under any
Bankruptcy Law, and shall be entitled and empowered to collect and receive any
moneys or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it
under Section 7.07. Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
SECTION 6.10. Application of Moneys Collected by Trustee. Any moneys
------------------------------------------
collected by the Trustee pursuant to this Article VI shall be a applied in the
order following, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal, premium (if any) or
interest, upon presentation of the several Securities, and the notation thereon
of the payment, if only partially paid, and upon surrender thereof, if fully
paid:
FIRST: to the payment of all amounts due to the pursuant to Section
7.07;
SECOND: to holders of Senior Indebtedness to the extent required by
Article X;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal, premium (if any) and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal, premium (if any) and interest,
respectively; and
FOURTH: to the Issuer, its successors or assigns, or to whosoever may
be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to
36
<PAGE>
Section 6.07 or a suit by Holders of more than 10% in principal amount of the
Securities then outstanding.
SECTION 6.12. Parties May Be Restored to Former Position and Rights
-----------------------------------------------------
in Certain Circumstances. In the event the Trustee shall have proceeded to
- ------------------------
enforce any right under this Indenture by suit, foreclosure or otherwise and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then in every such case,
the Issuer and the Trustee shall be restored without further act to their
respective former positions and rights hereunder, and all rights, remedies and
powers of the Trustee shall continue as though no such proceedings had been
taken, except to the extent determined in litigation adversely to the Trustee.
ARTICLE VII
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default: (1) the
Trustee need perform only those duties that are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into this
Indenture against the Trustee and (2) in the absence of bad faith on its part,
the Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine
whether or not, on their face, they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct
except that: (1) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01, (2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer or other officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts and (3) the
Trustee shall not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section
6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability, cost or expense (including,
without limitation, reasonable fees and disbursements of counsel).
37
<PAGE>
(f) The Trustee shall not be obligated to pay interest on any money
received by it unless otherwise agreed in writing with the Issuer. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee. Subject to the provisions of
-----------------
Section 7.01 hereof and TIA (S) 315: (a) The Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
an Officers' Certificate or opinion of Counsel.
(c) The Trustee may act through attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuer shall be sufficient if
signed by an Officer of the Issuer.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Issuer or an Affiliate of the Issuer with the
same rights it would have if it were not Trustee. Any Agent may do the same with
like rights. However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
--------------------
representation as to the validity or adequacy of this Indenture or the
Securities; it shall not be accountable for the Issuer's use of the proceeds
from the Securities, or any money paid to the Issuer upon the Issuer's direction
under any provision hereof; and it shall not be responsible for any statement in
the Securities other than its authentication.
SECTION 7.05. Notice of Default. If a Default or Event of Default
-----------------
occurs and is continuing and if a Trust Officer has received written notice
thereof, the Trustee shall mail to Securityholders a notice of the Default or
Event of Default within 90 days after the occurrence thereof. Except in the case
of a Default or Event of Default in payment of any Security (including any
failure to: make any mandatory repurchase required hereunder), the Trustee may
withhold the notice if and so long as it in good faith determines that
withholding the notice is in the interests of the Securityholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after
-----------------------------
each September 15 beginning with September 15, 1994, the Trustee shall mail to
Securityholders a brief report dated as of such reporting date that complies
with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred
within the twelve months preceding the reporting date, no report need be
transmitted). Commencing at such time, the Trustee also shall comply with
38
<PAGE>
TIA (S) 313(b)(2). The Trustee shall also transmit reports required by TIA (S)
313 by mail as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be delivered to the Issuer and filed with the SEC, if required, and each
stock exchange, if any, on which the Securities are listed. The Issuer shall
notify the Trustee when the Securities are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity. The issuer shall pay to the
--------------------------
Trustee from time to time reasonable compensation for its services hereunder.
The Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. Except as otherwise provided herein, the Issuer
shall reimburse the Trustee upon request for all reasonable disbursements,
advances (if any) and expenses incurred by it in accordance with the provisions
of this Indenture, including in particular, but without limitation, those
incurred in connection with the enforcement of any remedies hereunder. Such
expenses may include the reasonable compensation, disbursements and expenses of
the Trustee's agents and counsel.
Except as set forth in the next paragraph, the Issuer shall indemnify
and hold harmless the Trustee against any loss, liability, cost or expense
(including, without limitation, fees and expenses of counsel) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including without limitation the costs and expenses
of defending itself against any claim or liability in connection with the
exercise or performance of, or failure to exercise or perform, any of its powers
or duties hereunder. The Trustee shall notify the Issuer promptly of any claim
for which it may seek indemnity. The Issuer may defend such claim and the
Trustee shall cooperate in such defense. In the event of a conflict between the
Issuer and the Trustee, the Trustee may have separate counsel and the Issuer
shall pay the reasonable fees and expenses of such counsel.
The Issuer need not reimburse any expense or indemnify against any
loss, liability, cost or expense incurred by the Trustee through negligence,
wilful misconduct or bad faith.
To secure the Issuer's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay the principal of,
premium (if any) and interest on particular Securities. Such obligations shall
survive the satisfaction and discharge of this Indenture, and the resignation or
removal of the Trustee.
When the Trustee incurs expenses or renders services before or after
an Event of Default specified in clause (viii) or (ix) of Section 6.01 occurs,
the expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
----------------------
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section.
39
<PAGE>
The Trustee may resign by so notifying the Issuer. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Issuer. The Issuer may remove the
Trustee if: (i) the Trustee fails to comply with Section 7.10 or TIA (S) 310;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief
is entered with respect to the Trustee under any Bankruptcy Law; (iii) a
Custodian or public officer takes charge of the Trustee or its Property; or (iv)
the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason, the Issuer shall promptly appoint a
successor Trustee. The Trustee shall be entitled to payment of its fees and
reimbursement of its expenses while acting as Trustee. Within one year after the
successor Trustee takes office, the Holders of at least a majority in principal
amount of then outstanding Securities may appoint a successor Trustee to replace
the successor Trustee appointed by the Issuer.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with clauses (i) through (iv) of the
second paragraph of this Section, any Securityholder may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of the successor Trustee's
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Issuer's obligations under Section 7.07
hereof shall continue for the benefit or the retiring Trustee with respect to
expenses, losses and liabilities incurred by it prior to such replacement.
SECTION 7.09. Successor Trustee by Merger, Etc. Subject to Section
--------------------------------
7.10, if the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another corporation
or national banking association, the successor entity without any further act
shall be the successor Trustee provided such corporation shall otherwise be
eligible under this Article. In case any Securities have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation of such authenticating trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 7.10. Eligibility; Disqualification. There shall at all times
-----------------------------
be a Trustee hereunder which shall be a corporation organized and doing business
under the laws of the United States of America or of any State thereof or the
District of Columbia authorized under
40
<PAGE>
such laws to exercise corporate trust powers, which shall be subject to
supervision or examination by a federal or state authority or a District of
Columbia authority and shall have combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
Subject to the preceding paragraph, this Indenture shall always have a
Trustee who satisfies the requirements of TIA (S) 310(a)(1) and (5). The Trustee
is subject to TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against the Issuer.
----------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE VIII
Defeasance; Satisfaction and Discharge of Indenture; Unclaimed Moneys
---------------------------------------------------------------------
SECTION 8.01. Defeasance. At the Issuer's option, either (i) the
----------
Issuer shall be deemed to have been Discharged (as defined below) from its
obligations with respect to the Securities on the 100th day after the applicable
conditions set forth below have been satisfied or (ii) the Issuer shall cease to
be under any obligation to comply with any term, provision or condition set
forth in Sections 3.02 through 3.13 (and the Securities shall thereafter be
deemed to be not outstanding for purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed outstanding for
all other purposes hereunder), Section 5.01 and Article X on the date and any
time after the applicable conditions set forth below have been satisfied:
(a) the Issuer shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust for the purpose of
making the following payment, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders (1) money in an amount, or
(2) U.S. Government Obligations, which through the payment of interest and
principal in respect thereof in accordance with their terms will provide
(without any reinvestment of such interest or principal), not later than
one day before the due date of any payment, money in an amount, or (3) a
combination of (1) and (2), sufficient, in the opinion of a nationally
recognized firm of independent public accountants (with respect to (2) and
(3)) expressed in a written certification thereof delivered to the Trustee
at or prior to the time of such deposit, to pay and discharge each
installment of principal of and interest on, the outstanding Securities on
the dates such installments of interest or principal are due;
(b) if the Securities are then listed on a stock exchange, the Issuer
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Issuer's exercise of its option under this Section would not cause
such Securities to be delisted;
(c) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
41
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(d) the Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect that (and containing no qualification and only
assumptions customary for opinions of such type) Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Issuer's exercise of its option under this Section and will be subject to
federal income tax on the same amounts and in the same manner and at the
same times as would have been the case if such option had not been
exercised and, in the case of Securities being Discharged, accompanied by a
ruling to that effect received from or published by the Internal Revenue
Service;
(e) the Issuer's exercise of its option under this provision shall
not result in any of the Issuer, the Trustee or the trust created by the
Issuer's deposit hereunder becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended, or the
Issuer, the Trustee or the trust so created shall be qualified under such
act or exempt from regulation thereunder;
(f) the Issuer shall have paid or duly provided for payment of all
amounts then due to the Trustee pursuant to Section 7.07; and
(g) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an opinion of Counsel, each stating that all conditions
precedent provided for herein relating to the satisfaction and discharge of
the Securities have been complied with.
"Discharged" means that the Issuer shall be deemed to have paid and
----------
discharged the entire indebtedness represented by, and obligations under, the
Securities and to have satisfied all the obligations under this Indenture
relating to the Securities (and the Trustee, at the expense of the Issuer, shall
execute proper instruments acknowledging the same and satisfaction of and
discharging this Indenture), except (1) the rights of Holders of Securities to
receive, from the trust fund described in clause (a) above, payment of the
principal and interest on the Securities when such payments are due, (2) the
Issuer's obligations with respect to the Securities under Sections 2.03, 2.04,
2.05, 2.06, 2.07, 2.13, 7.07, 7.08, 8.04, 8.05 and 8.06 and (3) the rights,
powers, trusts, duties and immunities of the Trustee hereunder. Subject to
compliance with this Article VIII, the Issuer may exercise its option to
discharge Securities pursuant to Section 8.01(i) notwithstanding the prior
exercise of its rights pursuant to Section 8.01(ii).
SECTION 8.02. Satisfaction and Discharge. If at any time (a) all
--------------------------
Securities theretofore authenticated (other than any Securities which shall have
been replaced as provided in Section 2.07) shall have been delivered to the
Trustee for cancellation or (b) all outstanding Securities shall have become due
and payable or will become due and payable in accordance with their terms within
one year, and the Issuer shall deposit or cause to be deposited with the
Trustee, in trust funds sufficient to pay at maturity the entire indebtedness on
the Securities for principal and interest due or to become due to such date of
maturity and if the Issuer with respect to the Securities shall also pay or
cause to be paid all other sums payable hereunder by the Issuer then this
Indenture shall cease to be of further effect, and on demand of and at the cost
and expense of the Issuer and subject to the Issuer's compliance with the
provisions of Section 11.04, the Trustee shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture. The Issuer agrees
to reimburse the Trustee for any costs or expenses thereafter
42
<PAGE>
reasonably and properly incurred by the Trustee in connection with this
Indenture or the Securities.
SECTION 8.03. Application by Trustee of Funds Deposited for Payment
-----------------------------------------------------
of Securities. All moneys and U.S. Government Obligations deposited with the
- -------------
Trustee pursuant to Section 8.01 or 8.02 shall be held in trust and applied by
it to the payment, either directly or through any Paying Agent (including the
Issuer acting as its own Paying Agent), to the Holders of all sums due and to
become due thereon for principal and interest.
SECTION 8.04. Paying Agent to Repay Moneys Held. Upon satisfaction
---------------------------------
and discharge of this Indenture all moneys then held by any Paying Agent under
the provisions of this Indenture shall, upon demand of the Issuer, be repaid to
it or paid to the Trustee (or, if then held by the Issuer, shall be discharged
from trust), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
SECTION 8.05. Return of Unclaimed Moneys. All moneys or U.S.
--------------------------
Government Obligations deposited with or paid to the Trustee or any Paying Agent
under any provision of this Indenture for the payment of the principal, premium
(if any) or interest an any Security, and not applied but remaining unclaimed
for two years after the date upon which such principal, premium (if any) or
interest shall have become due and payable, shall be repaid to the Issuer by the
Trustee or such Paying Agent on written demand (or, if then held by the Issuer,
shall be discharged from trust), and the Holder of such Security shall
thereafter look only to the Issuer for any payment which such Holder may be
entitled to collect.
SECTION 8.06. Indemnity for Government Obligations. The Issuer shall
------------------------------------
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.07. Reinstatement. If the Trustee or Paying Agent is unable
-------------
to apply any money with respect to Securities in accordance with this Article
VIII by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Issuer's obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article VIII until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article VIII; provided, however, that if the Issuer has made any
-------- -------
payment of principal of, premium (if any) or interest on, any Security because
of the reinstatement of its obligations, the Issuer shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Issuer and the Trustee
--------------------------
may amend this Indenture or the Securities without the consent of any
Securityholder: (i) to cure any
43
<PAGE>
ambiguity, defect or inconsistency, provided that such change does not adversely
affect the rights hereunder of any Securityholder; (ii) to make any change
required to qualify the Indenture under the TIA; (iii) to comply with Article V;
(iv) to provide for uncertificated Securities in addition to certificated
Securities; (v) to make any change in Article X that would limit or terminate
the benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article X; (vi) to add guarantees with respect to the Securities
or to secure the Securities; (vii) to add to the covenants of the Issuer for the
benefit of the Holders or to surrender any right or power herein conferred upon
the Issuer; or (viii) to make any change that does not adversely affect the
rights hereunder of any Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless such holder of such Senior Indebtedness (or a Representative
therefor) consents to such change.
SECTION 9.02. With Consent of Holders. The Issuer and the Trustee may
-----------------------
amend this Indenture or the Securities with the written consent of the Holders
of at least a majority in principal amount of the then outstanding Securities.
Upon the request of the Issuer, accompanied by a Board Resolution of the Issuer
authorizing the execution of any such amendment to this Indenture, and upon the
filing with the Trustee of evidence of the consent of the Securityholders as
aforesaid, the Trustee, subject to Section 9.06, shall join with the Issuer in
the execution of any amendment to this Indenture.
The Holders of at least a majority in principal amount of the
Securities then outstanding may waive compliance in a particular instance by the
Issuer with any provision of this Indenture or the Securities.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments signed by such Holders
in person or by an agent duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Issuer. After an amendment or waiver under this
Section becomes effective, the Issuer shall mail to the Holder of each Security
affected thereby a notice briefly describing the amendment or waiver. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment or
waiver.
It shall not be necessary for the Securityholders to approve the
particular form of any proposed supplemental indenture, but it shall be
sufficient that they shall approve the substance thereof.
Notwithstanding anything in this Indenture to the contrary, without
the consent of each Securityholder affected, an amendment or waiver under this
Section may not: (i) reduce the amount of Securities whose Holders must consent
to an amendment or waiver; (ii) reduce the rate of or extend the time for
payment of interest on any Security; (iii) reduce the principal of or any
premium on or change the Stated Maturity for payment of principal or premium of
any Security or add or alter any redemption or repurchase provisions with
respect thereto; (iv) make
44
<PAGE>
any Security payable in money other than that stated in the Security; (v) make
any change in Section 6.04, 6.07 or this paragraph of Section 9.02; or (vi)
adversely affect the relative ranking of any Security or the rights of any
Securityholder under Article X.
An amendment under this Section may not make any change that adversely
affects the rights under Article X of any holder of Senior Indebtedness then
outstanding unless such holder of such Senior Indebtedness (or a Representative
therefor) consents to such change.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
-----------------------------------
this Indenture or the Securities shall be set forth in a supplemental indenture
that complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. Until an amendment
---------------------------------
or waiver becomes effective, a consent to it by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security if the Trustee receives written notice of revocation
before the date the amendment or waiver becomes effective. An amendment or
waiver becomes effective in accordance with its terms and thereafter binds every
Securityholder.
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. The consent shall expire 90 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If directed to
-------------------------------------
do so by the Issuer, the Trustee shall place an appropriate notation prepared by
the Issuer about an amendment or waiver on any Security thereafter
authenticated. The Issuer in exchange for all Securities may issue, and the
Trustee shall authenticate, new Securities that reflect the amendment or waiver.
SECTION 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign
-------------------------------
any amendment authorized pursuant to this Article IX if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not sign it. In signing such amendment,
the Trustee shall be entitled to receive and shall be fully protected in relying
upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence
that such amendment is authorized or permitted by this Indenture.
ARTICLE X
Subordination of Securities
---------------------------
SECTION 10.01. Agreement to Subordinate. The Issuer agrees, and each
------------------------
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities
45
<PAGE>
is subordinated in right of payment, to the extent and in the manner provided in
this Article X, to the prior payment in full in cash or cash equivalents of all
Senior Indebtedness and that this subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness. Only Indebtedness of the
Issuer which is Senior Indebtedness shall rank senior to the Securities in
accordance with the provisions set forth herein.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. (a) In the event
------------------------------------
of (i) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to-the Issuer or its assets, or (ii) any liquidation,
dissolution or other winding-up of the Issuer, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (iii) any assignment
for the benefit of creditors or any other marshalling of assets or liabilities
of the Issuer, then:
(A) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents of all Senior Indebtedness, or
provision shall be made for such payment, before the Securityholders shall
be entitled to receive any payment or distribution of any kind or character
(excluding securities of the Issuer or any other corporation provided for
by a plan of reorganization or readjustment that are equity securities or
are subordinated in right of payment to all Indebtedness of the Issuer
issued to the holders of Senior Indebtedness in such plan of reorganization
or readjustment to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article X
(such equity securities or subordinated securities being herein called
"Permitted Junior Securities")) on account of principal of, premium (if
any) or interest on the Securities;
(B) any payment or distribution of assets of the Issuer of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), to which the Securityholders would be entitled but for
the provisions of this Article X shall be paid by the Custodian or other
Person making such payment or distribution directly to the holders of
Senior Indebtedness or their Representative or Representatives ratably
according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent necessary to
make payment in full, in cash or cash equivalents, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness; and
(C) in the event that, notwithstanding the foregoing provisions of
this Section 10.02, the Trustee, a Paying Agent or any Securityholder shall
receive any payment or distribution of assets of the Issuer of any kind or
character, whether in cash, property or securities, in respect of
principal, premium (if any) or interest on the Securities before all Senior
Indebtedness is, paid in full, in cash or cash equivalents, or payment
thereof provided for, such payment or distribution (excluding Permitted
Junior Securities) shall be paid over or delivered forthwith to the
Custodian or other Person making payment or distribution of assets of the
Issuer for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full, in
cash or cash equivalents, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
46
<PAGE>
(b) The consolidation of the Issuer with, or the merger of the Issuer
with or into, another Person, or the liquidation or dissolution of the Issuer
following the conveyance, transfer or lease of all or substantially all of its
properties or assets to another Person in compliance with Article V shall not be
deemed a liquidation, dissolution, winding-up, assignment for the benefit of
creditors or marshalling of assets or liabilities for the purposes of this
Section 10.02.
SECTION 10.03. Payment and Non-Payment Defaults. (a) Unless Section
--------------------------------
10.02 shall be applicable, upon the occurrence of a Payment Default and receipt
by the Trustee of written notice thereof from the Issuer or a Representative or
a holder of Senior Indebtedness (except that, if an issue of Senior Indebtedness
has a Representative, only such Representative may give such notice), then no
payment or distribution of any assets of the Issuer of any kind or character,
whether in cash or property, by setoff or otherwise, shall be made by the Issuer
on account of the principal of, premium (if any) or interest on the securities
or on account of the purchase or redemption or other acquisition of any of the
Securities, and the Issuer may not make any deposit pursuant to Section 8.01 (to
make any such payment, distribution, purchase, redemption, acquisition or
deposit being referred to herein as to "pay the Securities") unless and until
such Payment Default shall have been cured or waived in writing or shall have
ceased to exist or such Senior Indebtedness shall have been discharged or paid
in full.
(b) Unless Section 10.02 shall be applicable, upon the occurrence of
a Non-Payment Default and receipt by the Trustee of written notice thereof from
a Representative or a holder of Specified Senior Indebtedness (except that, if
an issue of Specified Senior Indebtedness has a Representative, only such
Representative may give such notice) specifying an election to commence a
Payment Blockage Period (as defined below) pursuant to this Section 10.03(b),
then the Issuer shall not pay the Securities for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee of such notice and (subject
to any blockage of payments that may then be in effect under Section 10.03(a))
ending on the earliest of (i) the 179th day thereafter, (ii) the date on which
such Non-Payment Default (and all other Non-Payment Defaults as to which written
notice is given as aforesaid during the continuance of such Payment Blockage
Period) shall have been cured or waived in writing or shall have ceased to
exist, (iii) the date on which such Specified Senior Indebtedness shall have
been discharged or paid in full, (iv) the date on which such Payment Blockage
Period shall have been terminated by written notice to the Trustee from the
Person initiating such Payment Blockage Period, (v) the occurrence of an Event
of Default specified in Section 6.01 (viii) or (ix), or (vi) the acceleration of
any Specified Senior Indebtedness, after which, in the case of clause (i), (ii),
(iii), (iv) or (vi), the Issuer shall resume making any and all required
payments in respect of the Securities, including any missed payments, and, in
the case of clause (v), the principal of all of the Securities shall be
immediately due and payable without any declaration or other act on the part of
the Trustee or any of the Securityholders. In no event shall a Payment Blockage
Period pursuant to this Section 10.03(b) extend beyond 179 days from the date of
receipt by the Trustee of the written notice referred to above specifying an
election to commence a Payment Blockage Period. Any number of notices of Non-
Payment Defaults may be given during a Payment Blockage Period, but not more
than one Payment Blockage Period pursuant to this Section 10.03(b) may commence
in any consecutive 365-day period, irrespective of the number of Non-Payment
Defaults occurring during such period.
47
<PAGE>
(c) In the event that, notwithstanding the foregoing, the Trustee, a
Paying Agent or any Securityholder shall receive a payment or distribution
prohibited by the foregoing provisions of this Section 10.03, then the Trustee,
Paying Agent or Securityholder receiving such payment or distribution shall
promptly pay it over and deliver the same to the Issuer.
SECTION 10.04. Acceleration of Payment of Securities. If Payment of
-------------------------------------
the Securities is accelerated because of an Event of Default, the Issuer or the
Trustee shall promptly notify the holders of the Specified Senior Indebtedness
(or their Representatives) of the acceleration.
SECTION 10.05. Subrogation. After all Senior Indebtedness is paid in
-----------
full in cash or cash equivalents and until the Securities are paid in full, the
Securityholders shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments and distributions applicable to the Senior
Indebtedness, to the extent payments or distributions otherwise payable to the
Securityholders have been applied to the payment of Senior Indebtedness. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or Securities to which the
Securityholders would be entitled except for the provisions of this Article X,
and no payments over pursuant to the provisions of this Article X to the holders
of the Senior Indebtedness by the Trustee, a Paying Agent or the
Securityholders, shall, as among the Issuer its creditors other than holders of
Senior Indebtedness, and the Trustee, Paying Agent and the Securityholders, be
deemed to be a payment or distribution by the Issuer to or on account of the
Senior Indebtedness.
SECTION 10.06. Relative Rights. The provisions of this Article X are
---------------
and are intended solely for the purpose of defining the relative rights of the
Trustee and the Securityholders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing in this Article X or elsewhere in this
Indenture or the Securities is intended to or shall:
(i) impair, as between the Issuer and Securityholders, the
obligation of the Issuer, which is absolute and unconditional, to pay to
the Securityholders principal of, premium (if any) and interest on the
Securities in accordance with their terms; or
(ii) prevent the Trustee or any Securityholder from exercising its
available rights and remedies upon a Default or Event of Default, as the
case may be, subject to the rights of holders of Senior Indebtedness to
receive payments and distributions, in accordance with the provisions of
this Article X, otherwise payable to the Securityholders.
SECTION 10.07. Subordination May Not Be Impaired. (a) No right of any
---------------------------------
present or future holder of Senior Indebtedness to enforce the subordination of
the Indebtedness evidenced by the Securities shall at any time or in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuer or
any such holder or by any non-compliance by the Issuer with the terms,
provisions and covenants of this Indenture or the Securities, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
(b) Without in any way limiting the generality of Section 10.07(a),
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Securityholder, without
incurring responsibility to the Trustee or the
48
<PAGE>
Securityholders and without impairing or releasing the subordination provided in
this Article X or the obligations hereunder of the Trustee, Paying Agent or the
Securityholders, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or refund or
refinance, or renew or alter, Senior Indebtedness, or change, modify, or amend
any other term of any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; (iv) exercise or refrain from exercising any rights
against the Issuer or any other Person; and (v) take any other action which
might otherwise constitute a defense available to, or discharge of, the Trustee,
Paying Agent or the Securityholders in respect of their obligations under this
Article X.
SECTION 10.08. Rights of Trustee and Paying Agent. Notwithstanding
----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives written notice satisfactory to it that payments may not be made under
this Article X.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and the Paying Agent may do the same with like rights. The Trustee
shall be entitled to all the rights set forth in this Article X with respect to
any Senior Indebtedness which may at any time be held by it, to the same extent
as any other holder of Senior Indebtedness; and nothing in Article VII shall
deprive the Trustee of any of its rights as such holder. Nothing in this Article
X shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.07.
SECTION 10.09. Distribution of Notice to Representative. Whenever a
----------------------------------------
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.10. Article X Not to Prevent Events of Default or Limit
---------------------------------------------------
Right to Accelerate. The failure to make a payment pursuant to the Securities by
- -------------------
reason of any provision in this Article X shall not be construed as preventing
the occurrence of a Default. Nothing contained in this Article X shall have any
effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder or under applicable law.
SECTION 10.11. Trust Moneys Not Subordinated. Notwithstanding anything
-----------------------------
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations deposited with, and held in trust under Article VIII by,
the Trustee for the payment of principal of and interest on the Securities
shall, provided such deposit was not in violation of the provisions of this
Article X, not be subordinated to the prior payment of any Senior Indebtedness
or subject to the restrictions set forth in this Article X, and neither the
Trustee nor the Securityholders shall be obligated to pay over any such amount
to the Issuer or any holder of Senior Indebtedness.
49
<PAGE>
SECTION 10.12. Trustee Entitled to Rely. Upon any payment or
------------------------
distribution pursuant to this Article X, so long as the provisions of this
Article X have been brought to the attention of the court, tribunal, Custodian
or other Person making the payment or distribution, the Trustee and the
Securityholders shall be entitled to rely upon (i) any order or decree entered
by any court of competent jurisdiction in which any proceedings of the nature
referred to in Section 10.02 are pending, (ii) a certificate of the Custodian or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) the Representatives for the holders of Senior
Indebtedness, in each case for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Issuer, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article X. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate in any payment
or distribution pursuant to this Article X, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article X, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article X.
SECTION 10.13. Trustee to Effectuate Subordination. Each
-----------------------------------
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article X and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION 10.14. Trustee Not Fiduciary for Holders of Senior
-------------------------------------------
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
- ------------
holders of Senior Indebtedness.
SECTION 10.15. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security shall be
- ------------------------
deemed to acknowledge and agree that the subordination provisions of this
Article X are, and are intended to be, an inducement and a consideration to each
holder of any Senior Indebtedness, whether such Senior Indebtedness was created
or acquired before or after the issuance of the Securities, to acquire, hold, or
to continue to hold, such Senior Indebtedness and each holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring or holding, or in continuing to hold, such Senior
Indebtedness.
SECTION 10.16. Reinstatement. The provisions of this Article X shall
-------------
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Senior Indebtedness is rescinded or must otherwise be
disgorged by the holders thereof upon the insolvency, bankruptcy or
reorganization of the Issuer, all as though such payment had not been made.
50
<PAGE>
ARTICLE XI
Miscellaneous
-------------
SECTION 11.01. Trust Indenture Act Controls. If and to the extent that
----------------------------
any provision of this Indenture limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, Sections 310 to 318, inclusive, of the TIA, such
imposed duties or incorporated provision shall control.
SECTION 11.02. Notices. Any notice or communication to the Issuer or
-------
the Trustee is duly given if in writing and delivered in person or mailed by
first-class mail, or sent by facsimile transmission confirmed in writing, in
each case to the address set forth below:
If to the Issuer:
Dan River Inc.
2291 Memorial Drive
Danville, Virginia 24543
Tel. No. (804) 799-7000
Fax No. (804) 799-7276
Attention of Harry L. Goodrich
If to the Trustee:
Marine Midland Bank, N.A.
140 Broadway, 12th Floor
New York, NY 10005
Attn: Corporate Trust Administration
Tel. No. (212) 658-6084
Fax No. (212) 658-6425
Attention of Corporate Trust Department
The Issuer and the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
such notice or communication shall not affect its sufficiency with respect to
other Securityholders.
51
<PAGE>
If a notice or communication is mailed or sent in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it, except that notice to the Trustee shall only be effective upon
receipt thereof by the Trustee.
If the Issuer mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. Communication by Holders with Other Holders.
-------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Issuer, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Issuer to the Trustee to take any action
under this Indenture, the Issuer shall furnish to the Trustee: (i) an Officers'
Certificate (which shall include the statements set forth in Section 11.05)
stating that, in the opinion of the signers, all conditions precedent and
covenants, if any, provided for in this Indenture relating to the proposed
action have been complied with; and (ii) an opinion of Counsel (which shall
include the statements set forth in Section 11.05) stating that, in the opinion
of such counsel, all such conditions precedent and covenants have been complied
with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include: (i) a statement that the person
making such certificate or opinion has read and understands such covenant or
condition; (ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based; (iii) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with;
provided that such counsel shall be entitled to rely as to matters of fact upon
an Officers' Certificate.
SECTION 11.06. Rules by Trustee and Agents. The Trustee may make
---------------------------
reasonable rules for action by or for a meeting of Securityholders. The
Registrar or Paying Agent may make reasonable rules and set reasonable
requirements for its functions.
SECTION 11.07. Legal Holidays. A "Legal Holiday" is a Saturday, a
--------------
Sunday or a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to remain closed. If a payment
date is a Legal Holiday, payment may be made on the next succeeding day that is
not a Legal Holiday, and no Interest shall accrue on such payment for the
intervening period.
SECTION 11.08. No Recourse Against Others. No shareholder, as such,
--------------------------
director, officer, employee or shareholder, as such, of the Issuer shall have
any liability for any obligations of the Issuer under the Securities or this
Indenture. Each Holder by accepting a Security waives and releases all such
liability.
52
<PAGE>
SECTION 11.09. Duplicate Originals. The parties may sign any number
-------------------
of copies of this Indenture. One signed copy is enough to prove this Indenture.
SECTION 11.10. Governing Law. This Indenture and the Securities shall
-------------
be governed by and construed in accordance with the laws of the State of New
York, without regard to conflicts of law principles.
SECTION 11.11. Successors. All agreements of the Issuer in this
----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Severability. In case any provision in this Indenture
------------
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not-in any way be
affected or impaired thereby.
SECTION 11.13. Counterpart Originals. This Indenture may be signed in
---------------------
one or more counterparts. Each signed copy shall be an original, but all of them
together represent the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
DAN RIVER INC., as
Issuer,
by:________________________________
Name: Scott D. Batson
Title: Director of Finance
[seal]
Attest:
____________________________________
Name: Harry L. Goodrich
Title: Secretary and General Counsel
MARINE MIDLAND BANK, N.A., as
Trustee
by:________________________________
Name: Barbara Jean McCauley
Title: Assistant Vice President
[seal]
53
<PAGE>
Attest:
______________________________
Name: Eileen M. Hughes
Title: Corporate Trust Officer
54
<PAGE>
[EXHIBIT A]
[FORM OF FACE OF SECURITY]
10-1/8% DOLLARS
Senior DAN RIVER INC.
Subordinated Note
Due 2003
Dan River inc., a Georgia corporation, CUSIP
promises to pay to
, or registered assigns, Dollars on
the principal sum of December 15, 2003
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1
Additional provisions of this Security are set forth on
the other side of this Security.
Dan River Inc.
Dated: By
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
MARINE MIDLAND BANK, N.A., Chief Executive Officer
as Trustee, certifies that this is
one of the securities referred to
in the Indenture.
By Secretary
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SECURITY]
DAN RIVER INC.
10 1/8% SENIOR SUBORDINATED NOTE DUE 2003
1. Interest
Dan River Inc., a Georgia corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Issuer"), promises to pay interest on the principal amount of this
Security and, to the extent permitted by law, on any overdue interest, at the
rate per annum shown above. The Issuer will pay interest semiannually on June 15
and December 15 of each year (each an "Interest Payment Date"), commencing June
15, 1994. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 16,
1993. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment
The Issuer will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the June 1 or December 1 next preceding an Interest Payment Date
even if Securities are canceled after the record date and on or before such
Interest Payment Date. Holders must surrender Securities to a Paying Agent to
collect payments of principal and premium (if any). The Issuer will pay
principal, premium (if any) and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Issuer may pay principal, premium (if any) and interest by check
payable in such money. It may mail an interest check to a Holder's registered
address.
3. Paying Agent and Registrar
Initially, Marine Midland Bank, N.A., a national banking association
(the "Trustee"), will act as Paying Agent and Registrar. The Issuer may appoint
and change any Paying Agent or Registrar without notice. The Issuer may act as
Paying Agent or Registrar.
4. Indenture
The Issuer issued the Securities under an Indenture dated as of
December 15, 1993 (the "Indenture"), between the Issuer and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code (S) (S) 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Issuer limited
to $120,000,000 aggregate principal amount (subject to Section 2.07 of the
Indenture). The Indenture imposes certain limitations on the Issuer and its
Subsidiaries including, among others, on the Incurrence of Indebtedness by the
Issuer and its Subsidiaries, the issuance of Preferred Stock by Subsidiaries of
the Issuer, the payment of dividends and other distributions and acquisitions or
retirements of the Issuer's Capital Stock and Subordinated Obligations,
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<PAGE>
the sale or transfer of assets, the Incurrence of Liens and transactions with
Affiliates. In addition, the Indenture limits the ability of the Issuer and its
Subsidiaries to restrict distributions and dividends from Subsidiaries.
5. Optional Redemption
Except as set forth in this Section 5, the Issuer may not redeem the
Securities prior to December 15, 1998.
(a) On or after December 15, 1998, the Issuer may redeem the
Securities in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus, in each
case, accrued interest to the date fixed for redemption:
if redeemed during the 12-month period beginning December 15,
Year Percentage
- ---- ----------
1998............................. 105.1%
1999............................. 103.4%
2000............................. 101.7%
and thereafter at 100%.
(b) Until December 15, 1996, the Issuer may redeem a portion of the
Securities then outstanding out of the net proceeds of, and within 90 days of
the consummation of, a Public Equity Offering of the Issuer or Braelan Corp.,
the sole shareholder of the Issuer (the "Parent"), at a redemption price of
109.125% of the principal amount thereof, plus accrued interest to the
redemption date; provided, however, that immediately after any redemption
-------- -------
permitted by this paragraph (b), Securities in an aggregate principal amount of
$84 million must be outstanding.
A "Public Equity Offering" means a bona fide underwritten public
offering of Capital Stock of the Issuer or the Parent pursuant to an effective
registration statement under the Securities Act, as a result of which Capital
Stock of the Issuer or the Parent, as applicable, is distributed to the public.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000, if money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the right
to cause the Issuer to repurchase all or any part (in multiples of $1,000) of
the Securities of such Holder at a repurchase price equal to 101% of the
principal amount of the Securities to be repurchased plus accrued interest to
the date of repurchase as provided in, and subject to the terms of, the
Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as defined in
the Indenture. To the extent provided in the Indenture, Senior Indebtedness must
be paid before the Securities may be paid. The
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Issuer agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give effect thereto and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer or exchange of any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
10. Persons Deemed Owners
The registered holder of this Security may be treated as the owner of
its for all purposes.
11. Defeasance
Subject to certain conditions, the Issuer at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Issuer deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the securities to redemption or maturity,
as the case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of a least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Issuer and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, defect or inconsistency,
or to comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to add
guarantees with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Issuer, or
to make any change required to qualify the Indenture under the Act, or to make
certain changes in the subordination provisions, or to make any change that does
not adversely affect the rights of any Securityholder.
13. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
or premium, if any, on the Securities at maturity, upon acceleration required
purchase or otherwise; (iii) failure by the Issuer to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain payment defaults or accelerations of
other Indebtedness of the Issuer or any Subsidiary if the amount defaulted or
accelerated exceeds $5 million; (v) certain events of bankruptcy or insolvency
with respect to the Issuer or any Subsidiary; and (vi) certain judgments or
decrees for the payment of money in excess of $5 million. If an Event of Default
occurs and is continuing, the
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Trustee or the Holders of at least 25% in principal amount of the Securities may
declare all the Securities to be due and payable immediately. Certain events of
bankruptcy or insolvency involving the Issuer are Events of Default which will
result in the Securities being due and payable immediately upon the occurrence
of such Events of Default.
Securityholders may not enforce the Indenture of the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in their interest.
14. Trustee Dealings with the Issuer
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Issuer or its Affiliates and may otherwise deal with the Issuer or
its Affiliates with the same rights it would have if it were not Trustee.
15. No Recourse Against Others
No director, officer, employee or shareholder, as such, of the Issuer
shall have any liability for any obligations of the Issuer under the Securities
or his Indenture. Each Holder by accepting a Security waives and releases all
such liability.
I or we assign and transfer to
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
_________________________________
_________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
this Note and irrevocably appoint
_____________________________________
to transfer this Note on the books of
the Corporation. The agent may
substitute another to act for him.
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Dated:___________________ Signed:_______________________________
(Sign exactly as name appears
on the other side of this Note)
Election of Holder To Require Purchase
If you elect to have this Security repurchased by the Issuer pursuant
to Section 3.08 (Limitation on Specified Asset Sales) of 3.12 (Change of
Control) of the Indenture, check the box below:
[_] Section 3.08 (Limitation on Specified Asset Sales) or
3.12 (Change of Control)
If you elect to have only part of the Security repurchased by the
Issuer pursuant to Section 3.08 or 3.12 of the Indenture, as applicable, state
the principal amount you elect to have repurchased: $ .
Note: The amount you elect to have repurchased must be an integral multiple of
$1,000.
Dated:___________________ Signed:_______________________________
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Second Amendment")
----------------
dated as of December 29, 1999, is to that Credit Agreement dated as of October
14, 1998, as amended by a First Amendment to Credit Agreement dated May 21, 1999
(as may be subsequently amended and modified from time to time, the "Credit
------
Agreement"; terms used but not otherwise defined herein shall have the meanings
- ---------
provided in the Credit Agreement), by and among DAN RIVER INC., a Georgia
corporation (the "Borrower"), the Guarantors identified therein, the several
--------
banks and other financial institutions identified therein (the "Lenders") and
-------
FIRST UNION NATIONAL BANK, as administrative agent for the Lenders thereunder
(in such capacity, the "Agent"), BANK ONE, formerly The First National Bank of
-----
Chicago, as syndication agent, and WACHOVIA BANK, N.A., as documentation agent.
W I T N E S S E T H:
WHEREAS, the Lenders have established a credit facility for the
benefit of the Borrower pursuant to the terms of the Credit Agreement;
WHEREAS, the Borrower wishes to amend the Credit Agreement to modify
certain provisions contained therein; and
WHEREAS, the Required Lenders have agreed to the requested amendment
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respects:
1. Section 1.1 is amended by adding the following definitions
thereto in the appropriate alphabetical order:
"Apparel Joint Venture" shall mean that certain foreign
---------------------
joint venture between a wholly-owned subsidiary of the
Borrower, as the minority holder and Grupo Industrial Zaga,
S.A. de C.V., as the majority holder.
"Textile Joint Venture" shall mean that certain foreign
---------------------
joint venture between a wholly-owned subsidiary of the
Borrower, as the majority holder and Grupo Industrial Zaga,
S.A. de C.V., as the minority holder.
2. The definition of "Permitted Liens" in Section 1.1 is hereby
amended by adding the following as subclause (xi):
(xi) Liens on assets of the Textile Joint Venture arising in
connection with Indebtedness permitted pursuant to Section
6.1(k) hereof; provided, however that no additional Liens,
--------
other than Liens in favor of the Borrower, shall be
permitted
<PAGE>
in connection with any assets which are collateral for
intercompany Indebtedness of the Textile Joint Venture to
the Borrower.
3. The definition of "Permitted Investments" in Section 1.1 is
hereby amended by adding the following subclause (ix)
thereto:
(ix) Investments in the Apparel Joint Venture in an amount
not to exceed $8,000,000 in the aggregate.
4. Section 2.7(b)(ii) is hereby amended by making the additions
and deletions set forth in bold below:
(ii) Asset Dispositions. Promptly following any Asset
------------------
Disposition or series of Asset Dispositions (excluding for
the purposes hereof, the Asset Disposition by the Borrower
to the Textile Joint Venture permitted pursuant to Section
6.5(a)(vi)) in an aggregate amount in excess of $10,000,000
in any fiscal year, the Borrower shall prepay the Loans in
an aggregate amount equal to the Net Cash Proceeds derived
from such Asset Dispositions (such prepayment to be applied
as set forth in clause (v) below).
5. Section 5.1(a) is hereby amended by making the additions and
deletions set forth in bold below:
(a) Annual Financial Statements. As soon as available,
---------------------------
but in any event within ninety (90) days after the end of
each fiscal year of the Borrower, a copy of the consolidated
and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such fiscal year
and the related consolidated and consolidating statements of
income and retained earnings and of cash flows of the
Borrower and its consolidated Subsidiaries for such year
audited by a firm of independent certified public
accountants of nationally recognized standing reasonably
acceptable to the Required Lenders, setting forth in each
the case of consolidated reports, in comparative form the
figures for the previous year, reported on without a "going
concern" or like qualification or exception, or
qualification indicating that the scope of the audit was
inadequate to permit such independent certified public
accountants to certify such financial statements without
such qualification, provided that for the purposes of this
--------
subsection 5.1(a), the term "consolidating" shall be
understood to mean the segregation of the financial
information of the Borrower and the Guarantors from the
financial information of the Subsidiaries which are not
Guarantors hereunder;
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6. Section 5.1(b) is hereby amended by making the additions and
deletions set forth in bold below:
(b) Quarterly Financial Statements. As soon as
------------------------------
available and in any event within forty-five (45) days after
the end of each of the first three fiscal quarters of the
Borrower, company-prepared consolidated and consolidating
balance sheets of the Borrower and its consolidated
Subsidiaries as at the end of such period and related
company-prepared statements of income and retained earnings
and of cash flows (year-to-date) on both a consolidated and
consolidating basis for the Borrower and its consolidated
Subsidiaries for such quarterly period and for the portion
of the fiscal year ending with such period setting forth in
comparative form consolidated figures for the corresponding
period or periods of the preceding fiscal year (subject to
normal recurring year-end audit adjustments), provided that
--------
for the purposes of this subsection 5.1(b), the term
"consolidating" shall be understood to mean the segregation
of the financial information of the Borrower and the
Guarantors from the financial information of the
Subsidiaries which are not Guarantors hereunder; and
7. Section 5.9 is hereby amended by adding the word
"Restricted" immediately before the word "Subsidiaries" in
the second line thereof.
8. Section 5.12 is hereby amended by adding the phrase "(other
than the Textile Joint Venture)" immediately following the
phrase "each of its Subsidiaries" in the first and sixth
lines thereof.
9. Section 6.1 is hereby amended by adding the following clause
(k) to the end thereof:
(k) Indebtedness of the Textile Joint Venture which is not
Recourse Debt.
10. Section 6.3 is hereby amended by making the additions and
deletions set forth in bold below:
The Borrower will not, nor will it permit any Subsidiary to,
enter into or otherwise become or be liable in respect of
any Guaranty Obligations (excluding specifically therefrom
endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) other than
(i) those in favor of the Lenders in connection herewith,
(ii) Guaranty Obligations by the Borrower or its
Subsidiaries of Indebtedness permitted under Section 6.1(g)
(except, as regards Indebtedness under subsection (b)
thereof, only if and to the extent such Indebtedness was
guaranteed on the Closing Date) and (iii) Guaranty
Obligations by the Textile Joint Venture permitted under
Section 6.1(k).
11. Section 6.5(a) is hereby amended by making the additions and
deletions set forth in bold below:
(a) dissolve, liquidate or wind up its affairs, sell,
transfer, lease or otherwise dispose of its property or
assets or agree to do so at a future time except the
following, without duplication, shall be expressly
permitted:
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(i) Specified Sales;
(ii) the sale, transfer, lease or other
disposition of property or assets (a) to an unrelated party
not in the ordinary course of business (other than Specified
Sales), where and to the extent that they are the result of
a Recovery Event or (b) the sale, lease, transfer or other
disposition of machinery, parts and equipment no longer used
or useful in the conduct of the business of the Borrower or
any of its Subsidiaries, as appropriate, in its reasonable
discretion, so long as the net proceeds therefrom are used
to repair or replace damaged property or to purchase or
otherwise acquire new assets or property, provided that such
--------
purchase or acquisition is committed to within 180 days of
receipt of the net proceeds and such purchase or acquisition
is consummated within 270 days of receipt of such proceeds;
(iii) the sale, lease or transfer of property or
assets (at fair value) between the Borrower and any
Guarantor;
(iv) the sale, lease or transfer of property or
assets from a Credit Party other than the Borrower to
another Credit Party;
(v) the sale, lease or transfer of property or
assets not to exceed $10,000,000 in the aggregate in any
fiscal year; and
(vi) the sale, lease or transfer of property
comprising approximately 46% of the Borrower's U.S. apparel
fabrics manufacturing capacity as of December 28, 1999 to
the Textile Joint Venture, provided that the sale, lease or
--------
transfer is for fair market value and consideration;
provided, that in the case of each of (i) through (v)
--------
above (other than the liquidation of all or substantially
all of the assets of the Acquired Business into the Borrower
which shall be excluded for purposes hereof) at least 75% of
the consideration received therefor by the Borrower or any
such Subsidiary is in the form of cash or Cash Equivalents;
or
12. Section 6.7 is hereby amended by making the additions set
forth in bold below:
Except (i) as permitted in subsection (iv) of the
definition of Permitted Investments, (ii) in the case of the
transactions between the Borrower and the Textile Joint
Venture, (iii) in the case of the transactions between the
Borrower and the Apparel Joint Venture and (iv) otherwise to
an extent not judged material by the Required Lenders in
their discretion, the Borrower will not, nor will it permit
any Subsidiary to, enter into any transaction or series of
transactions, whether or not in the ordinary course of
business, with any officer, director, shareholder or
Affiliate other than on terms and conditions substantially
as favorable as would be obtainable in a comparable arm's-
length transaction with a Person other than an officer,
director, shareholder or Affiliate.
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<PAGE>
13. Section 6.8 is hereby amended by making the additions set
forth in bold below:
The Borrower will not, nor will it permit any
Subsidiary to, create, form or acquire any Subsidiaries,
except for (i) Domestic Subsidiaries which are joined as
Additional Credit Parties in accordance with the terms
hereof, (ii) the Textile Joint Venture and (iii) an indirect
wholly-owned Subsidiary which, if formed, shall be a Dutch
holding company which will be the majority holder in the
Textile Joint Venture and the minority holder in the Apparel
Joint Venture. The Borrower will not sell, transfer, pledge
or otherwise dispose of any Capital Stock or other equity
interests in any of its Subsidiaries, nor will it permit any
of its Subsidiaries to issue, sell, transfer, pledge or
otherwise dispose of any of their Capital Stock or other
equity interests, except in a transaction permitted by
Section 6.5.
14. Section 6.10 is hereby amended by adding the phrase
"except as may be required by the Textile Joint Venture
pursuant to its Members Agreement" immediately after the
phrase "permit any Subsidiary to" in the first line thereof.
15. Section 6.11 is hereby amended by making the additions and
deletions set forth in bold below:
The Borrower will not, nor will it permit any Subsidiary to,
directly or indirectly, declare, order, make or set apart
any sum for or pay any Restricted Payment, except (a) to
make dividends payable solely in the same class of Capital
Stock of such Person, (b) to make dividends or other
distributions payable to any Credit Party or in the case of
the Textile Joint Venture, to each of its partners (directly
or indirectly through Subsidiaries), (c) as permitted by
Section 6.12, (d) provided that no Default or Event of
Default has occurred and is continuing at such time or would
be directly or indirectly caused as a result thereof, the
Borrower may pay cash dividends or repurchase shares of its
Capital Stock in an aggregate amount not to exceed
$5,000,000 in any fiscal year and (e) distributions by the
Textile Joint Venture to pay the partnership tax liabilities
of its partners.
16. Section 6.12 is hereby amended by adding the following
proviso to the end thereof:
provided, however that the Textile Joint Venture may prepay
--------
Indebtedness permitted hereunder at any time.
B. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
C. The Credit Parties hereby represent and warrant that (a) the
representations and warranties contained in Article III of the Credit Agreement,
as amended hereby are correct in all material respects on and as of the date
hereof as though made on and as of such date and after giving effect to the
amendments contained herein and (b) no Default or Event of Default exists on and
as of the date hereof and after giving effect to the amendments contained
herein.
D. The Guarantors acknowledge and consent to all of the terms and
conditions of this Second Amendment and agree that this Second Amendment and all
documents executed in connection herewith do
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<PAGE>
not operate to reduce or discharge the Guarantors' obligations under the Credit
Agreement or the other Credit Documents. The Guarantors further acknowledge and
agree that the Guarantors have no claims, counterclaims, offsets, or defenses to
the Credit Documents and the performance of the Guarantors' obligations
thereunder or if the Guarantors did have any such claims, counterclaims, offsets
or defenses to the Credit Documents or any transaction related to the Credit
Documents, the same are hereby waived, relinquished and released in
consideration of the Required Lenders' execution and delivery of this Second
Amendment.
E. This Second Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Second Amendment to produce or
account for more than one such counterpart.
F. This Second Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of North Carolina.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Second Amendment to be duly executed and delivered as of the date and year
first above written.
BORROWER: DAN RIVER, INC.,
- -------- a Georgia corporation
By: ______________________________________
Name:
Title:
THE BIBB COMPANY,
a Delaware corporation
By: ______________________________________
Name:
Title:
DAN RIVER FACTORY STORES, INC.,
a Georgia corporation
By: ______________________________________
Name:
Title:
<PAGE>
AGENTS AND LENDERS: FIRST UNION NATIONAL BANK,
- ------------------
as Administrative Agent and as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
BANK ONE,
formerly The First National Bank of Chicago,
as Syndication Agent and as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
WACHOVIA BANK, N.A.,
as Documentation Agent and as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
LENDERS: SUNTRUST BANK,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
COMERICA BANK,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
COOPERATIVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK
BRANCH, as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
CENTURA BANK,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
FLEET BANK, N.A.,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
ABN AMRO BANK N.V.,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
THE BANK OF NEW YORK,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
NATIONAL BANK OF CANADA,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
SOUTHTRUST BANK, N.A.,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
NATIONAL CITY BANK OF KENTUCKY,
as a Lender
By: ______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.7
AMENDMENT TO VOTING AGREEMENT
THIS AMENDMENT TO VOTING AGREEMENT (the "Agreement") is made and entered into
as of the 16th day of December, 1997, by and among Dan River Inc., a Georgia
corporation (the "Company"), Joseph L. Lanier, Jr., an individual resident of
the State of Alabama ("Joseph Lanier"), and Richard L. Williams, an individual
resident of the State of New Jersey, Barry F. Shea, an individual resident of
the State of Virginia, J.C. Bradford f/b/o Barry F. Shea ("J.C. Bradford"), Ann
L. Jackson, an individual resident of the State of Florida, Joseph L. Lanier,
III, an individual resident of the State of Virginia, Ann M. Lanier, an
individual resident of the State of Alabama, and Suzanne S. Williams, an
individual resident of the State of New Jersey (all of such individuals and J.C.
Bradford shall be referred to collectively as the "Shareholders" and
individually as a "Shareholder);
W I T N E S S E T H
WHEREAS, the Company and the Shareholders have entered into a Voting Agreement
dated as of November 20, 1997 (the "Voting Agreement"); and
WHEREAS, in November 1997 the Company completed an initial public offering
(the "IPO") of Class A Common Stock, par value $.01 per share, of the Company
("New Class A Common");
WHEREAS, in connection with the IPO, the Company amended and restated its
Amended and Restate Articles of Incorporation to, among other things, authorize
the issuance of supervoting Class B Common Stock, par value $.01 per share, of
the Company ("New Class B Common"); and
WHEREAS, in connection with the IPO, the Company and each Shareholder
exchanged (the "Exchange Offer") certain shares of New Class A Common owned by
such Shareholder for shares of New Class B Common on a share-for-share basis;
and
WHEREAS, the Company and the Shareholders wish to make a clarifying amendment
to the Voting Agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
<PAGE>
Section 1. Amendments.
1.1 Section 1.1 of the Voting Agreement shall be amended by adding the
following sentence at the end thereof:
"This Agreement shall not apply, under any circumstances, to shares of New
Class A Common owned (or hereafter acquired) by any Shareholder or
transferee thereof or received upon conversion of Shareholder Group Stock
by any Shareholder or transferee thereof in accordance with the New
Charter."
1.2 Section 4.3 of the Voting Agreement shall be amended by adding the
following sentence at the end thereof:
"Notwithstanding the foregoing, nothing contained in this Agreement shall
prohibit any Shareholder from, in accordance with the New Charter, (i)
converting shares of Shareholder Group Stock into shares of New Class A
Common or (ii) Transferring (as defined in the Company's Amended and
Restated Articles of Incorporation) shares of Shareholder Group Stock to a
third party other than a Permitted Transferee (as defined in the Company's
Amended and Restated Articles of Incorporation), which will result in the
automatic conversion of such shares into New Class A Common."
Section 2. Miscellaneous.
2.1 Entire Agreement. Except as otherwise expressly set forth herein, this
Amendment embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
2.2 Successors and Assigns. Except as otherwise provided herein, this
Amendment will bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns, and the Shareholders and any subsequent
holders of shares of Shareholder Group Stock and the respective successors and
assigns of each of them, so long as they hold shares of Shareholder Group Stock.
2.3. Counterparts. This Agreement may be executed in separate counterparts
each of which will be an original and all of which taken together will
constitute one and the same agreement.
2.4 Governing Laws. This Amendment will be governed by the laws of the State
of Georgia.
2.5 Voting Agreement. The Voting Agreement shall remain in full force and
effect and, except as amended hereby, shall not otherwise be amended, modified
or superseded.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
DAN RIVER INC.
By:________________________
Joseph L. Lanier, Jr.
Chief Executive Officer
___________________________
JOSEPH L. LANIER, JR.
___________________________
ANN M. LANIER
___________________________
ANN L. JACKSON
___________________________
JOSEPH L. LANIER, III
___________________________
BARRY F. SHEA
J. C. BRADFORD F/B/O
BARRY F. SHEA
By:_________________________
___________________________
RICHARD L. WILLIAMS
____________________________
SUZANNE S. WILLIAMS
3
<PAGE>
EXHIBIT 10.13
BRAELAN CORP.
AMENDED AND RESTATED STOCK OPTION PLAN
AMENDED AS OF DECEMBER 30, 1994
SECTION 1. Purposes; Definitions.
The purpose of the Braelan Corp. Amended and Restated Stock Option Plan
(the "Plan") is to enable Braelan Corp. (the "Company") (i) to attract and
reward key management employees and directors of the Company and its
Subsidiaries and (ii) to strengthen the mutuality of interests between such key
management employees and directors and the Company's stockholders.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Board" means the Board of Directors of the Company.
-----
b. "Cause" means an optionee's insubordination, misconduct, dishonesty or
-----
gross negligence in the performance of his duties which has a material
adverse impact on the business or reputation of the Company or its
Subsidiaries.
c. "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and any successor thereto.
d. "Committee" means the Committee referred to in Section 2 of the Plan.
---------
If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
e. "Company" means Braelan Corp., a corporation organized under the laws
-------
of the State of Delaware, or any successor corporation.
f. "Disability" means disability as determined under procedures
----------
established under the Dan River Inc. Group Long Term Disability
Insurance Plan, or any successor disability plan.
g. "Early Retirement" means retirement from active employment with the
----------------
Company and any Subsidiary after attaining age 62 and before attaining
age 65; but only if approved by the Committee for purposes of this
Plan.
h. "Executive Holder" means Joseph L. Lanier, Jr.
----------------
<PAGE>
i. "Normal Retirement" means retirement from active employment with the
-----------------
Company and any Subsidiary on or after attainment of age 65.
j. "Outstanding Common Stock" means the Class A Voting Common Stock, $.01
------------------------
par value per share, and the Class B Nonvoting Common Stock, $.01 par
value per share.
k. "Plan" means this Braelan Corp. Amended and Restated Stock Option
----
Plan, as hereafter amended from time to time
l. "Retirement" means Normal or Early Retirement.
----------
m. "Stockholder Agreement" means the Restricted Transfer Agreement, dated
---------------------
September 3, 1991, among the Company and its then existing
stockholders.
n. "Stock" means the Class A Voting Common Stock, $.01 par value per
-----
share, of the Company.
o. "Stock Option" or "Option" means any option to purchase shares of
------------ ------
Stock granted pursuant to Section 5 below.
p. "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
q. "Voting Agreement" means that certain agreement of the same name
----------------
entered into between the Company and certain of its stockholders as of
September 3, 1991, as the same may be amended from time to time
SECTION 2. Administration.
(a) The Plan shall be administered by the Compensation Committee of the
Board.
(b) The Committee shall have full authority to grant Stock Options
pursuant to the terms of the Plan to directors, officers and other key
management employees eligible under Section 4. In particular, the Committee
shall have the authority:
(i) to select the individuals to whom Stock Options may from time to time
be granted hereunder;
2
<PAGE>
(ii) to determine the number of shares to be covered by each such Stock
Option granted hereunder and a vesting schedule, if considered
appropriate by the Committee, with respect to each such Option; and
(iii) to determine whether and under what circumstances a Stock Option may
be settled in cash instead of Stock.
(c) The Committee shall have the authority to adopt, alter and repeal
such rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable; to interpret the terms and provisions of the Plan and
any Stock Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
(d) All decisions made by the Committee pursuant to the provisions of
the Plan shall be made in the Committee's sole discretion and shall, absent
manifest error or abuse of discretion, be final and binding on all persons,
including the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
(a) With respect to Stock Options granted prior to December 30, 1994,
the total number of shares of Stock available for distribution under the Plan
shall be 3,000 shares. The Executive Holder shall contribute the Stock (the
"Executive Holder Stock") issued upon exercise of the Option, and the exercise
of the Option shall constitute the exercise of a right to acquire shares of
Stock from the Executive Holder and not the Company.
(b) With respect to Stock Options granted on or after December 30, 1994
(except as provided in Section 3.(c) below), the Company shall contribute the
Stock issued upon exercise of the Option from the authorized but unissued Stock
of the Company (the "Reserved Stock").
(c) If any Options granted hereunder shall expire or terminate without
having been exercised or otherwise settled, the shares of Stock subject to such
Options shall again be available for distribution in connection with future
Options granted under the Plan. Options replacing Options granted pursuant to
Section 3.(a) above shall, upon exercise, be settled with Executive Holder
Stock, and Options replacing Options granted pursuant to Section 3.(b) above
shall be settled with Reserved Stock.
(d) In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, Stock split or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan and in the
number and option price of shares subject to outstanding Options granted under
the Plan as may be determined to be appropriate by the Committee, in its sole
discretion.
3
<PAGE>
SECTION 4. Eligibility.
Directors, officers and other key management employees of the Company and
its Subsidiaries who, in the judgment of the Committee in its absolute
discretion, are responsible for or contribute to the management, growth and/or
profitability of the business of the Company and its Subsidiaries are eligible
to be granted Options under the Plan.
SECTION 5. Stock Options.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Prices. The option price per share of Stock purchasable under a
-------------
Stock Option shall be as established in the discretion of the Committee.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee at the time of grant, but no Stock Option shall be exercisable after
the later of (i) ten years and one day after the date the Option is granted, or
(ii) December 31, 2001.
(c) Exercisability. Stock Options shall be exercisable at such time or
--------------
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant If the Committee provides, in its sole discretion,
that any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after grant in
whole or in part, based on such factors as the Committee shall determine in its
sole discretion.
(d) Method of Exercise. Stock Options may be exercised in accordance with
------------------
Section 5(c) above by giving written notice of exercise to the Company
specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase price,
either by check, note or such other instrument as the Committee may accept in
its sole discretion.
No shares of Stock shall be issued until full payment therefor has been
made. No optionee shall have any rights as a stockholder with respect to shares
subject to the Option until such shares have been issued and delivered by the
Company.
(e) Non-Transferability of Options. Unless approved by the Committee in
------------------------------
its sole discretion, no Stock Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution, and during
the optionee's lifetime, all Stock Options shall be exercisable only by the
4
<PAGE>
optionee.
(f) Termination by Death. Subject to Section 5(c), if an optionee's
--------------------
employment by the Company and any Subsidiary terminates by reason of death, any
Stock Option held by such optionee may be exercised, to the extent such Option
was vested at the time of death, until the later of (i) 6 months after the
optionee's death, or (ii) the earliest permissible exercise date set forth in
the Option , but in any event no later than the expiration of the stated term of
the Option, by the legal representative of the estate or by the legatee of the
optionee.
(g) Termination by Reason of DisabilitY. Subject to Section 5(c), if an
-----------------------------------
optionee's employment by the Company and any Subsidiary terminates by reason of
Disability, any Stock Option held by such optionee may be exercised by the
optionee, to the extent it was vested at the time of termination, until the
later of (i) 6 months from the date of such termination of employment or (ii)
the earliest permissible exercise date set forth in the Option , but in any
event, no later than the expiration of the stated term of such Stock Option;
provided, however, that, if the optionee dies within such period, any vested but
unexercised Stock Option held by such optionee at the time of death may be
exercised by the legal representative of the estate or by the legatee of the
optionee within the time period set forth in this subparagraph (g).
(h) Termination by Reason of Retirement. Subject to Section 5(c), if an
-----------------------------------
optionee's employment by the Company and any Subsidiary terminates by reason of
Normal or Early Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was vested at the time
of such termination, until the later of (i) 6 months from the date of such
termination of employment or (ii) the earliest permissible exercise date set
forth in the Option , but in any event no later than the expiration of the
stated term of such Stock Option; provided, however, that, if the optionee dies
within such period, any vested but unexercised Stock Option held by such
optionee at the time of death may be exercised by the legal representative of
the estate or by the legatee of the optionee within the time period set forth in
this subparagraph (h).
(i) Other Termination.
-----------------
(A) If an optionee voluntarily terminates his employment with the Company
or any Subsidiary, or if the Company or any Subsidiary terminates the employment
of the optionee for Cause, all unexercised options shall be deemed to be revoked
in their entirety (whether or not vested) as of the date of such termination and
shall not become exercisable hereunder.
(B) If the Company or any Subsidiary terminates an optionee's employment
without Cause, subject to Section 5(c), any
5
<PAGE>
Stock Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was vested at the time of such termination, until the later of
(i) 6 months from the date of such termination of employment, or (ii) the
earliest permitted exercise date set forth in the Option , but in any event no
later than the expiration of the stated term of the Stock Option; provided
however, that, if the optionee dies within such period, any vested but
unexercised Stock Option held by such optionee at the time of death may be
exercised by the legal representative of the estate or by the legatee of the
optionee within the time period set forth in this subparagraph (i)(B).
(j) No Incentive Stock Options. Anything in the Plan to the contrary
--------------------------
notwithstanding, no Options granted under this Plan shall be treated as
Incentive Stock Options under Section 422A of the Code.
(k) Repurchase Provisions. Subject to the requirements of Rule 16b-3 or
---------------------
any other relevant regulation promulgated under the Securities Exchange Act of
1934, or other applicable law, if and to the extent applicable, the Committee
may at any time offer to repurchase an Option previously granted for a payment
in cash, based on such terms and conditions as the Committee shall establish and
communicate to the optionee at the time that such offer is made.
SECTION 6. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent and agree with the Company in writing
that the optionee is acquiring the shares for investment and without a view to
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restriction on transfer.
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, any applicable federal or state securities law,
or agreements among the Company and stockholders of the Company, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor the grant of any
6
<PAGE>
Option shall be deemed to create a contract of employment or confer upon any
employee of the Company or any Subsidiary, any right to continued employment
with the Company or a Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company or a Subsidiary to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Option under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment of any kind otherwise due to
the participant.
(e) The Plan and all Options granted and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 7. Certain Restrictions; Committee Discretion.
Under circumstances set forth in the Stockholder Agreement and the Voting
Agreement and as determined by the Committee, shares of Stock issued upon
exercise of Stock Options shall be subject to certain restrictions as set forth
in the Stockholder Agreement and the Voting Agreement. The Committee, in
consultation with its legal advisors, shall administer the Plan so as to comply
with the Stockholder Agreement and the Voting Agreement, with other agreements
between the Company and its stockholders, with agreements between the Company
and its lenders, and with applicable law, including without limitation, federal
and state securities laws. The Committee may, in its sole discretion, require
as a precondition to the issuance of Stock or the grant of any Stock Option,
that participants execute the Stockholder Agreement and the Voting Agreement,
irrevocable proxies and any other documents deemed necessary or appropriate by
the Committee, consistent with this Section and such agreements. Further, the
Committee may, in its sole discretion, choose to substitute another class of
common stock (including non-voting common stock) or cash in lieu of the Stock
upon exercise of any participant's Stock Option; provided, however, that the
stock issued or cash payments made shall be of equivalent value to the Stock at
the time the Stock Option is exercised, without taking into consideration any
value attributable to voting rights in the stock or future appreciation
potential.
7
<PAGE>
SECTION 8. Amendments and Termination.
The Board may, in its absolute discretion, amend, alter, or discontinue the
Plan, but no amendment, alteration, or discontinuance shall be made which would
impair the rights of an optionee under a Stock Option theretofore granted,
without the optionee's or participant's consent.
SECTION 9. Effective Date of Plan.
The Plan shall be effective as of September 3, 1991.
SECTION 10. Term of Plan.
No Stock Option shall be granted pursuant to the Plan after December 31,
2000, but Options granted prior to such date may extend beyond that date.
8
<PAGE>
BRAELAN CORP.
AMENDED AND RESTATED STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION
(NON-TRANSFERABLE)
O P T I O N A G R E E M E N T
Braelan Corp., a Delaware corporation (the "Company"), pursuant to action of
the Board of Directors and in accordance with the Braelan Corp. Amended and
Restated Stock Option Plan, as amended as of December 30, 1994 (the "Plan"),
hereby grants a non-qualified stock option (the "Option") to _______________
("Optionee") to purchase from the Company _________ shares of Stock at an Option
Price of $120 per share, which Option is subject to all of the terms and
conditions set forth in the Plan and in this Option Agreement. This Option is
granted effective as of December 30, 1994 ("Option Grant Date").
(S) 1. Plan. The Option granted in this Option Agreement shall be subject
----
to all the terms and conditions set forth in the Plan and this Option Agreement
and, unless the context requires otherwise, all the terms defined in the Plan
shall have the same meaning in this Option Agreement when such terms start with
a capital letter. All references to a section in this Option Agreement shall be
to a section of this Option Agreement absent any express statement to the
contrary elsewhere in this Option Agreement.
(S) 2. Status as Non-Qualified Stock Option. The Company intends that the
------------------------------------
exercise of the Option constitutes a taxable event to Optionee for federal
income tax purposes and that the Company receive an income tax deduction for
federal income tax purposes for the amount that Optionee includes in his income
as a result of such exercise. Thus the Company intends that the Option not
qualify for any special income tax benefits as an incentive stock option under
(S) 422A of the Code.
(S) 3. Vesting. Optionee's right to purchase shares of Stock subject to
-------
the Option shall become vested in the percentages set forth in the following
schedule, provided Optionee has remained continuously in the employ of the
Company or a Subsidiary from the Option Grant Date through the date indicated
opposite such percentage:
<PAGE>
Percentage of Vested
Year Interest
---- --------------------
December 31, 1995 20%
December 31, 1996 40%
December 31, 1997 60%
December 31, 1998 80%
December 31, 1999 100%
Notwithstanding the foregoing, Options shall become fully (100%) vested (i)
as of December 31, 1997 or December 31, 1998, as the case may be, in the event
the cumulative Consolidated EBITDA of the Company (as such term is defined in
the Indenture dated as of December 15, 1993 between Dan River Inc. and Marine
Midland Bank, N.A., as Trustee, in connection with the Dan River Inc. 10 1/8%
Senior Subordinated Notes due 2003 [the "Indenture"]) commencing January 1, 1995
and continuing through the end of the Company's 1997 fiscal year equals or
exceeds $188 million, or $274 million through the end of the Company's 1998
fiscal year (in each case based on internal growth of the Company), or (ii) on
the day after the occurrence of a Change of Control as such term is defined in
the Indenture.
Optionee's right to purchase the balance of the shares of Stock subject to the
Option shall be revoked automatically on the date he first no longer remains in
the employ of either the Company or a Subsidiary if such date comes before his
Option is 100% vested, and his Option shall expire on such date to the extent of
such revocation.
(S) 4. Exercise Condition. Subject to (S) 6 and (S) 7, Optionee shall have
------------------
the right to exercise all or any part of the Option only to the extent that his
right to purchase shares of Stock subject to the Option is vested under (S) 3
and only on the "Earliest Exercise Date," which shall be the day after his
Option becomes 100% vested as provided herein.
(S) 5. Order of Exercise. The exercise of the Option shall not be affected
-----------------
by the exercise or non-exercise of any other option under the Plan or any other
stock option plan maintained by the Company (without regard to whether such
option constitutes an "incentive stock option" within the meaning of (S) 422A of
the Code).
(S) 6. Term of Option. The Option in any event shall automatically expire
--------------
on the first of the following dates to occur:
(a) the date the Option is exercised in full,
(b) December 31, 2001, in which event the Option shall expire to the
extent unexercised, or
(c) the date Optionee's rights with respect to the Option are revoked
under (S) 3 or (S) 7, whichever is applicable.
2
<PAGE>
(S) 7. Special Rules.
-------------
(a) Termination of Employment. If Optionee's continuous employment
-------------------------
by the Company or a Subsidiary is terminated on any date either by Optionee or
for Cause by the Company or a Subsidiary, the Optionee's right to exercise the
Option shall be revoked automatically (and the Option shall expire) on the date
Optionee's employment so terminates. Subject to the limitations contained in (S)
4, if Optionee's continuous employment by the Company or a Subsidiary is
terminated without Cause by the Company or a Subsidiary, the Option may be
exercised, to the extent vested on the date his employment so terminates, at any
time during the 6 consecutive month period immediately following the later of
(i) the date Optionee's continuous employment so terminates, or (ii) the
Earliest Exercise Date, and such Option shall be exercisable by Optionee or the
person to whom Optionee's rights under the Option pass in accordance with (S)
11. Optionee's right to exercise the Option shall be revoked automatically (and
the Option shall expire) on the last day of such 6 consecutive month period.
Optionee's leave of absence from the Company or a Subsidiary shall not be
treated as a termination of Optionee's continuous employment with the Company or
a Subsidiary, provided such leave of absence is approved in writing by the
Company or such Subsidiary.
(b) Death, Disability or Retirement. Subject to the limitations
-------------------------------
contained in (S) 4, if Optionee's continuous employment by the Company or a
Subsidiary is terminated on any date by reason of his death, Disability, or
Retirement, the Option may be exercised, to the extent vested on the date his
employment so terminates, at any time during the 6 consecutive month period
immediately following the later of (i) the date Optionee's continuous employment
so terminates or (ii) the Earliest Exercise Date, and such Option shall be
exercisable by Optionee or the person to whom Optionee's rights under the Option
pass in accordance with (S) 11. Optionee's right to exercise the Option shall be
revoked automatically (and the Option shall expire) on the last day of such 6
consecutive month period.
(S) 8. Method of Exercise of Option. Optionee may (subject to the terms of
----------------------------
this Option Agreement) exercise the Option in whole or in part (before the date
this Option expires) only on a normal business day of the Company by (a)
delivering this Option Agreement to the Company together with written notice
(addressed to the Corporate Secretary) of the exercise of such Option specifying
the number of shares with respect to which the Option is exercised and (b)
simultaneously paying the Option Price to the Company either in cash, by check
or by any other instrument acceptable to the Committee.
(S) 9. Settlement. Upon the exercise (in whole or in part) of the Option
----------
in accordance with (S) 8, the Committee shall, in its absolute discretion,
transfer either Stock, non-voting stock or other stock of the Company, or cash,
or a combination of such
3
<PAGE>
Stock, stock, and cash to Optionee in full settlement of Company's obligation
under the Option. If a transfer is made in cash (in lieu of a transfer of a
share of Stock), such transfer shall consist of (a) a refund of the Option Price
for such share plus (b) such additional amount, if any, as the Committee deems
appropriate to reflect the cash equivalent of the Stock for which the Option was
exercised. If a transfer is made in shares of stock in the Company other than
Stock, the number of such shares transferred shall equal the number which the
Committee deems appropriate to reflect the equivalent of the Stock for which the
Option was exercised. The delivery of such Stock, stock or cash shall discharge
the Company of all of its duties and responsibilities with respect to the
exercised portion of the Option.
(S) 10. Adjustment. The Committee shall have the right to make such
----------
adjustments to the number of shares of Stock subject to the Option and the
Option Price as described under (S) 3 of the Plan.
(S) 11. Nontransferable. No rights granted under the Option shall be
---------------
transferable by Optionee (otherwise than by will or by the applicable laws of
descent and distribution) and such rights shall be exercisable during Optionee's
lifetime only by Optionee; provided, however, the Committee may approve
transfers to the immediate family of an Optionee. To the extent the Option is
exercisable after Optionee's death, the personal representative of Optionee's
estate or, if applicable, the legatee of Optionee thereafter shall be treated as
Optionee under this Option Agreement.
(S) 12. Not Employment Contract. Neither the Plan, the Option nor any
-----------------------
related materials shall give Optionee the right to continue in employment with
the Company or a Subsidiary or shall adversely affect the right of the Company
or a Subsidiary to terminate Optionee's employment with or without Cause at any
time.
(S) 13. Stockholder Status. Optionee shall have no rights as a stockholder
------------------
with respect to any shares of Stock under the Option until such shares have been
duly issued and transferred to Optionee, and no adjustment shall be made for
dividends of any kind or description whatsoever or for distributions of other
rights of any kind or description whatsoever respecting such Stock except as
expressly set forth in the Plan.
(S) 14. Other Laws. The Company shall have the right to refuse to issue or
----------
transfer any Stock or make any cash payment under the Option if the Company
determines that the issuance or transfer of such Stock might violate any
applicable law or regulation, and any payment tendered in such event to exercise
the Option shall be promptly refunded to Optionee.
(S) 15. Securities Registration. Optionee may be requested by the Company
-----------------------
to represent that he intends to hold any shares of Stock received upon the
exercise of the Option for personal
4
<PAGE>
investment and not for purposes of resale or distribution to the public and
Optionee shall, if so requested by the Company, deliver a certified statement to
that effect to the Company as a condition to the transfer of such Stock to
Optionee.
(S) 16. Agreement. Optionee may, at the discretion of the Committee, be
---------
required, as a condition to the exercise of the Option, to execute the
Stockholder Agreement, the Voting Agreement, an irrevocable proxy and such other
documents or agreements deemed necessary or appropriate by the Committee.
(S) 17. Tax Withholding. The Company may withhold from any payment
---------------
otherwise due Optionee (whether or not such payment is made pursuant to the
Option) or take such other action as the Company deems necessary to satisfy any
income or other tax withholding requirements as a result of the exercise of the
Option.
(S) 18. Governing Law. The Option and this Option Agreement shall be
-------------
governed by the laws of the State of Delaware.
(S) 19. Modification, Amendment, and Cancellation. The Company shall have
-----------------------------------------
the right unilaterally to modify, amend or cancel the Option in accordance with
(S) 8 of the Plan.
BRAELAN CORP.
By:____________________________
Joseph L. Lanier, Jr.
Title: Chairman
-------------------------
5
<PAGE>
EXHIBIT 10.16
DAN RIVER INC.
MANAGEMENT INCENTIVE PLAN
Revised Effective January 1, 1998
<PAGE>
OBJECTIVES OF THE PLAN
----------------------
To provide a compensation element which will act as a powerful stimulus to
maximize operating income for Dan River Inc. (the "Company") and its divisions
while encouraging prudent management of working capital.
To promote the interest of the Company by increasing its ability to attract
and retain management talent.
ELIGIBILITY FOR PARTICIPATION
-----------------------------
Participation in the Management Incentive Plan will be restricted to
executives in key positions having a continuing and substantial influence on
financial results.
The following factors will serve as criteria for selecting performance
award participants:
Latitude to act - The degree of freedom to exercise initiative and
---------------
judgment in making independent decisions and taking action.
Impact - The degree to which decisions and actions have a direct bearing on
------
Company or division results.
Magnitude - The size or amount of a position's contribution to Company or
---------
division results.
Positions shall be approved for participation by the Compensation Committee
(the "Committee") of the Board of Directors. The Committee will further approve
the assignment of each position to one of three levels of participation as
described below.
As changes in organization occur in the future, revisions to the list may
be required, and will be subject to approval of the Committee. The Committee has
final authority regarding participation.
PERFORMANCE AWARD LEVELS
------------------------
Positions approved for participation will be assigned to one of three
levels for which target awards are as follows:
1
<PAGE>
Target Award As
Level % of Base Salary
----- ----------------
A 40%
B 30%
C 20%
The target award shall be applied to individual participant base salaries
for the fiscal year to determine the total target award funds available to
corporate and division levels. For corporate participants, the actual award fund
available will be based on consolidated results for the fiscal year. For
division participants, the division award funds will be based on division
performance for the fiscal year.
Individual participants will be eligible for maximum awards as follows:
Maximum Awards As
% of Base Salary
------------------
A (40% target award) 100%
B (30% target award) 75%
C (20% target award) 50%
DIVISION PERFORMANCE AWARDS
---------------------------
Division participants' awards will be determined at year-end and will be
based upon the division's operating income, (before the Amortization of
Acquisition Asset and after pay out under this plan), subject to reduction based
upon failure to meet certain working capital management goals. Awards will be
determined based upon a schedule to be recommended by the Committee and approved
by the Board of Directors. The schedule shall denote:
. the target operating income level required for target
award funding for the year (40% - 30% - 20%)
. the operating income level required for maximum award
funding for the year (100% - 75% - 50%)
2
<PAGE>
. operating income levels which will result in awards
based upon a percentage (above or below) the target
award level
. criteria for reduction of awards based upon failure to
meet working capital management goals
CORPORATE PERFORMANCE AWARDS
----------------------------
Performance awards for corporate participants will be determined at year-
end and will be based on the operating income of the divisions of the Company
(before the Amortization of Acquisition Asset and after pay out under this
plan), subject to reduction based upon failure to meet consolidated working
capital management goals. Awards will be determined based upon a schedule to be
recommended by the Committee and approved by the Board of Directors. The
schedule shall denote:
. the target operating income level required for target
award funding for the year (40% - 30% - 20%)
. the operating income level required for maximum award
funding for the year (100% - 75% - 50%)
. operating income levels which will result in awards
based upon a percentage (above or below) the target
award level
. criteria for reduction of awards based upon failure to
meet working capital management goals
CEO'S DISCRETIONARY FUND
------------------------
The Committee may establish a fund during each fiscal year, to be
utilized at the discretion of the Chief Executive Officer of the Company to
further reward extraordinary performance, to balance awards to individual
participants whose contributions cross divisional/corporate lines, or to address
other unique circumstances.
3
<PAGE>
ADMINISTRATIVE PROVISIONS
-------------------------
1. Performance awards are limited to executives whose positions are
approved for participation by the Committee upon recommendation of the Chief
Executive Officer of the Company.
2. Participants who terminate their employment for any reason other than
retirement or death, prior to the end of a fiscal year, shall not be eligible
for an award for the year of termination, except upon recommendation of the
Chief Executive Officer and approval of the Committee.
3. No awards shall be made to anyone who has less than three months'
participation during the fiscal year.
4. Participants who retire (i.e., normal, early, delayed or disability
retirement under a Company pension plan) during a fiscal year and have completed
at least three months' participation in the same year shall be eligible for an
award based upon base salary during the period of active employment.
5. In the event of the death of a participant, if participation has
equaled at least three months during the fiscal year in which death occurred, an
award shall be permitted based upon base salary during the period of
participation. Any such award shall be payable to the estate of the participant.
6. Participants transferred from one division to another, from a
divisional to a corporate position (or vice versa), or who are promoted or
transferred from one position to another, will be eligible for awards pro-rated
on the basis of the number of months assigned during the fiscal year to each
position.
7. Awards will be paid in cash, except for any portion properly deferred
under any deferred compensation plan then in effect.
8. The overall administration of this plan will be the responsibility
of the Vice President-Industrial Relations.
9. All awards under this plan are subject to compliance with pertinent
federal regulations, notwithstanding any provision of this plan to the contrary.
10. Each participant shall be provided with a copy of this plan and any
amendments thereto.
4
<PAGE>
11. All determinations of the Committee relating to interpretation,
administration or participation in this Plan shall be final and binding on all
participants, their heirs, executors and administrators. Participants' rights
under this plan are non-assignable and non-transferable.
NO CONTRACT OF EMPLOYMENT
-------------------------
This plan does not and shall not be construed to create a contract of
employment between any participant and the Company and confers no rights
whatsoever, except as expressly set forth herein.
RESTRICTION OF PAYMENTS
-----------------------
1. No individual performance award may exceed the maximum percentage
award for the applicable award level (i.e., 100%, 75% or 50%) to which the
participant is assigned.
2. No provision of this plan is intended to alter or amend existing
discretionary powers and authorities of the Committee, which may authorize
payments in amounts and form in addition to the specific text of this plan.
AMENDMENTS AND TERMINATION
--------------------------
This plan may be amended, altered, or terminated at any time by action of
the Board of Directors.
5
<PAGE>
EXHIBIT 10.17
DAN RIVER INC.
2000 LONG-TERM INCENTIVE PLAN
February 29, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURPOSE.................................................................................................. 1
2. DEFINITIONS.............................................................................................. 1
3. SHARES AVAILABLE UNDER THE PLAN.......................................................................... 6
4. ADJUSTMENTS.............................................................................................. 7
5. ADMINISTRATION OF THE PLAN............................................................................... 8
6. ELIGIBILITY.............................................................................................. 9
7. OPTIONS.................................................................................................. 9
8. STOCK APPRECIATION RIGHTS................................................................................ 11
9. RESTRICTED SHARES........................................................................................ 12
10. DEFERRED SHARES.......................................................................................... 13
11. PERFORMANCE SHARES AND PERFORMANCE UNITS................................................................. 14
12. OTHER STOCK-BASED AWARDS................................................................................. 15
13. AWARDS TO NON-EMPLOYEE DIRECTORS......................................................................... 15
14. PROVISIONS APPLICABLE TO COVERED OFFICERS AND PERFORMANCE-BASED AWARDS................................... 16
15. TRANSFERABILITY.......................................................................................... 16
16. FRACTIONAL SHARES........................................................................................ 17
17. WITHHOLDING TAXES........................................................................................ 17
18. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF ABSENCE.............................. 18
19. FOREIGN EMPLOYEES........................................................................................ 18
20. AMENDMENTS AND OTHER MATTERS............................................................................. 18
21. GOVERNING LAW............................................................................................ 19
22. NO RIGHTS TO AWARDS...................................................................................... 19
23. SHARE CERTIFICATES....................................................................................... 19
24. AWARD AGREEMENTS......................................................................................... 20
25. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS.............................................................. 20
26. SEVERABILITY............................................................................................. 20
27. OTHER LAWS............................................................................................... 20
28. NO TRUST OR FUND CREATED................................................................................. 21
29. HEADINGS................................................................................................. 21
30. EFFECTIVE DATE AND STOCKHOLDER APPROVAL.................................................................. 21
31. TERMINATION.............................................................................................. 21
</TABLE>
<PAGE>
DAN RIVER INC.
2000 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
The purpose of this Plan is to attract and retain Key Employees and Non-
Employee Directors for Dan River and to provide such persons with incentives and
rewards for superior performance and increased shareholder value. This Plan will
authorize the Committee to grant Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock, Stock Appreciation Rights, Deferred Shares,
Performance Shares, Performance Units and Other Stock-Based Awards to those
officers, Key Employees and Non-Employee Directors who are selected to
participate in the Plan.
2. DEFINITIONS.
As used in this Plan, the following terms shall be defined as set forth
below:
"AFFILIATE" means (i) any entity that, directly or indirectly, is
controlled by the Company, (ii) any entity in which the Company has a
significant equity interest, (iii) an affiliate of the Company, as defined in
Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity
in which the Company has at least twenty percent (20%) of the combined voting
power of the entity's outstanding voting securities, in each case as designated
by the Board as being a participating employer in the Plan.
"AWARD" means any Option, Stock Appreciation Right, Restricted Shares,
Deferred Shares, Performance Shares, Performance Units or Other Stock-Based
Awards granted under the Plan, whether singly, in combination, or in tandem, to
a Participant by the Committee pursuant to such terms, conditions, restrictions
and/or limitations, if any, as the Committee may establish.
"AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"BASE PRICE" means the price to be used as the basis for determining the
Spread upon the exercise of a Stock Appreciation Right.
"BOARD" means the Board of Directors of Dan River Inc.
"CHANGE IN CONTROL" means (a) the acquisition of the power to direct, or
cause the direction, of the management and policies of Dan River by a Person
(not previously possessing such power), acting alone or in conjunction with
others, whether through the ownership of Stock, by contract or otherwise, (b)
the acquisition, directly or indirectly, of the power to vote 35% or more of the
outstanding Stock by a Person or Persons (other than a person possessing such
power on the date this Plan becomes effective or Dan River or an employee
benefit plan established and maintained by Dan River), where, for purposes of
this definition, customary agreements with or between underwriters and selling
group members with respect to a bona fide public offering of
1
<PAGE>
Stock shall be disregarded, (c) the approval by stockholders of the Company and
consummation of a merger, consolidation or reorganization involving the Company,
and as a result of such merger, consolidation or reorganization less than a
majority of the combined voting power of the then outstanding securities of such
corporation, person or entity immediately after such transaction are held in the
aggregate by the holders of voting stock of the Company immediately prior to
such transaction, (d) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation, person or entity, and
less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of voting stock of the Company
immediately prior to such sale or transfer or (e) a complete liquidation or
dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a Committee of the Board which shall have a least 2
members, each of whom shall be appointed by and shall serve at the pleasure of
the Board and all of whom shall be "disinterested persons" with respect to the
Plan within the meaning of Section 16 of the Exchange Act.
"COMPANY" means Dan River Inc. or any successor corporation.
"COVERED OFFICER" means at any date (i) any individual who, with respect
to the previous taxable year of the Company, was a "covered employee" of the
company within the meaning of Section 162(m) of the Code; provided, however,
that the term "Covered Officer" shall not include any such individual who is
designated by the Committee, in its discretion, at the time of any Award or at
any subsequent time, as reasonably expected not to be such a "covered employee"
with respect to the current taxable year of the Company and (ii) any individual
who is designated by the Committee, in its discretion, at the time of any Award
or at any subsequent time, as reasonably expected to be such a "covered
employee" with respect to the current taxable year of the Company or with
respect to the taxable year of the Company in which any applicable Award will be
paid.
"DAN RIVER" means Dan River Inc., or any successor to such corporation.
"DEFERRAL PERIOD" means the period of time during which Deferred Shares are
subject to deferral limitations enumerated in Section 10 of this Plan.
"DEFERRED SHARES" means an Award pursuant to Section 10 of this Plan
providing the right to receive Shares at the end of a specified Deferral Period.
"DISABILITY" means, unless otherwise defined in the applicable Award
Agreement, a disability that would qualify as a total and permanent disability
under the Company's then current long-term disability plan.
2
<PAGE>
"DIVIDEND EQUIVALENTS" means amounts equivalent to the dividends paid on
Shares of common stock. They may be granted in connection with Awards
denominated in notional Shares, or they may be granted on a freestanding basis.
"EARLY RETIREMENT" means, unless otherwise defined in the applicable Award
Agreement, retirement of a Participant from the employ or service of the Company
or any of its Subsidiaries or Affiliates in accordance with the terms of the
applicable Company retirement plan on or after attainment of age 55.
"EMPLOYEE" means any person, including an officer, employed by Dan River, a
Subsidiary, Affiliate or a Parent Corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"FAIR MARKET VALUE" with respect to the Stock means (1) the closing price
on any date for a share of Stock as reported by The Wall Street Journal (a)
under the New York Stock Exchange Composite Transactions if Stock is traded on
the New York Stock Exchange or, (b) if Stock is otherwise publicly traded,
under the quotation system under which such closing price is reported or, (2) if
The Wall Street Journal no longer reports such closing price, such closing price
as reported by a newspaper or trade journal selected by the Committee or, (3) if
no such closing price is available on such date, such closing price as so
reported for the immediately preceding business day, or, (4) if no newspaper or
trade journal reports such closing price or if no such price quotation is
available, or if Stock is not publicly traded, the price which the Committee
acting in good faith determines through any reasonable valuation method that a
share of Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts.
"GRANT DATE" means the date specified by the Committee on which a grant of
an Award shall become effective, which shall not be earlier than the date on
which the Committee takes action with respect thereto.
"GRANTEE" means the person so designated in an agreement as the recipient
of an Award granted by the Company.
"HARDSHIP" means an unanticipated emergency that is caused by an event
beyond the control of the Participant that would result in severe financial
hardship to the Participant resulting from (i) a sudden and unexpected illness
or accident of the Participant or a dependent of the Participant, (ii) a loss of
the Participant's property due to casualty, or (iii) such other extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Participant, all as determined in the sole discretion of the Committee.
"INCENTIVE STOCK OPTION (ISO)" means any Option that is intended to qualify
as an "Incentive Stock Option" under Section 422 of the Code or any successor
provision.
3
<PAGE>
"KEY EMPLOYEE" means an Employee who, in the judgment of the Committee
acting in its absolute discretion, is key to the business performance and
success of Dan River.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee.
"NONQUALIFIED STOCK OPTION" or "NQSO" means an Option that is not intended
to qualify as an Incentive Stock Option.
"NORMAL RETIREMENT" means, unless otherwise defined in the applicable Award
Agreement, retirement of a Participant from the employ or service of the Company
or any of its Subsidiaries or Affiliates in accordance with the terms of the
applicable Company retirement plan at or after attainment of age 65, or if a
Participant is not covered by any such plan, retirement on or after attainment
of age 65.
"OPTION" means any Option (ISO or NQSO) to purchase Shares granted under
this Plan.
"OPTION PRICE" means the purchase price payable to purchase one share upon
the exercise of an Option or other Award.
"OPTIONEE" means the person so designated in an agreement evidencing an
outstanding Option or other Award.
"OTHER STOCK-BASED AWARD" means any Award granted under Section 12 of the
Plan.
"PARENT CORPORATION" means any corporation which is a parent of Dan River
within the meaning of Section 424(e) of the Code.
"PARTICIPANT" means a Non-Employee Director or an Employee who is selected
by the Committee to receive benefits under this Plan, provided that Non-Employee
Directors shall not be eligible to receive grants of Incentive Stock Options.
"PERFORMANCE OBJECTIVES" means performance goals or targets established
pursuant to this Plan for Participants who have received grants of Performance
Shares or Performance Units or, when so determined by the Committee, Deferred
Shares, Options, Restricted Shares or Other Stock-Based Awards. Performance
Objectives may be described in terms of Company-wide objectives or objectives
that are related to the performance of the individual Participant or the
Subsidiary, division, department or function within the Company or Subsidiary in
which the Participant is employed. Any Performance Objectives applicable to
Awards intended to qualify as "performance-based compensation" under Section
162(m) of the Code shall be limited to specified levels of, or increases in, the
Company's or Subsidiary's market share, sales, costs, return on equity, earnings
per share, earnings before interest, taxes, depreciation, and amortization
(EBITDA), earnings growth, return on capital, return on assets,
4
<PAGE>
total shareholder return and/or increase in the Fair Market Value of the Shares.
Except in the case of Performance Objectives related to an Award intended to
qualify under Section 162(m) of the Code, if the Committee determines that a
change in the business, operations, corporate structure or capital structure of
the Company, or the manner in which it conducts its business, or other events or
circumstances render the Performance Objectives unsuitable, the Committee, after
the date of grant, may modify such Performance Objectives, in whole or in part,
as the Committee deems appropriate and equitable.
"PERFORMANCE PERIOD" means a period of time established under Section 11
of this Plan within which the Performance Objectives relating to a Performance
Share, Performance Unit, Option, Deferred Share or Restricted Share are to be
achieved.
"PERFORMANCE SHARE" means an Award pursuant to Section 11 of this Plan that
provides the Participant the opportunity to earn one or more Shares contingent
upon the achievement of one or more Performance Objectives during a Performance
Period.
"PERFORMANCE UNIT" means an Award pursuant to Section 11 of this Plan that
provides the Participant the opportunity to earn one or more units, denominated
in Shares or cash or a combination thereof, contingent upon achieving one or
more Performance Objectives during a Performance Period.
"PERSON" means any individual, corporation, partnership, associate, joint-
stock company, trust, unincorporated organization, government or instrumentality
of a government or other entity.
"PLAN" means this Dan River Inc. 2000 Long-Term Incentive Plan as effective
as of the date adopted by the Board in 2000 and as amended from time to time
thereafter.
"RESTRICTED SHARES" means Shares granted under Section 9 of this Plan
subject to such restrictions, including, but not limited to, service
requirements and/or Performance Objectives, as may be determined by the
Committee at the time of grant.
"RULE 16B-3" means Rule 16B-3 of the Exchange Act and any successor
provision thereto as in effect from time to time.
"SHARES" or "STOCK" means shares of the Class A Common Stock of Dan River
Inc., $0.01 par value, or any security into which Shares may be converted by
reason of any transaction or event of the type referred to in Section 4 of this
Plan.
"SPREAD" means, in the case of a Stock Appreciation Right, the amount by
which the Fair Market Value on the date when any such right is exercised exceeds
the Base Price specified in such right or, in the case of a Tandem Stock
Appreciation Right, the amount by which the Fair Market Value on the date when
any such right is exercised exceeds the Option Price specified in the related
Option.
5
<PAGE>
"STOCK APPRECIATION RIGHT" means a right granted under Section 8 of this
Plan, including a Stock Appreciation Right or a Tandem Stock Appreciation Right.
"SUBSIDIARY" means a corporation or other entity (i) more than 50 percent
of whose outstanding Shares or securities (representing the right to vote for
the election of directors or other managing authority) are, or (ii) which does
not have outstanding Shares or securities (as may be the case in a partnership,
joint venture or unincorporated association), but more than 50 percent of whose
ownership interest (representing the right generally to make decisions for such
other entity) is, as of the date this Plan is approved by the Board and
thereafter owned or controlled directly or indirectly by the Company, provided
that for purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which the Company owns or controls directly or indirectly more
than 50 percent of the total combined voting power represented by all classes of
stock issued by such corporation at the time of such grant.
"SUBSTITUTE AWARDS" means Awards granted solely in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.
"TANDEM STOCK APPRECIATION RIGHT" means a Stock Appreciation Right granted
pursuant to Section 8 of this Plan that is granted in tandem with an Option or
any similar right granted under any other Plan of the Company such that the
exercise of one results in the cancellation of the other.
"TEN PERCENT SHAREHOLDER" means a person who owns, at the time of an Award
and after taking into account the attribution rules of Section 424(d) of the
Code, more than ten percent (10%) of the total combined voting power of all
classes of stock of either Dan River, a Subsidiary or a Parent Corporation.
3. SHARES AVAILABLE UNDER THE PLAN.
(a) Subject to adjustment as provided in Section 4 of this Plan, the number
of Shares that may be (i) issued or transferred upon the exercise of Options or
Stock Appreciation Rights, (ii) Awarded as Restricted Shares and released from
substantial risk of forfeiture, or (iii) issued or transferred in payment of
Deferred Shares, Performance Shares, Performance Units, or Other Stock Based
Awards, shall not in the aggregate exceed 2,000,000 Shares not previously
authorized for issuance under any plan of the Company. Such Shares may be Shares
of original issuance, Shares held in treasury, or Shares that have been
reacquired by the Company. The number of Performance Units granted under this
Plan may not in the aggregate exceed 1,000,000.
(b) Upon the payment of any Option Price by the transfer to the Company of
Shares or upon satisfaction of tax withholding obligations under the Plan by the
transfer or relinquishment of Shares, there shall be deemed to have been issued
or transferred only the number of Shares
6
<PAGE>
actually issued or transferred by the Company, less the number of Shares so
transferred or relinquished. In any event, the number of Shares actually issued
or transferred by the Company upon the exercise of Incentive Stock Options may
not exceed 2,000,000, subject to adjustment as provided in Section 4 of the
Plan. Upon the payment in cash of a benefit provided by any Award under this
Plan, any Shares that were subject to such Award shall again be available for
issuance or transfer under this Plan. Performance Units that are paid in Shares
or are not earned by a Participant at the end of a Performance Period are
available for future grants of Performance Units.
(c) If an Award expires or terminates for any reason without being
exercised in full or is satisfied without the distribution of Stock, or Stock
distributed pursuant to an Award is forfeited or reacquired by the Company, or
is surrendered upon exercise of an Award, the Stock subject to such Award or so
forfeited, reacquired or surrendered shall again be available for distribution
for purposes of the Plan.
(d) No Participant may receive Awards, including Options, during any one
calendar year representing more than 250,000 Shares or more than 250,000
Performance Units.
(e) Any shares issued by the Company as Substitute Awards in connection
with the assumption or substitution of outstanding grants from any acquired
corporation shall not reduce the Shares available for Awards under the Plan.
4. ADJUSTMENTS.
In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
determined in good faith by the Committee, in its sole discretion, to be
appropriate in order to prevent dilution or enlargement of the rights of
Optionees or Grantees, then the Committee shall, in such manner as it may deem
equitable: (i) adjust any or all of (1) the aggregate number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Awards may be granted under the Plan; (2) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards under the Plan; and (3)
the grant or exercise price with respect to any Award under the Plan, provided
that in each case, the number of shares subject to any Award shall always be a
whole number; (ii) if deemed appropriate, provide for an equivalent award in
respect of securities of the surviving entity of any merger, consolidation or
other transaction or event having a similar effect; or (iii) if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award.
7
<PAGE>
5. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by one or more Committees appointed by
the Board. Any grants of Awards to officers who are subject to Section 16 of the
Exchange Act shall be made by a Committee composed of not less than two members
of the Board, each of whom shall be a "Non-Employee Director" within the meaning
of Rule 16B-3. Any grant of an Award that is intended to qualify as
"performance-based compensation" under Section 162(m) of the Code shall be made
by a Committee composed of not less than two members of the Board, each of whom
shall be an "outside director" within the meaning of the regulations under
Section 162(m) of the Code. For purposes of grants of Awards to Non-Employee
Directors, the entire Board shall serve as the Committee.
(b) The Committee, or Committees, shall have the power and authority to
grant Awards consistent with the terms of the Plan, including the power and
authority: (i) to select the officers and other Key Employees of the Company,
its Subsidiaries and Affiliates to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, Deferred Stock Awards, Performance Share Awards,
Performance Unit Awards, or any combination of the foregoing, granted to any one
or more Participants; (iii) to determine the number of Shares to be covered by
any Award; (iv) to establish the terms and conditions of any Award, including,
but not limited to: (A) the Share price; (B) any restriction or limitation on
the grant, vesting or exercise of any Award (including but not limited to, the
attainment (and certification of the attainment) of one or more Performance
Objectives (or any combination thereof) that may apply to the individual
Participant, a Company business unit, including a Subsidiary or an Affiliate, or
the Company as a whole); and (C) any waiver of vesting, acceleration or
forfeiture provisions regarding any Stock Option or other Award and the Stock
relating thereto, based on such factors as the Committee shall determine; and to
determine whether, to what extent and under what circumstances Stock and other
amounts payable with respect to an Award shall be deferred either automatically
or at the election of the Participant, and whether and to what extent the
Company shall pay or credit amounts equal to interest (at rates determined by
the Committee), dividends or deemed dividends on such deferrals.
(c) Subject to the provisions of the Plan, the Committee shall have full
and conclusive authority to interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; to amend or modify the
terms of any Award at or after grant with the consent of the holder of the
Award, except to the extent prohibited by Section 7(b); to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Award agreements and to make all other
determinations necessary or advisable for the proper administration of the Plan.
The Committee's determinations under the Plan need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
Awards under the Plan (whether or not such persons are similarly situated). No
member of the Committee shall be liable to any person or entity for any action
taken or determination made in good faith with respect to the Plan or any Award
granted hereunder.
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(d) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any subsidiary and Affiliate, and Participant, any holder
or beneficiary of any Award, any Employee and any Non-Employee Director.
6. ELIGIBILITY.
Any officer, Key Employee (including any employee-director of the Company
or of any Subsidiary or Affiliate who is not a member of the Committee) or Non-
Employee Director shall be eligible to be designated a Participant.
7. OPTIONS.
The Committee may from time to time authorize grants to Participants of
Options to purchase Shares upon such terms and conditions as the Committee may
determine in accordance with the following provisions:
(a) Each grant shall specify the number of Shares to which it pertains.
(b) Each grant shall specify an Option Price per Share. Except in the
case of Substitute Awards, the Option Price of an Option may not be less than
100% of the Fair Market Value of the Shares with respect to which the Option is
granted on the Grant Date. If an officer or Key Employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of the
Company or any Subsidiary or Parent Corporation (within the meaning of Section
424(e) of the Code), and an Incentive Stock Option is granted to such officer or
Key Employee, the Option Price shall be no less than 110% of the Fair Market
Value on the Grant Date. Notwithstanding the foregoing and except as permitted
by the provisions of Sections 4 and 20(c) hereof, the Committee shall not have
the power to (i) amend the terms of previously granted Options to reduce the
Option Price of such Options, or (ii) cancel such Options and grant substitute
Options with a lower Option Price than the cancelled Options.
(c) Each Option may be exercised in whole or in part at any time, with
respect to whole shares only, within the period permitted for the exercise
thereof and shall be exercised by written notice of intent to exercise the
Option, delivered to the Company at its principal office, and payment in full to
the Company at said office of the amount of the Option Price for the number of
Shares with respect to which the Option is then being exercised. Each grant
shall specify the form of consideration to be paid in satisfaction of the Option
Price and the manner of payment of such consideration, which may include (i)
cash in the form of currency or check or other cash equivalent acceptable to the
Company, (ii) nonforfeitable, unrestricted Shares that have been owned by the
Optionee for at least six months and have a value at the time of exercise that
is equal to the Option Price, together with any applicable withholding taxes,
(iii) any other legal
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consideration that the Committee may deem appropriate, including without
limitation any form of consideration authorized under Section 7(d) below, on
such basis as the Committee may determine in accordance with this Plan, or (iv)
any combination of the foregoing.
(d) On or after the Grant Date of any Option other than an Incentive Stock
Option, the Committee may determine that payment of the Option Price may also be
made in whole or in part in the form of Restricted Shares or other Shares that
are subject to risk of forfeiture or restrictions on transfer. Unless otherwise
determined by the Committee, whenever any Option Price is paid in whole or in
part by means of any of the forms of consideration specified in this Section
7(d), the Shares received by the Optionee upon the exercise of the Options shall
be subject to the same risks of forfeiture or restrictions on transfer as those
that applied to the consideration surrendered by the Optionee, provided that
such risks of forfeiture and restrictions on transfer apply only to the same
number of Shares received by the Optionee as applied to the forfeitable or
Restricted Shares surrendered by the Optionee.
(e) Any grant may provide for deferred payment of the Option Price from the
proceeds of sale through a bank or broker on the date of exercise of some or all
of the Shares to which the exercise relates.
(f) On or, in the case of Nonqualified Stock Options, after the Grant Date,
the Committee may provide for the automatic grant to the Optionee of a "reload"
Option in the event the Optionee surrenders Shares in satisfaction of the Option
Price upon the exercise of an Option as authorized under Sections 7(c) and (d)
above. Each reload Option shall pertain to a number of Shares equal to the
number of Shares utilized by the Optionee to exercise the original Option. Each
reload Option shall have an exercise price equal to the Fair Market Value on the
date the reload is granted and shall expire on the stated expiration date of the
original Option.
(g) Each Option grant may specify a period of continuous employment of the
Optionee by the Company or any Subsidiary (or, in the case of a Non-Employee
Director, service on the Board) or other terms and conditions, such as
achievement of Performance Objectives, that may be determined by the Committee
that is necessary before the Options or installments thereof shall become
exercisable, and any grant may provide for the earlier exercise of such rights
in the event of a Change in Control of the Company or other similar transaction
or event.
(h) Options granted under this Plan may be Incentive Stock Options,
Nonqualified Stock Options or a combination of the foregoing, provided that only
Nonqualified Stock Options may be granted to Non-Employee Directors. Each grant
shall specify whether (or the extent to which) the Option is an Incentive Stock
Option or a Nonqualified Stock Option. Notwithstanding any such designation, to
the extent that the aggregate Fair Market Value of the Shares with respect to
which Options designated as Incentive Stock Options or Tandem Stock Appreciation
Rights related to such Incentive Stock Options are exercisable for the first
time by an Optionee during any calendar year (under all Plans of the Company)
exceeds $100,000 such Options shall be treated as Nonqualified Stock Options.
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(i) No Option granted under this Plan may be exercised more than 10 years
from the Grant Date; provided, however, that if an Incentive Stock Option is
granted to an employee who owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Subsidiary or Parent
Corporation (within the meaning of Section 424(e) of the Code), the term of such
Incentive Stock Option shall be no more than five years from the date of grant.
(j) Each grant shall be evidenced by an agreement executed on behalf of the
Company by any officer thereof and delivered to and accepted by the Optionee and
containing such terms and provisions as the Committee may determine consistent
with this Plan.
8. STOCK APPRECIATION RIGHTS.
The Committee may also authorize grants to Participants of Stock
Appreciation Rights. A Stock Appreciation Right provides a Participant the right
to receive from the Company an amount, which shall be determined by the
Committee and shall be expressed as a percentage (not exceeding 100 percent) of
the Spread at the time of the exercise of such right. Any grant of Stock
Appreciation Rights under this Plan shall be upon such terms and conditions as
the Committee may determine in accordance with the following provisions:
(a) Any grant may specify that the amount payable upon the exercise of a
Stock Appreciation Right may be paid by the Company in cash, Shares or any
combination thereof and may (i) either grant to the Participant or reserve to
the Committee the right to elect among those alternatives or (ii) preclude the
right of the Participant to receive and the Company to issue Shares or other
equity securities in lieu of cash;
(b) Any grant may specify that the amount payable upon the exercise of a
Stock Appreciation Right shall not exceed a maximum specified by the Committee
on the Grant Date;
(c) Any grant may specify (i) a waiting period or periods before Stock
Appreciation Rights shall become exercisable and (ii) permissible dates or
periods on or during which Stock Appreciation Rights shall be exercisable;
(d) Any grant may specify that a Stock Appreciation Right may be exercised
only in the event of a Change in Control of the Company or other similar
transaction or event,
(e) On or after the Grant Date of any Stock Appreciation Rights, the
Committee may provide for the payment to the Participant of Dividend Equivalents
thereon in cash or Shares on a current, deferred or contingent basis,
(f) Each grant shall be evidenced by an agreement executed on behalf of the
Company by any officer thereof and delivered to and accepted by the Optionee,
which shall describe the subject Stock Appreciation Rights, identify any related
Options, state that the Stock Appreciation Rights are subject to all of the
terms and conditions of this Plan and contain such other terms and provisions as
the Committee may determine consistent with this Plan,
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(g) Each grant of a Tandem Stock Appreciation Right shall provide that such
Tandem Stock Appreciation Right may be exercised only (i) at a time when the
related Option (or any similar right granted under this or any other Plan of the
Company) is also exercisable and the Spread is positive; and (ii) by surrender
of the related Option (or such other right) for cancellation;
(h) Each grant of a Stock Appreciation Right shall specify in respect of
each Stock Appreciation Right a Base Price per Share, which shall be equal to or
greater than the Fair Market Value of the Shares on the Grant Date. Successive
grants of Stock Appreciation Rights may be made to the same Participant
regardless of whether any Stock Appreciation Rights previously granted to such
Participant remain unexercised. Each grant shall specify the period or periods
of continuous employment of the Participant by the Company or any Subsidiary
that are necessary before the Stock Appreciation Rights or installments thereof
shall become exercisable, and any grant may provide for the earlier exercise of
such rights in the event of a Change in Control of the Company or other similar
transaction or event. No Stock Appreciation Right granted under this Plan may be
exercised more than 10 years from the Grant Date.
9. RESTRICTED SHARES.
The Committee may also authorize grants to Participants of Restricted
Shares upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall constitute an immediate transfer of the ownership of
Shares to the Participant in consideration of the performance of services,
entitling such Participant to dividend, voting and other ownership rights,
subject to the substantial risk of forfeiture and restrictions on transfer
hereinafter described.
(b) Each grant may be made without additional consideration from the
Participant or in consideration of a payment by the Participant that is less
than the Fair Market Value on the Grant Date.
(c) Each grant shall provide that the Restricted Shares covered thereby
shall be subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code for a period to be determined by the Committee on the
Grant Date, and any grant or sale may provide for the earlier termination of
such risk of forfeiture in the event of a Change in Control of the Company or
other similar transaction or event.
(d) Each grant shall provide that, during the period for which such
substantial risk of forfeiture is to continue, the transferability of the
Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Committee on the Grant Date. Such restrictions may
include, without limitation, rights of repurchase or first refusal by the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee.
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(e) Any grant or the vesting thereof may be further conditioned upon the
attainment of Performance Objectives established by the Committee in accordance
with the applicable provisions of Section 11 of this Plan regarding Performance
Shares and Performance Units.
(f) Any grant may require that any or all dividends or other distributions
paid on the Restricted Shares during the period of such restrictions be
automatically sequestered and reinvested on an immediate or deferred basis in
the form of cash or additional Shares, which may be subject to the same
restrictions as the underlying Award or such other restrictions as the Committee
may determine.
(g) Each grant shall be evidenced by an agreement executed on behalf of the
Company by any officer thereof and delivered to and accepted by the Participant
and containing such terms and provisions as the Committee may determine
consistent with this Plan. Unless otherwise directed by the Committee, all
certificates representing Restricted Shares, together with a stock power that
shall be endorsed in blank by the Participant with respect to such Shares, shall
be held in custody by the Company until all restrictions thereon lapse.
(h) At the end of the restricted period and provided that any other
restrictive conditions of the Restricted Shares Award are met, or at such
earlier time as otherwise determined by the Committee, all restrictions set
forth in the Award Agreement relating to the Restricted Share Award or in the
Plan shall lapse as to the restricted Shares subject thereto, and a stock
certificate for the appropriate number of Shares, free of the restrictions and
restricted stock legend, shall be delivered to the Participant or the
Participant's beneficiary or estate, as the case may be.
10. DEFERRED SHARES.
The Committee may authorize grants of Deferred Shares to Participants upon
such terms and conditions as the Committee may determine in accordance with the
following provisions:
(a) Each grant shall constitute the agreement by the Company to issue or
transfer Shares to the Participant in the future in consideration of the
performance of services, subject to the fulfillment during the Deferral Period
of such conditions as the Committee may specify.
(b) Each grant may be made without additional consideration from the
Participant or in consideration of a payment by the Participant that is less
than the Fair Market Value on the Grant Date.
(c) Each grant shall provide that the Deferred Shares covered thereby shall
be subject to a Deferral Period, which shall be fixed by the Committee on the
Grant Date, and any grant or sale may provide for the earlier termination of
such period in the event of a Change in Control of the Company or other similar
transaction or event.
(d) During the Deferral Period, the Participant shall not have any right to
transfer any rights under the subject Award, shall not have any rights of
ownership in the Deferred Shares and shall not have any right to vote such
Shares, but the Committee may on or after the Grant
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Date authorize the payment of Dividend Equivalents on such Shares in cash or
additional Shares on a current, deferred or contingent basis.
(e) Any grant or the vesting thereof may be further conditioned upon the
attainment of Performance Objectives established by the Committee in accordance
with the applicable provisions of Section 11 of this Plan regarding Performance
Shares and Performance Units. Except as otherwise determined by the Committee,
all Deferred Shares and all rights of the grantee to such Deferred Shares shall
terminate, without further obligation on the part of the Company, unless the
Grantee remains in continuous employment of the Company for the entire Deferral
Period in relation to which such Deferred Shares were granted and unless any
other restrictive conditions relating to the Deferred Shares are met.
(f) Each grant shall be evidenced by an agreement executed on behalf of the
Company by any officer thereof and delivered to and accepted by the Participant
and containing such terms and provisions as the Committee may determine
consistent with this Plan.
11. PERFORMANCE SHARES AND PERFORMANCE UNITS.
The Committee also may authorize grants of Performance Shares and
Performance Units, which shall become payable to the Participant upon the
achievement of specified Performance Objectives, upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall commence on a date specified by the Committee at the time
of grant and may be subject to earlier termination in the event of a Change in
Control of the Company or other similar transaction or event.
(c) Each Award shall specify the Performance Objectives that are to be
achieved by the Participant with respect to the grant or the vesting thereof.
(d) Each grant may specify in respect of the specified Performance
Objectives a minimum acceptable level of achievement below which no payment will
be made and shall set forth a formula or other procedure for determining the
amount of any payment to be made if performance is at or above such minimum
acceptable level but falls short of the maximum achievement of the specified
Performance Objectives.
(e) Each grant shall specify the time and manner of payment of Performance
Shares or Performance Units that shall have been earned, and any grant may
specify that any such amount may be paid by the Company in cash, Shares or any
combination thereof and may either grant to the Participant or reserve to the
Committee the right to elect among those alternatives.
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(f) Any grant of Performance Shares or Performance Units may specify that
the amount payable, or the number of Shares issued, with respect thereto may not
exceed a maximum specified by the Committee on the Grant Date.
(g) Any grant of Performance Shares may provide for the payment to the
Participant of Dividend Equivalents thereon in cash or additional Shares on a
current, deferred or contingent basis.
(h) If provided in the terms of the grant, the Committee may adjust
Performance Objectives and the related minimum acceptable level of achievement
if, in the sole judgment of the Committee, events or transactions have occurred
after the Grant Date that are unrelated to the performance of the Participant
and result in distortion of the Performance Objectives or the related minimum
acceptable level of achievement.
(i) Each grant shall be evidenced by an agreement executed on behalf of the
Company by any officer thereof and delivered to and accepted by the Participant,
which shall state that the Performance Shares or Performance Units are subject
to all of the terms and conditions of this Plan and such other terms and
provisions as the Committee may determine consistent with this Plan.
12. OTHER STOCK-BASED AWARDS.
The Committee shall have the authority to grant to Participants an "Other
Stock-Based Award," which shall consist of any right that is (a) not an Award
described in Sections 7 through 11 above and (b) an Award of Shares or an Award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as deemed by the Committee to be consistent
with the purposes of the Plan. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the terms and
conditions of any such Other Stock-Based Award.
13. AWARDS TO NON-EMPLOYEE DIRECTORS.
The Board may provide that all or a portion of a Non-Employee Director's
annual retainer and/or meeting fees be payable (either automatically or at the
election of a Non-Employee Director) in the form of Nonqualified Stock Options,
Stock Appreciation Rights, Restricted Shares, Deferred Shares and/or Other Stock
Based Awards, including unrestricted Shares. The Board shall determine the terms
and conditions of any such Awards, including the terms and conditions which
shall apply upon a termination of the Non-Employee Director's service as a
member of the Board, and shall have full power and authority in its discretion
to administer such Awards, subject to the terms of the Plan and applicable law.
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14. PROVISIONS APPLICABLE TO COVERED OFFICERS AND PERFORMANCE-BASED AWARDS.
Notwithstanding anything in the Plan to the contrary, unless the Committee
determines otherwise, all performance-based Awards granted hereunder shall be
subject to the terms and provisions of this Section 14:
(a) The Committee may grant to Covered Officers performance-based Awards
that vest or become exercisable upon the attainment of performance targets
related to one or more Performance Objectives selected by the Committee from
among the list of Performance Objectives contained herein. For the purposes of
this Section 14, performance goals shall be limited to one or more of the
Performance Objectives or any combination thereof. Each Performance Objective
may be expressed on an absolute and/or relative basis, may be based on or
otherwise employ comparisons based on internal targets, the past performance of
the Company and/or the past or current performance of other companies, and in
the case of earnings-based measures, may use or employ comparisons relating to
capital, shareholders' equity and/or Shares outstanding, or to assets or net
assets.
(b) With respect to any Covered Officer, the maximum number of Shares in
respect of which all performance-based Restricted Shares, Deferred Shares,
Performance Shares, Performance Units and Other Stock-Based Awards may be
granted under the Plan during any one calendar year is 250,000 and the maximum
amount of any Award which shall be payable in cash during any one calendar year
is $2,500,000.
(c) To the extent necessary to comply with Section 162(m) of the Code, with
respect to Restricted Share Awards, Deferred Share Awards, Performance Share
Awards, Performance Unit Awards and Other Stock-Based Awards, no later than 90
days following the commencement of each Performance Period (or such other time
as may be required or permitted by Section 162(m) of the Code), the Committee
shall, in writing, (i) select the Performance Objective or Objectives applicable
to the Performance Period, (ii) establish the various targets and bonus amounts
which may be earned for such Performance Period, and (iii) specify the
relationship between Performance Objectives and targets and the amounts to be
earned by each Covered Officer for such Performance Period. Following the
completion of each Performance Period, the Committee shall certify in writing
whether the applicable performance targets have been achieved and the amounts,
if any, payable to Covered Officers for such Performance Period. In determining
the amount earned by a Covered Officer for a given Performance Period, subject
to any applicable Award Agreement, the Committee shall have the right to reduce
(but not increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the Performance Period.
15. TRANSFERABILITY.
(a) Except as provided in Section 15(b), no Award granted under this Plan
may be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of by a
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Participant other than by will or the laws of descent and distribution, and
Options and Stock Appreciation Rights shall be exercisable during a
Participant's lifetime only by the Participant or, in the event of the
Participant's legal incapacity, by his guardian or legal representative acting
in a fiduciary capacity on behalf of the Participant under state law and court
supervision.
(b) The Committee may expressly provide in a Nonqualified Stock Option
agreement (or an amendment to such an agreement) that a Participant may transfer
such Nonqualified Stock Option to a spouse or lineal descendant (a "Family
Member"), a trust for the exclusive benefit of Family Members, a partnership or
other entity in which all the beneficial owners are Family Members, or any other
entity affiliated with the Participant that may be approved by the Committee.
Subsequent transfers of any such Nonqualified Stock Option shall be prohibited
except in accordance with this Section 15(b). All terms and conditions of any
such Nonqualified Stock Option, including provisions relating to the termination
of the Participant's employment or service with the Company or a Subsidiary,
shall continue to apply following a transfer made in accordance with this
Section 15(b).
(c) Any Award made under this Plan may provide that all or any part of the
Shares that are (i) to be issued or transferred by the Company upon the exercise
of Options or Stock Appreciation Rights, upon the termination of the Deferral
Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units, or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 9 of this Plan, shall be subject to further restrictions upon transfer.
16. FRACTIONAL SHARES.
No fractional Shares shall be issued or delivered pursuant to the Plan or
any Award, and the Committee shall determine whether cash, other securities, or
other property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
17. WITHHOLDING TAXES.
To the extent that the Company is required to withhold federal, state,
local or foreign taxes in connection with any payment made or benefit realized
by a Participant or other person under this Plan, it shall be a condition to the
receipt of such payment or the realization of such benefit that the Participant
or such other person make arrangements satisfactory to the Company for payment
of all such taxes required to be withheld. At the discretion of the Committee,
such arrangements may include relinquishment of a portion of such benefit. The
Committee may provide, at its discretion, for additional cash payments to
holders of Awards to defray or offset any tax arising from the grant, vesting,
exercise or payments of any Award other than ISO's.
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18. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND APPROVED LEAVES OF
ABSENCE.
Notwithstanding any other provision of this Plan to the contrary, in the
event of termination of employment by reason of death, Disability, Normal
Retirement, Early Retirement with the consent of the Company or leave of absence
approved by the Company, or in the event of Hardship or other special
circumstances, of a Participant who holds an Option or Stock Appreciation Right
that is not immediately and fully exercisable, any Restricted Shares as to which
the substantial risk of forfeiture or the prohibition or restriction on transfer
has not lapsed, any Deferred Shares as to which the Deferral Period is not
complete, any Performance Shares or Performance Units that have not been fully
earned, or any Shares that are subject to any transfer restriction pursuant to
Section 15(b) of this Plan, the Committee may in its sole discretion take any
action that it deems to be equitable under the circumstances or in the best
interests of the Company, including without limitation waiving or modifying any
limitation or requirement with respect to any Award under this Plan.
19. FOREIGN EMPLOYEES.
In order to facilitate the making of any grant or combination of grants
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals, or who are employed by the Company or
any Subsidiary outside of the United States of America, as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom. Moreover, the Committee may approve such supplements to, or
amendments, restatements or alternative versions of this Plan as it may consider
necessary or appropriate for such purposes without thereby affecting the terms
of this Plan as in effect for any other purpose, provided that no such
supplements, amendments, restatements or alternative versions shall include any
provisions that are inconsistent with the terms of this Plan, as then in effect,
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.
20. AMENDMENTS AND OTHER MATTERS.
(a) The Board may amend, alter, suspend, discontinue or terminate the Plan
or any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall increase any of the limitations
specified in Sections 3 or 14(b) of this Plan, other than to reflect an
adjustment made in accordance with Section 4, without the further approval of
the stockholders of the Company.
(b) Subject to the restrictions of Section 7(b) hereof, the Committee may
waive any conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate, any Award theretofore granted, prospectively
or retroactively; provided that any such waiver, amendment, alteration,
suspension, discontinuance, cancellation or termination that would adversely
affect the rights of any Participant or any holder or beneficiary of any Award
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theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(c) The Committee is hereby authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, the events
described in Section 4 hereof) affecting the Company, any Subsidiary or
Affiliate, or the financial statements of the Company or any Subsidiary or
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority would
be inconsistent with a performance based award's meeting the requirements of
Section 162(m) of the Code.
(d) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any Subsidiary
and shall not interfere in any way with any right that the Company or any
Subsidiary would otherwise have to terminate any Participant's employment or
other service at any time.
(e) To the extent that any provision of this Plan would prevent any Option
that was intended to qualify under particular provisions of the Code from so
qualifying, such provision of this Plan shall be null and void with respect to
such Option, provided that such provision shall remain in effect with respect to
other Options, and there shall be no further effect on any provision of this
Plan.
21. GOVERNING LAW.
The validity, construction and effect of this Plan and any Award hereunder
shall be determined in accordance with the laws (including those governing
contracts) of the State of Georgia, without giving effect to the conflict of law
principles thereof.
22. NO RIGHTS TO AWARDS.
No Person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Employees, Non-Employee Directors, or
holders or beneficiaries of Awards. The terms and conditions of Awards need not
be the same with respect to each recipient.
23. SHARE CERTIFICATES.
All certificates for Shares or other securities of the Company or any
Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the SEC, any stock exchange upon
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which such Shares or other securities are then listed, and any applicable
Federal or state laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
24. AWARD AGREEMENTS.
Each Award hereunder shall be evidenced by an Award Agreement that shall be
delivered to the Participant and shall specify the terms and conditions of the
Award and any rules applicable thereto. In the event of a conflict between the
terms of the Plan and any Award Agreement, the terms of the Plan shall prevail.
25. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS.
Nothing contained in the Plan shall prevent the Company or any Subsidiary
or Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of Options,
Restricted Stock, Shares and other types of Awards provided for hereunder
(subject to stockholder approval as such approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
26. SEVERABILITY.
If any provision of the Plan or any Award is, or becomes, or is deemed to
be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or
Award, or would disqualify the Plan or any Award under any law deemed applicable
by the Committee, such provision shall be construed or deemed amended to conform
to the applicable laws, or if it cannot be construed or deemed amended without,
in the determination of the Committee, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award shall remain in
full force and effect.
27. OTHER LAWS.
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance or transfer of such Shares or such other consideration might
violate any applicable law or regulation (including applicable non-U.S. laws or
regulations) or entitle the Company to recover the same under Section 16(b) of
the Exchange Act, and any payment tendered to the Company by a Participant,
other holder or beneficiary in connection with the exercise of such Award shall
be promptly refunded to the relevant Participant, holder, or beneficiary.
Without limiting the generality of the foregoing, no Award granted hereunder
shall be construed as an offer to sell securities of the Company, and no such
offer shall be outstanding, unless and until the Committee in its sole
discretion has determined that any such offer, if made, would be in compliance
with all applicable requirements of the U.S. federal or non-U.S. securities laws
and any other laws to which such offer, if made, would be subject.
20
<PAGE>
28. NO TRUST OR FUND CREATED.
Neither the Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company or any Subsidiary or Affiliate and a Participant or any other Person. To
the extent that any Person acquires a right to receive payments from the Company
or any Subsidiary or Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Subsidiary or Affiliate.
29. HEADINGS.
Headings are given to the Sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
30. EFFECTIVE DATE AND STOCKHOLDER APPROVAL.
This Plan shall become effective upon its approval by the Board subject to
approval by the stockholders of the Company at the next Annual Meeting of
Stockholders. The Committee may grant Awards subject to the condition that this
Plan shall have been approved by the stockholders of the Company.
31. TERMINATION.
This Plan shall terminate ten years from the date on which this Plan is
first approved by the Board, and no Award shall be granted after that date.
Unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted hereunder may, and the authority of the Committee
to amend, alter, adjust, suspend, discontinue or terminate any such Award or to
waive any conditions or rights under any such Award shall, continue after the
authority for grant of new Awards hereunder has been exhausted.
21
<PAGE>
EXHIBIT 10.18
EXECUTION COPY
MEMBERS AGREEMENT
by and between
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
and
DAN RIVER INTERNATIONAL LTD.
Dated as of
January 5, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS.................................................................... 1
1.1 Definitions.................................................................... 1
1.2 Other References............................................................... 1
1.3 Governing Language............................................................. 2
ARTICLE II BASIC STRUCTURE OF COMPANY..................................................... 2
2.1 Formation of the Company....................................................... 2
2.2 Name........................................................................... 2
2.3 Place of Business.............................................................. 2
2.4 Purpose........................................................................ 2
ARTICLE III CAPITAL, CAPITAL INTERESTS AND FUNDING......................................... 3
3.1 Capital of the Company......................................................... 3
3.2 Mandatory Member Funding....................................................... 3
3.3 Priority Subscription Rights................................................... 3
3.4 Subscription................................................................... 3
ARTICLE IV BOARD OF MANAGERS.............................................................. 4
4.1 Board of Managers.............................................................. 4
4.2 Alternate Manager.............................................................. 4
4.3 Term and Vacancies............................................................. 4
4.4 Meetings and Agenda............................................................ 4
4.5 Quorum and Decisions........................................................... 5
4.6 Powers of the Board of Managers................................................ 5
4.7 Execution of Documents......................................................... 6
4.8 Compliance..................................................................... 6
4.9 Remuneration................................................................... 6
ARTICLE V MEETING OF MEMBERS............................................................. 6
5.1 Members Meeting................................................................ 6
5.2 Calling a Members Meeting; Agenda.............................................. 6
5.3 Related Matters................................................................ 7
5.4 Quorum for Members Meeting..................................................... 7
5.5 Voting Generally............................................................... 7
5.6 Ordinary Resolutions........................................................... 7
5.7 Extraordinary Resolutions...................................................... 8
ARTICLE VI BUY-SELL....................................................................... 9
6.1 Buy-Sell Notice................................................................ 9
6.2 Actions by Receiving Member.................................................... 9
6.3 Closing........................................................................ 9
ARTICLE VII COMPETITION.................................................................... 10
7.1 Competition.................................................................... 10
7.2 Restrictions on Competition.................................................... 10
ARTICLE VIII TRANSFERS...................................................................... 10
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New Issues..... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.2 Preferential Purchase Right......................................... 11
ARTICLE IX MANAGEMENT.......................................................... 13
9.1 Management.......................................................... 13
9.2 Operation of the Project............................................ 13
ARTICLE X REPORTING AND INFORMATION........................................... 13
10.1 Accounting; Fiscal Year; Tax Information............................ 13
10.2 Annual Financial Statements and Auditing............................ 14
10.3 Inspection and Other Information.................................... 14
10.4 Monthly Reports..................................................... 14
10.5 Tax Returns and Partnership Status.................................. 15
10.6 Submission of Annual and Three-Year Business Plans.................. 16
10.7 Approval of Annual Business Plan and Three-Year Business Plan....... 16
ARTICLE XI RESOLUTION OF DISPUTES.............................................. 16
11.1 Conciliation........................................................ 16
11.2 Agreement to Arbitrate.............................................. 17
11.3 Appointment of Arbitrators.......................................... 17
11.4 Authority of the Arbitrators........................................ 17
11.5 Place of Arbitration................................................ 18
11.6 Conduct of the Arbitration.......................................... 18
11.7 ICC Rules........................................................... 18
11.8 Payment of Award.................................................... 18
11.9 Finality of the Arbitrators' Award.................................. 18
11.10 Use of the Courts................................................... 18
11.11 Confidentiality..................................................... 18
11.12 Arbitration Provision Enforceable................................... 18
ARTICLE XII OBLIGATIONS OF THE PARTIES.......................................... 19
12.1 Observance of Laws.................................................. 19
12.2 Confidentiality..................................................... 19
12.3 Publicity........................................................... 20
ARTICLE XIII REPRESENTATIONS, WARRANTIES, AND LIABILITIES........................ 21
13.1 Representations and Warranties...................................... 21
13.2 Limitation on Liability............................................. 22
ARTICLE XIV TERMINATION......................................................... 22
ARTICLE XV MISCELLANEOUS PROVISIONS............................................ 22
15.1 Notices............................................................. 22
15.2 Governing Law....................................................... 23
15.3 Interest............................................................ 24
15.4 Further Assurances.................................................. 24
15.5 No Further Relationship............................................. 24
15.6 Conflict of Terms................................................... 24
15.7 Assignment.......................................................... 24
15.8 Specific Performance................................................ 24
15.9 Entire Agreement.................................................... 25
15.10 Amendment........................................................... 25
15.11 Waivers............................................................. 25
15.12 No Third Party Beneficiaries........................................ 25
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15.13 Severability................................................ 25
15.14 Counterparts................................................ 25
15.15 Interpretation.............................................. 25
15.16 Force Majeure............................................... 25
EXHIBIT A ............................................................ 1
EXHIBIT B ............................................................ 1
EXHIBIT D ............................................................ 1
EXHIBIT E ............................................................ 1
EXHIBIT F ............................................................ 1
EXHIBIT G ............................................................ 1
</TABLE>
iii
<PAGE>
MEMBERS AGREEMENT
This Members Agreement (this "Agreement"), dated as of January 5, 2000, is
entered into by and between Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga") and Dan River International Ltd., a corporation organized under
the laws of the Commonwealth of Virginia, U.S.A. ("DRI").
RECITALS
Zaga and DRI shall be the sole Members, and thus shall own in the
aggregate 100% of the corporate capital of the Company. The Company shall own
and operate the Project.
As soon as practicable but no later than five (5) business days after the
formation of the Company, the Company shall enter into a marketing agreement, a
copy of which is attached hereto as Exhibit A, the purpose of which is to permit
---------
Dan River Inc. or any Affiliate thereof to be the sole and exclusive marketer of
the Project's products (the "Marketing Agreement").
As soon as practicable but no later than five (5) business days after the
formation of the Company, the Company and Dan River Inc. shall enter into a
sales agency agreement, a copy of which is attached hereto as Exhibit B, the
---------
purpose of which is to permit Zaga or its agents to solicit orders in Mexico.
Contemporaneously with the execution of this Agreement, Dan River Inc., the
parent company of DRI, and Zaga shall enter into two separate letter agreements
(the "Letter Agreements"), copies of which are attached hereto as Exhibits C and
--------------
D.
- -
The Members desire to set forth herein the terms and conditions concerning
their ownership of and cooperation concerning the Company.
NOW, THEREFORE, intending to be legally bound, the Members agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized words and phrases set forth on Annex A
-------
hereto, and the capitalized words and phrases defined elsewhere in this
Agreement, have the indicated meanings for purposes of this Agreement.
1.2 Other References. Unless otherwise provided, all references to
"Articles" and "Sections" are to Articles and Sections of this Agreement, and
all references to "Exhibits" are to Exhibits attached to this Agreement, each of
which is made a part of this Agreement for all purposes. References to any
gender include all others if applicable in the context. Terms defined in the
singular shall have the corresponding meaning when used in the plural and vice
<PAGE>
versa. All uses of "include" or "including" mean without limitation. References
to a law, rule, regulation, contract, agreement, or other document mean that
law, rule, regulation, contract, agreement, or document as amended, modified, or
supplemented, if applicable. Any definition of one part of speech of a word,
such as definition of the noun form of that word, shall have a comparable
meaning when used as a different part of speech, such as the verb form of that
word.
1.3 Governing Language. The governing language of this Agreement shall be
the English language; provided, however, that with respect to the Organizational
Documents, their governing language shall be Spanish. Except as otherwise
required by applicable law, all notices, correspondence, information,
literature, reports, data, manuals, procedures and other documents required
under this Agreement shall be in the English language.
ARTICLE II
BASIC STRUCTURE OF COMPANY
2.1 Formation of the Company. The Members agree to form the Company within
fifteen (15) days following the date of this Agreement, and the Company shall be
governed by the Organizational Documents attached hereto as Exhibit E; provided,
---------
however, that the Company shall not be formed unless and until Dan River Inc.
obtains any consent or waiver relating to this Agreement that is required under
that certain Credit Agreement among Dan River Inc., First Union National Bank
and other parties thereto. DRI shall use its best efforts to cause Dan River
Inc. to secure any such waiver or consent. In the case that such consent or
waiver is not obtained, Dan River Inc. agrees to pay Zaga any expenses made
after the signature of this Agreement related to this Agreement.
2.2 Name. Subject to the approval from the Ministry of Foreign Affairs
(Secretaria de Relaciones Exteriores), the name of the Company shall be DanZa
Textil, S. de R.L. de C.V.
2.3 Place of Business. The corporate domicile and principal place of
business of the Company shall be located in Tepeji del Rio de Ocampo, Hidalgo,
Mexico or such other place as the Members may from time to time designate.
2.4 Purpose. The purposes for which the Company shall be organized
include, but are not limited to, the following:
(a) to develop, finance, build, own and operate a manufacturing plant at a
location to be selected by the Board of Managers in Mexico primarily
for the manufacture of woven fabrics for sale to apparel manufacturers
and other sectors, including, without limitation, the manufacture of
greige sheeting fabric; and
(b) such other activities as are lawful and approved by an Extraordinary
Resolution of the Members.
2
<PAGE>
ARTICLE III
CAPITAL, CAPITAL INTERESTS AND FUNDING
3.1 Capital of the Company. The Company shall have a minimum fixed capital
of 3,000 Pesos. Each Member shall own one capital interest (parte social)
("Capital Interest"), which initially shall have the value set forth in Exhibit
-------
F. All additional equity contributions in excess of the minimum fixed capital
- -
amount shall constitute the variable capital of the Company and shall cause an
increase in the Value of the Capital Interest of such contributing Member by the
amount of equity so contributed. The Value of a Capital Interest shall always
represent a multiple of one Peso. The Capital Interests shall be of free
subscription.
3.2 Mandatory Member Funding.
(a) Each Member shall be required, severally and not jointly, to make
equity contributions to provide its pro rata portion of the funds
necessary to fund the Project; provided that in no event shall any
Member be required to make equity contributions in excess of $25
million Dollars. Each time that such equity contributions are to be
made, they shall be made by all Members on the same day pro rata in
accordance with their Ownership Percentages. The timing for the making
of the equity contributions shall be governed by a separate agreement
among the Members.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be
contributed from time to time in accordance with Section 3.2(a). The
--------------
Company shall register in its books any increase in the Value of a
Member's Capital Interest based on and corresponding to the amounts so
contributed.
(c) If one Member fails or refuses to provide funds as required by this
Section 3.2, and such failure or refusal continues for five Business
-----------
Days after receipt by such Member of notice thereof from the other
Member, the other Member may at its option provide such funds, and the
Member providing such funds shall have the Value of its Capital
Interest increased accordingly.
3.3 Priority Subscription Rights. Upon any decision of the Members to
increase the capitalization of the Company, except for increases pursuant to
Section 3.2, each Member shall have the right to subscribe for such increase pro
- -----------
rata based on such Member's Ownership Percentage. If any Member fails to
subscribe or pay for the pro rata portion to which it is entitled, the other
Member may take up the unsubscribed or unpaid portion.
3.4 Subscription. The funding needs of the Company to be provided by the
Members shall be denominated in Dollars, and the commitment of the Members to
fund such needs shall be made in Dollars (the "Commitment Amounts").
Notwithstanding the foregoing, the amount of any equity contributions to the
Company, and the subscriptions of the Members in respect thereof, shall be
denominated and paid in Pesos (the "Subscriptions"), it being understood that
3
<PAGE>
foreign capital contributed by the Members shall be converted to Pesos at the
prevailing rate of exchange published by the Banco de Mexico in the Official
Daily Gazette (Diario Oficial). Equity capital thus paid to the Company shall
then be converted to Dollars (the "Dollar Amounts"). To the extent that any
Dollar Amount realized by the Company in connection with any Subscription shall
be less than the relevant Commitment Amount, additional equity increases shall
be made and the Members shall subscribe for such increases and effect payment in
connection therewith until the Company shall have realized Dollar Amounts that
are not less than the Commitment Amounts.
ARTICLE IV
BOARD OF MANAGERS
4.1 Board of Managers. The Company shall be governed by a Board of
Managers consisting of six managers. The managers shall not be required to be
nationals of Mexico. DRI shall be entitled to designate three persons to the
Board of Managers, and to the extent permitted by applicable law, DRI shall have
the right to cause such managers to be removed. Zaga shall be entitled to
designate three persons to the Board of Managers, and to the extent permitted by
applicable law, Zaga shall have the right to cause such managers to be removed.
Each Member agrees to vote its Capital Interest so as to achieve the results
referred to in this Section 4.1. DRI shall appoint a manager to serve as
-----------
chairman of the Board of Managers during the first year, after which control of
the chairmanship of the Board of Managers will alternate annually between Zaga
and DRI appointed managers.
4.2 Alternate Manager Each Member entitled to nominate a manager pursuant
to Section 4.1 shall be entitled to designate an alternate manager for each of
-----------
its nominees (an "Alternate Manager"). Each Alternate Manager shall be entitled
to receive notice of all meetings of the Board of Managers and to attend and
vote at any such meeting at which the manager for whom he is the Alternate
Manager is not personally present, and generally to perform all functions of the
manager for whom he is the alternate as a manager in his absence. An Alternate
Manager shall cease to be an Alternate Manager if the manager for whom he is the
alternate ceases to be a manager; provided, however, that if a manager retires
and is immediately reappointed, any appointment of an Alternate Manager for such
manager that was in force immediately prior to his retirement shall continue
after his reappointment. An Alternate Manager shall be deemed for all purposes a
manager and shall alone be responsible for his own acts and defaults and he
shall not be deemed to be the agent of the manager for whom he is the alternate.
4.3 Term and Vacancies. The managers shall be elected for a term of office
of one year. A manager whose term of office expires may be reelected. Any
vacancy on the Board of Managers shall be filled by the Member that nominated
the manager whose departure created such vacancy.
4.4 Meetings and Agenda. The Board of Managers shall meet at least
quarterly ("Regular Meetings"), and additional meetings may be convened by call
of the chairman or by
4
<PAGE>
any manager at any time ("Special Meetings"). Regular Meetings shall be held at
the Company's head office or at such other location as may be agreed by the
Board of Managers. Unless otherwise agreed upon by the Board of Managers,
Special Meetings shall be held on an alternating basis at the Company's head
office and at the offices of Dan River Inc. in Danville, Virginia, U.S.A.
Managers shall receive not less than ten Business Days' written notice of any
meeting, with such written notice also provided to each Member. Managers may, by
unanimous written consent, waive the notice requirement for meetings, and any
manager that attends a meeting of the Board of Managers shall be deemed to have
waived any requirement for notice thereof. The agenda of each meeting shall be
included in the notice for such meeting and shall be established in accordance
with the requirements of the Code and the Organizational Documents, but shall
include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting. Managers may
attend meetings of the Board of Managers by telephone or videoconference.
4.5 Quorum and Decisions. A quorum for meetings of the Board of Managers
shall require the presence of at least four managers. All decisions of the Board
of Managers shall be taken by the affirmative vote of at least four managers.
The chairman of the Board of Managers shall not be entitled to any vote in
addition to his vote as a manager. In the event of a deadlock among the
managers, the matters shall be decided by vote of the Members as set forth in
Article V. The proceedings of meetings of the Board of Managers will be in
- ---------
English. Unless otherwise required by applicable law, the official minutes of
meetings and resolutions taken therein shall be kept in English and Spanish,
shall be circulated to all managers before finalization and shall be kept in the
minute books of the Company. If permitted by applicable law, decisions may be
taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.
4.6 Powers of the Board of Managers. Except as otherwise expressly
provided by applicable law or this Agreement, the Board of Managers shall,
consistent with any resolution of the Members Meeting, administer the business
and property of the Company and manage the affairs of the Company and shall have
full authority to do so, provided that its resolutions and acts are consistent
with the Code, this Agreement and the Organizational Documents. Subject to the
foregoing, the functions and powers of the Board of Managers shall include, but
not be limited to:
(a) The appointment or removal of the general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or capital
expenditures having a value in excess of $2,000,000;
(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of $1,000,000 in the aggregate
to any one Person or its Affiliates;
5
<PAGE>
(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
(g) Any declaration by the Company of a default under, any exercise by the
Company of remedies under, or any termination or cancellation by the
Company of, any Project Contract or Financing Agreement; and
(h) The performance of any other acts necessary or appropriate for a Board
of Managers under this Agreement, the Organizational Documents or the
Code.
4.7 Execution of Documents. To be valid and binding, all notes, offers
and acceptances, powers of attorney, commitments, deeds, transfers, assignments,
contracts, obligations, certificates and other instruments of the Company must
be authorized by the Board of Managers. Subject to the Code, this Agreement and
the Organizational Documents, the Board of Managers may delegate such of this
authority and power as it considers appropriate to the general manager and other
executives of the Company (subject to authorization and spending limits to be
specified by the Board of Managers).
4.8 Compliance. The Members hereby expressly covenant and agree to cause
each manager elected from nominees nominated by it to comply in full with the
provisions of this Agreement, the Organizational Documents, and the Code.
4.9 Remuneration. Remuneration, if any, of the managers shall be as
stipulated by the Members. The reasonable out-of-pocket expenses of such
managers incurred with respect to attendance at meetings of the Board of
Managers shall be reimbursed by the Company.
ARTICLE V
MEETING OF MEMBERS
5.1 Members Meeting. The Members Meeting is the supreme authority of the
Company. The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference. According to the Code, resolutions may be adopted outside of
Members Meetings by unanimous written consent of all of the Members. An Ordinary
Members Meeting shall be held at least once a year within the four (4) months
following the closing of each fiscal period. Ordinary Members Meetings may be
those called to discuss any of the matters that are not expressly reserved by
this Agreement to the Extraordinary Members Meeting. The matters reserved for
Extraordinary Members Meetings are any matters that are identified as
Extraordinary Resolutions pursuant to Section 5.7 below.
-----------
5.2 Calling a Members Meeting; Agenda. A Members Meeting shall be called
by any Member, the Board of Managers or any other Person authorized under the
Organizational
<PAGE>
Documents or applicable law. Notice of a Members Meeting shall be provided in
writing by the Company or other applicable Person to each Member at least 15
Business Days prior to such Members Meeting, unless a longer period is required
by applicable law or unless such requirement is waived by all Members, and any
Member that attends a Members Meeting shall be deemed to have waived any
requirement for notice thereof. The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the Code and the Organizational Documents, but shall include any
matter submitted to the Company by any Member at least three Business Days prior
to the sending of the notice for such Members Meeting. Unless approved by all
Members of the Company, no matter may be considered at a Members Meeting unless
such matter was set forth in the notice for such Members Meeting.
5.3 Related Matters. The chairman of the Board of Managers shall act as
the chairman of the Members Meeting, and the secretary of the Company shall
serve as secretary of the Members Meeting. In the event that either the chairman
of the Board of Managers or the secretary of the Company are unavailable to so
act, then the chairman and the secretary shall be elected by the Members (or
their representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting. In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting. Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.
5.4 Quorum for Members Meeting. Unless a higher number is required by
applicable law, a quorum for any Members Meeting shall consist of Members
present or represented by proxy holding more than 75% of the total votes of the
Members, provided that the presence of a quorum shall not modify or lessen the
affirmative vote required by Sections 5.6 and 5.7; and provided, further, that a
--------------------
quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Section 5.2 but was not held due to the failure of a quorum shall consist of
- -----------
Members present or represented by proxy holding any number of the total votes of
the Members.
5.5 Voting Generally. Each Member shall have one vote for each one Peso
contributed by the Member and its predecessors to the equity of the Company.
Votes shall be cast by written ballot. Members may be represented at Members
Meetings by proxies, the holders of which need not be Members. Proxy holders
that are Members shall be entitled to vote based on the number of votes of the
Members they represent separately, in addition to voting based on their own
number of votes. Proxies shall be issued in accordance with the Code.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
5.6 Ordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Ordinary Members Meeting by the
affirmative vote of Members (or their representatives) representing more than
50% of the total votes of the Members ("Ordinary Resolutions").
7
<PAGE>
5.7 Extraordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Extraordinary Members Meeting
by the affirmative vote of Members (or their representatives) representing 75%
or more of the total votes of the Members with respect to the following matters
("Extraordinary Resolutions"), unless such matters shall have been approved by
the Board of Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company, or
the Transfer during any fiscal year, exceeding an aggregate of more
than 20% of the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than with
respect to the contributions made pursuant to Section 3.2;
-----------
(d) Any proposals for the Company to accept contributions of or
conversions of debt-to-capital from third parties in exchange for
Capital Interests;
(e) Any proposals by a Member to Transfer all of its Capital Interests or
a portion of the Value of its Capital Interest other than as permitted
by this Agreement;
(f) The dissolution of the Company;
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of
the Company's total assets;
(h) The amendment of the Organizational Documents;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10%
or greater equity interest), member of the Board of Managers, officer,
or executive of the Company or a Member (or any individual who is a
member of the immediate family of such manager, officer or executive)
that in the aggregate will have a value during any fiscal year in
excess of $100,000;
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to
such borrowing;
(k) Borrowing for the purpose of accomplishing any matter listed in
Section 5.7; and
-----------
(l) Making payments of liquidating or partially liquidating dividends.
8
<PAGE>
ARTICLE VI
BUY-SELL
6.1 Buy-Sell Notice. If (a) at any time any Member desires to adopt one
or more Extraordinary Resolutions, but approval of the other Member for the
passing of such Extraordinary Resolutions cannot be obtained in accordance with
Article V and (b) such situation continues without resolution for at least 90
- ---------
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Section 6.3, then the
-----------
Receiving Member shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.
6.2 Actions by Receiving Member. Not later than 30 days after the giving
of the Buy-Sell Notice to the Receiving Member, the Receiving Member shall
notify (the "Response Notice") the other Member whether such Receiving Member
elects (a) to sell or (b) to purchase, in either case at the Capital Interest
Price. Failure to give the Response Notice within such 30-day period shall be
deemed to be an election to sell by the Receiving Member. If the Receiving
Member elects to purchase, the Receiving Member shall be required to purchase
all of the Capital Interest of the Triggering Member and shall include with its
Response Notice the original letter of credit it received from the Triggering
Member and a letter of credit in favor of the Triggering Member substantially as
described in Section 6.1 above (except that the amount of the letter of credit
-----------
shall be measured by reference to the Triggering Member's equity contributions).
If the Receiving Member does not elect to purchase, the Receiving Member shall
sell its Capital Interest to the Triggering Member. In each case, the sale or
purchase of the Capital Interest shall be at the Capital Interest Price
multiplied by the number of whole Pesos contributed to the equity of the Company
by the Member who is selling its Capital Interest.
6.3 Closing. The closing of the sale and purchase in accordance with this
Article VI shall be consummated no later than the first Business Day after 90
- ----------
days after the giving of the Response Notice or the deemed election (pursuant to
Section 6.2) to sell. Such closing shall
- -----------
9
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occur at the head office of the Company unless otherwise agreed, and at the
closing, the Closing Actions shall occur. Any tax withholding obligations with
respect to the Transfers of the Capital Interests imposed by the laws of Mexico
shall be complied with.
ARTICLE VII
COMPETITION
7.1 Competition. The objectives of the Company, in general terms, are the
development, financing, building, ownership and operation of the Project. Except
as set forth below in Section 7.2 and in the Letter Agreements, no Member or
-----------
Affiliate of a Member, by reason of the Member's participation in the ownership
of the Company or the election of any representative of that Member to the Board
of Managers, shall be precluded in any manner whatsoever from engaging in any
other similar or related activities (including, without limitation, the
manufacture of non-apparel fabrics such as bedding products for home fashions
and all types of knittings) in Mexico, the United States, or anywhere else, nor
shall any Member or Affiliate of a Member have any obligation, by reason of its
participation in the ownership of the Company or the election of any
representative of that Member to the Board of Managers, to make available to the
Company or any of the other Members or their Affiliates any other opportunity
that such Member or its Affiliates may have to develop, construct, finance or
operate any other project.
7.2 Restrictions on Competition. Notwithstanding the provisions in Section
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7.1, no Member or Affiliate of a Member shall directly or indirectly engage in
- ---
the manufacture of woven apparel fabrics or its finishing in Mexico.
ARTICLE VIII
TRANSFERS
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New
Issues.
(a) Notwithstanding any other provision of this Agreement, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital
Interests of the Company may only be made in accordance with the
provisions of this Agreement, the Code, the Organizational Documents
and the Financing Agreements, and any other attempted Transfer,
Encumbrance or issuance shall be void. It shall be a condition to the
Transfer or issuance of Capital Interests to any Person under any
provision hereof that such Person shall agree in writing (i) to be
bound by the provisions of this Agreement and (ii) to assume all
liabilities and obligations of the transferring Member (and Affiliates
thereof) under or with respect to any agreement between or among any
of the Members (or Affiliates thereof) in relation to the Project; and
any Transfer or subscription in respect of which such conditions have
not been satisfied shall be void.
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(b) No Member may Transfer or Encumber its Capital Interest or its Value
in a Capital Interest unless (i) such Transfer is to an Affiliate of
the transferor, (ii) such action is approved by the Board of Managers
in accordance with Section 4.5 herein, or (iii) if such action is not
-----------
so approved by the Board of Managers, such action is approved by an
Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a Capital
Interest hereunder shall take effect as of the date of registration of
such Transfer in the books of the Company, and the Company shall not
register any Transfer that does not comply with this Article VIII, but
------------
the Members and the Board of Managers agree promptly to take and cause
to be taken any action necessary under the Organizational Documents,
this Agreement and applicable law to effectuate and register any such
Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all bear the
following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the Capital
Interest represented by this certificate are restricted by
and subject to the provisions of the Estatutos of the Company,
as well as a certain Members Agreement, dated January 5, 2000,
copies of which may be reviewed at the Company's head office
during business hours."
8.2 Preferential Purchase Right.
(a) If DRI or any of its Affiliates desires to Transfer its Capital
Interest and such Transfer has been approved in accordance with the
provisions of Section 8.1, DRI must first offer Zaga, in accordance
-----------
with the terms of Section 8.2(b), the right to purchase from DRI a
--------------
portion of DRI's Capital Interest in an amount sufficient to provide
Zaga with a 50%, but no more and no less than a 50%, Ownership
Percentage in accordance with Section 8.2(b); provided, however, that
--------------
this preferential purchase right shall not apply if Zaga's Ownership
Percentage at the time of the Transfer is less than 37%.
(b) Should DRI or any of its Affiliates desire to Transfer its Capital
Interest pursuant to an Offer from another Person (the "Potential
Acquirer") and such Transfer is permitted pursuant to the provisions
of Section 8.1, DRI shall promptly give notice thereof (the "Transfer
-----------
Notice") to the Company and Zaga. The Transfer Notice shall include a
copy of the Offer and shall set forth in reasonable detail all
relevant information with respect to the proposed Transfer, including
the name and address of the Potential Acquirer, the cash purchase
price (expressed in Dollars) per Peso contributed to the equity of the
Company by DRI (the "Preferential Purchase Price"), the Capital
Interests that are to be the subject of the Transfer (the "Subject
Capital Interests"), and any other terms and conditions of the
proposed Transfer. Zaga shall have the preferential right to purchase
from DRI a portion of DRI's Capital Interest in an amount sufficient
to provide Zaga
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<PAGE>
with a 50% Ownership Percentage at the Preferential Purchase Price and
on the same material terms and conditions set forth in the Transfer
Notice. Zaga shall have 20 Business Days following the giving of the
Transfer Notice in which to notify DRI whether it desires to exercise
its preferential right. A notice in which Zaga exercises such right is
referred to herein as an "Exercise Notice." The Exercise Notice shall
be accompanied by an irrevocable letter of credit issued by a
reputable financial institution in favor of DRI (or such other
instrument or arrangement reasonably satisfactory to DRI) in the
amount of the Preferential Purchase Price multiplied by the number of
whole Pesos contributed to the equity of the Company by DRI times (y)
the percentage amount equal to the positive difference between 50% and
the Ownership Percentage of Zaga immediately prior to the exercise of
the preferential purchase, times (z) 10%, which letter of credit shall
provide that in the event Zaga fails for any reason (other than due to
the fault of DRI or the failure, through no fault of Zaga, to obtain
any required consent of the Lenders) to complete the closing of the
transaction within the time period set forth in Section 8.2(c), then
---------------
DRI shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of
such period, to draw on the letter of credit and to retain the
proceeds thereof. If Zaga does not duly exercise such right during the
applicable period, it shall be deemed to have waived such right.
(c) If the preferential right is exercised in accordance with Section
-------
8.2(b), the closing of such purchase shall occur at the head office of
------
the Company on the first Business Day 120 days after the expiration of
the preferential right period. At the closing, the Closing Actions
shall occur.
(d) If Zaga does not deliver an Exercise Notice or if for any reason
(other than due to the fault of DRI or the failure of the Lenders,
other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close
within the time period set forth in Section 8.2(c)) the preferential
--------------
purchase transaction does not close within the time period set forth
in Section 8.2(c), DRI shall have the right, subject to compliance
with the other provisions of this Article VIII, to Transfer the
------------
Subject Capital Interests to the Potential Acquirer in accordance with
the terms of the Transfer Notice for a period of 90 days after the
expiration of the preferential right period. If, however, DRI fails to
Transfer the Subject Capital Interests within such period, the
proposed Transfer shall again become subject to the preferential right
set forth in this Section 8.2.
-----------
12
<PAGE>
ARTICLE IX
MANAGEMENT
9.1 Management. The Board of Managers shall appoint the general manager of
the Company, who shall be the chief executive officer of the Company and
responsible for the day-to-day management and conduct of the operations of the
Company in accordance with powers granted by the Members Meeting and the Board
of Managers from time to time. The Board of Managers shall appoint a deputy
general manager. The general manager shall report to the Board of Managers. The
duration of the terms of the general manager, deputy general manager and other
officers having authority to sign and execute documents on behalf of the Company
shall not be limited to the term of the managers.
9.2 Operation of the Project.
(a) DRI or an Affiliate will determine the product mix for the Project.
Zaga will provide its help and expertise on all local matters,
including, but not limited to, issues associated with locating and
constructing the Project in Mexico, complying with any governmental
authorities or regulations, and addressing labor issues. The layout,
manning and equipping of the Project will be approved by the Board of
Managers. The efforts of the Members in regard to the foregoing
matters will be subject to the provisions of Section 12.2.
------------
(b) The Project will be managed and operated on a day-to-day basis by a
team hired by the Company, located on site and headed by the general
manager, in accordance with guidelines and reporting authority
established by the Board of Managers.
(c) The Members shall create a task force consisting of one individual
selected by each Member (the "Representatives"). The Representatives
shall be directly responsible for working with the general manager to
supervise the construction, equipping and initial operations of the
Project during construction and the first year of the Project's full
operation. The Representatives will work closely with the general
manager and will have significant approval authority on behalf of the
Members whom they represent. In the event it becomes necessary to
replace the general manager, a separate task force will be formed by
the Board of Managers in the manner provided above to recommend
candidates to the Board of Managers.
ARTICLE X
REPORTING AND INFORMATION
10.1 Accounting; Fiscal Year; Tax Information. The Members shall cause the
Company to keep, in addition to any books and accounts required under the Code,
books and
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records in accordance with US GAAP and Mexico GAAP applied on a consistent
basis. The Members shall cause the Company to make and keep books, records, and
accounts that, in reasonable detail, accurately and fairly reflect all of its
transactions. The records shall include monthly unaudited financial reports
(including an income statement, balance sheet and statement of cash flows)
prepared in accordance with US GAAP and Mexico GAAP by or under the supervision
of the Company's chief financial officer, which shall be furnished to each of
the Members. The fiscal year of the Company shall be the year ending December
31. The Members shall cause the Company to furnish to each Member such
information concerning the Company and its operations as is required for each
Member and its Affiliates to prepare their tax returns on a timely basis.
10.2 Annual Financial Statements and Auditing. The books and records of
the Company maintained under Section 10.1 shall be audited annually by Ernst &
------------
Young. The Board of Managers shall direct that the audit be completed on or
before the 90th day following the end of each fiscal year of the Company and
that the auditors provide drafts of the annual financial statements and their
report thereon to each Member prior to finalization thereof. The audit shall be
in accordance with US GAAP and Mexico GAAP applied on a consistent basis. The
audit under this Section 10.2 is in addition to any audit required under the
------------
Code.
10.3 Inspection and Other Information.
(a) Each Member, through its authorized representatives, shall have, from
time to time upon reasonable advance notice, (i) full and complete
access to the managers, officers and employees of the Company, and
(ii) the right, at such Member's expense, (A) to inspect, copy, audit
and retain copies of any Company books and records, (B) to cause the
Company to provide such financial and support information or
information about Project operations in such detail and with such
frequency as such Member reasonably may require, (C) to have the
Company prepare financial statements of the Company, in such manner
and by such date as such Member may reasonably request (in addition to
the financial statements provided for in Sections 10.1 and 10.2), and
-----------------------
(D) to inspect the plants, properties and physical assets of the
Company.
(b) All inspection, auditing or other activities conducted by a Member
pursuant to this Section 10.3 shall be conducted so as to not
------------
unreasonably interfere with the conduct of the business of the
Company.
(c) Without limitation, the provisions of Section 12.2 shall be complied
------------
with in connection with actions undertaken pursuant to this Section
-------
10.3.
----
10.4 Reports. In addition to the reports provided for in Sections 10.6 and
-----------------
10.7, the general manager of the Project shall furnish the following monthly
- ----
reports to the Board of Managers and to the Members:
(a) income statement, balance sheet and statement of cash flows as
compared to the Annual Business Plan; and
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<PAGE>
(b) analysis of variances from the then current Annual Business Plan.
On a quarterly basis, the general manager of the Project shall furnish the
foregoing information as well as the following information:
(a) Marketing overview -- current and anticipated product mix, current
market conditions, strategy, organization, competitive position and
unfilled order position;
(b) Manufacturing review -- capital expenditure status, plans and needs,
status of cost reduction programs, variance analysis, safety,
management issues and running conditions;
(c) Financial review -- sales, operating income, working capital
management, and status of systems implementation. The actual and
forecast is to be compared to the Annual Business Plan;
(d) Forecast covering the current and three succeeding quarters;
(e) Analysis of developments in governmental relations concerning the
Project;
(f) Matters requiring action in the immediate future and an analysis of
the status of such matters listed in prior monthly reports;
(g) An overall statement as to the status of the Project, including with
particularity any matters that the general manager determines should
be brought to the attention of the Managers or Members; and
(h) Any other report reasonably requested by any manager or Member.
10.5 Tax Returns and Partnership Status. Each Member, through its
authorized representatives and at its expense, may review all Mexican income and
other tax returns filed by the Company to comply with Mexican laws. The Members
shall cause the Company to provide to each Member a preliminary copy of all
income tax returns on or before the 30th day prior to the due date of the
returns. Promptly after the filing of any such return with the appropriate
governmental authority, the Members shall cause the Company to provide each
Member with a copy of the return, along with copies of proof of payment remitted
in connection with the return. Each Member agrees that the Company will be
treated as a partnership for United States federal income tax purposes and that
it will not take any action or omit to take any action that would cause the
Company to be treated differently. For US federal tax purposes, each Member
agrees that it will take such actions as may be requested by DRI from time to
time, including the execution and delivery of a United States Internal Revenue
Service Form 8832, in order to achieve the classification of the Company for
such purposes as a partnership, pursuant to United States Treasury Regulations
ss.ss. 301.7701-1 through 301.7701-3.
15
<PAGE>
10.6 Submission of Annual and Three-Year Business Plans. At least ninety
(90) days prior to the end of the calendar year beginning with December 31,
1999, the general manager of the Company shall prepare a report on the Company's
working capital requirements and operating budget for the succeeding calendar
year, which will substantially contain an estimate or projection of (a) working
capital requirements, including breakout of accounts receivable, inventory, and
accounts payable, (b) sources of revenue (by geographic area, product type,
trade areas, or established areas of distribution), (c) the cost of goods sold,
(d) selling, general, and administrative expense detail, (e) interest expense,
(f) an income statement, balance sheet, and statement of cash flows, all on a
quarterly basis, (g) funding requirements, capital expenditures, and repairs and
maintenance expense, (h) manufacturing objectives, including yield objectives by
product type and planned capacity, (i) distribution objectives, (j) information
technology objectives, (k) engineering objectives, (l) sales plan, (m) marketing
plan, including marketing programs, (n) finance goals, (o) general
administrative goals, and (p) all expenditures proposed to be undertaken by the
Company for such year (the "Annual Business Plan"). Upon preparation of the
Annual Business Plan, the general manager shall promptly submit the Annual
Business Plan to the Board of Managers for consideration. Approximately mid-
year, beginning in 2000, the general manager shall prepare a three year business
plan containing essentially the same elements as are contained in the Annual
Business Plan (the "Three-Year Business Plan").
10.7 Approval of Annual Business Plan and Three-Year Business Plan.
Promptly after receipt of the Annual Business Plan, but in any event not less
than thirty (30) days prior to the end of the fiscal year, the Board of Managers
shall meet to review the Annual Business Plan. Upon such review, the Board of
Managers will vote on the Annual Business Plan. If the Annual Business Plan is
approved, the Annual Business Plan shall become the Company's operating budget
for the succeeding calendar year. If the Annual Business Plan is not approved,
the general manager will revise the Annual Business Plan as soon as possible and
resubmit it to the Board of Managers for consideration. The operating budget for
the previous calendar year shall continue to govern the operations of the
Company until such time as an Annual Business Plan is approved by the Board of
Managers. Similarly, the Three Year Business Plan shall be in a form and shall
contain information satisfactory to the Board of Managers.
ARTICLE XI
RESOLUTION OF DISPUTES
11.1 Conciliation. No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Section 11.1. Each Disputing Party
------------
shall, if requested by another Disputing Party, select and appoint a senior
executive (not concerned with the day-to-day performance of the appointor's
obligations under this Agreement) to serve on a panel seeking to reach mutual
agreement with respect to the applicable Claim. Each such appointment shall be
made by the giving of notice by the appointor to the other Disputing Parties
within ten Business Days of the request for the appointment. The appointees
shall meet and shall endeavor to reach such mutual agreement as soon as
practicable.
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11.2 Agreement to Arbitrate. Any and all disputes, including claims,
counterclaims, demands, causes of action, controversies, and other matters in
question arising out of or relating to this Agreement, or the alleged breach
hereof, or in any way relating to the subject matter of this Agreement or the
relationship between the parties created by this Agreement (all of which are
referred to herein as "Claims"), between the Members (each a "Disputing Party")
that are not resolved during the 60 day period provided in Section 11.1 shall be
------------
resolved by binding arbitration.
11.3 Appointment of Arbitrators. If no such mutual agreement has been
reached within such 60 day period, then any Disputing Party may refer the claim
to arbitration under the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in
accordance with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel of
three arbitrators. One (1) arbitrator shall be nominated by each
Disputing Party in accordance with ICC Rules, and the third arbitrator
shall be nominated by the two (2) ICC-confirmed party-nominated
arbitrators or, failing agreement, shall be appointed by the ICC in
accordance with ICC Rules. Each Disputing Party shall be permitted to
nominate an arbitrator that is of the same nationality as the
Disputing Party making the nomination.
11.4 Authority of the Arbitrators. The validity, construction, and
interpretation of this agreement to arbitrate, and all procedural aspects of the
arbitration conducted pursuant to this agreement to arbitrate, including, but
not limited to, the determination of the issues that are subject to arbitration
(i.e., arbitrability), the scope of the arbitrable issues, allegations of "fraud
in the inducement" to enter into this agreement to arbitrate, allegations of
waiver, laches, delay or other defenses to arbitrability, and the rules
governing the conduct of the arbitration (including the time for filing an
answer, the time for the filing of counterclaims, the times for amending the
pleadings, the specificity of the pleadings, the extent and scope of discovery,
the issuance of subpoenas, the times for the designation of experts, whether the
arbitration is to be stayed pending resolution of related litigation involving
third parties not bound by this agreement to arbitrate, the receipt of evidence,
and the like) shall be decided in accordance with the ICC Rules. However, the
arbitrators shall have absolutely no authority to award treble, exemplary or
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of this Agreement. The Award shall fix the costs of the arbitration
and decide which of the Disputing Parties shall bear them or in what proportion
they shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.
17
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11.5 Place of Arbitration. The arbitration proceeding shall be conducted
in New York, New York.
11.6 Conduct of the Arbitration. The arbitration shall be conducted by the
arbitrators as expeditiously as possible. The arbitration proceedings and the
award or decision (the "Award") of the arbitrators shall be in English.
11.7 ICC Rules. The arbitration shall be conducted under the ICC Rules.
11.8 Payment of Award. The Award shall be payable in cash in Dollars.
11.9 Finality of the Arbitrators' Award.The arbitrators' Award shall, as
between the Disputing Parties and those in privity with them, be final and
entitled to all of the protections and benefits of a final judgment, e.g., res
judicata (claim preclusion) and collateral estoppel (issue preclusion), as to
all Claims, including compulsory counterclaims, that were or could have been
presented to the arbitrators. The arbitrators' Award shall not be reviewable by
or appealable to any court; provided, however, the Award may be corrected or
interpreted pursuant to the ICC Rules.
11.10 Use of the Courts. It is the intent of the parties that the
arbitration proceeding shall be conducted expeditiously, without initial
recourse to the courts and without interlocutory appeals of the arbitrators'
decisions to the courts. However, if a Disputing Party refuses to honor its
obligations under this agreement to arbitrate, any other Disputing Party may
obtain appropriate relief compelling arbitration in any court having
jurisdiction over the Disputing Parties; the order compelling arbitration shall
require that the arbitration proceedings take place in New York, New York as
specified above. The Disputing Parties may apply to any court having
jurisdiction for orders requiring witnesses to obey subpoenas issued by the
arbitrators. Moreover, any and all of the arbitrators' orders and decisions may
be enforced if necessary by any court having jurisdiction. The arbitrators'
Award may be confirmed in, and judgment upon the Award entered by, any court
having jurisdiction. For purposes of COMPELLING A MEMBER TO HONOR ITS OBLIGATION
TO ARBITRATE, each of the Members irrevocably consents and submits
unconditionally to the non-exclusive jurisdiction of any state or federal court
of competent jurisdiction in the State of New York, and irrevocably waives any
present or future objection to such venue for such purposes.
11.11 Confidentiality. To the fullest extent permitted by applicable law,
the arbitration proceeding and the arbitrators' Award shall be maintained in
confidence by the Disputing Parties. However, a violation of this covenant shall
not affect the enforceability of this agreement to arbitrate or of the
arbitrators' Award.
11.12 Arbitration Provision Enforceable. A Disputing Party's breach of this
Agreement shall not affect this agreement to arbitrate. Moreover, the parties'
obligations under this arbitration provision are enforceable even after this
Agreement has terminated. The invalidity or unenforceability of any provision of
this agreement to arbitrate shall not affect the
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validity or enforceability of the Disputing Parties' obligation to submit their
Claims to binding arbitration or the other provisions of this agreement to
arbitrate.
ARTICLE XII
OBLIGATIONS OF THE PARTIES
12.1 Observance of Laws.
(a) With respect to all matters and activities relating to the Project and
the Company, each Member shall comply with and shall cause its
Affiliates that are involved in the Project as well as the Company to
comply with all applicable laws, rules, or regulations of Mexico, and
any other jurisdiction that is applicable to the Company's business
and the Members' and their such Affiliates' activities in connection
with the Project. In particular, each Member agrees that it and its
Affiliates, in connection with their activities in connection with the
Company and the Project, will comply with the United States Foreign
Corrupt Practices Act (the "FCPA"), and the Members shall cause the
Company and its employees to comply with the Dan River Inc. Code of
Business Conduct. Each Member shall comply with, and shall cause its
Affiliates and the Company to comply with all laws applicable to its
or their performance under this Agreement dealing with improper or
illegal payment, gifts, or gratuities. Furthermore, each Member agrees
that it, its Affiliates and the Company will not take any action or
fail to take any action, which act or failure to act would subject any
other Member or any of its Affiliates to liability under the laws of
its country of domicile dealing with improper payments as described in
this Section 12.1.
------------
(b) Each Member agrees that it, its Affiliates or the Company will obtain
the agreement of each consultant or contractor it or, if applicable,
its Affiliates employs in conducting activities for, related to or on
behalf of the Project to comply with the FCPA, and if the employment
cost exceeds $100,000 in the aggregate, shall obtain written agreement
to that effect.
(c) Each Member warrants and represents to the other Members and the
Company that prior to the execution of this Agreement it and its
Affiliates have not taken any action, or failed to take any action,
with respect to the Project that would have violated this Section 12.1
------------
had this Section 12.1 then been in effect.
------------
12.2 Confidentiality.
(a) Subject to the provisions of Section 12.2(c), any and all data, plans,
---------------
customer lists, fabric specifications, proposals, or other material
related to the Company, including the design, construction,
configuration, operation, or financing of the Project, provided to a
Member or any of its Affiliates by or on behalf of the Company or
another Member or Affiliate of a Member in writing and identified
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as being confidential shall be used only with regard to the Project
and not for any other purpose and shall be held in confidence and
shall not be disclosed to any third party, except to attorneys or
other consultants or representatives with respect to the business of
the Company who are bound by a comparable confidentiality agreement or
who are bound by a duty of non-disclosure of confidential information
and except as reasonably may be required in the fulfillment of this
Agreement or in connection with the procurement of financing or the
Financing Agreements. Notwithstanding the foregoing, the obligation of
confidentiality shall not apply to any disclosure (i) of information
that is in or enters the public domain through no fault of the
receiving Person, (ii) of information that was in the possession of
the receiving Person prior to receipt under this Agreement, or (iii)
required by law, regulation, legal process, stock exchange, or order
of any court or governmental body having jurisdiction.
(b) Notwithstanding Section 12.2(a), in the course of an offer to a third
---------------
party to sell its Capital Interest, a Member may disclose information
concerning the Company to the third party, provided:
(i) the Member informs the Company and the other Member of all
information disclosed, and
(ii) information is disclosed only after the third party has
delivered to the Company a written agreement to comply with and
be bound by the provisions of this Section 12.2 as if it were a
------------
Member.
(c) The provisions of this Section 12.2 are intended to benefit, and to be
------------
enforceable by, the Company, each Member and its Affiliates.
(d) The Members recognize that the Company may enter into more detailed
and encompassing confidentiality agreements with third parties. Each
Member waives any right it may have to examine information subject to
any such agreement unless and until it enters into an agreement to be
bound by the same restrictions that bind the Company.
12.3 Publicity. To the fullest extent possible in light of any applicable
legal requirements, each Member shall provide the other Member and the Company
with a copy of each public announcement or filing with or notification to any
governmental authority regarding the Company or the Project or identifying any
Member or Affiliate of a Member by name in connection with the Project that the
Company or a Member or Affiliate of a Member, as applicable, intends to make
prior to making it, and shall entertain in good faith suggestions from each
receiving Member and, if applicable, the Company regarding the announcement,
filing or notification. Such announcement, filing or notification shall not be
made without the approval of the Members; provided, that the approval of the
Members shall not be required in the case of announcements, filings or
notifications that are required to be made by applicable stock exchange rules,
or any law or regulation.
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ARTICLE XIII
REPRESENTATIONS, WARRANTIES, AND LIABILITIES
13.1 Representations and Warranties. Each Member represents and warrants to
the other Member that:
(a) It is a duly organized, validly existing entity of the type described
in the introductory paragraph of this Agreement and is in good
standing under the laws of the jurisdiction of its formation. It has
all requisite corporate or other applicable power and authority to own
its Capital Interest and to enter into and to perform its obligations
under this Agreement and has obtained (to the extent applicable law
permits the obtaining of same at this point in time) all permits and
approvals from applicable governmental authorities necessary for it to
enter into and to perform its obligations under this Agreement.
(b) Its execution, delivery, and performance of this Agreement have been
authorized by all necessary action on its part and that of its equity
owners (if required), and do not and will not (i) violate any law,
rule, regulation, order, or decree applicable to it or (ii) violate
its organizational documents.
(c) This Agreement is a legal and binding obligation of that Member,
enforceable against that Member in accordance with its terms, except
to the extent enforceability is modified by bankruptcy, reorganization
and other similar laws affecting the rights of creditors generally and
by general principles of equity.
(d) There is no litigation pending or, to the best of its knowledge,
threatened to which that Member or any of its Affiliates is a party
that could reasonably be expected to have a material adverse effect on
the financial condition, prospects, or business of that Member or its
ability to perform its obligations under this Agreement.
(e) The execution, delivery and performance of this Agreement will not
conflict with, violate or breach the terms of any agreement of that
Member or of any agreement to which its properties are subject.
(f) That Member has provided to other Member, concurrently with the
execution hereof, (i) a balance sheet of that Member as of the date
there indicated (which date is not more than 60 days prior to the date
of this Agreement), and such balance sheet has been prepared in
accordance with US GAAP or Mexico GAAP (except to the extent, if any,
therein otherwise specifically indicated) and presents fairly the
financial condition of that Member as of the date thereof, and (ii) a
certificate setting forth a description in reasonable detail of all
Projects, if any, in existence or in the developmental or planning
phase (A) that may reasonably be considered to be competitive with the
Project and (B) in which that Member or its Affiliates own an equity
interest.
21
<PAGE>
(g) The information set forth in Exhibit G concerning the equity owners of
---------
that Member is true and correct.
13.2 Limitation on Liability. Notwithstanding any other provision of this
Agreement, but without prejudice to the provisions of any other agreement
entered into in connection with the Project, neither a Member nor any of its
Affiliates shall be liable, whether in contract, tort, warranty, negligence,
strict liability, or otherwise, for any special, indirect, incidental, or
consequential damages arising out of or in connection with this Agreement or its
status as a Member or an Affiliate of a Member; provided, however, that
liabilities arising under any of the Project Contracts to which a Member or an
Affiliate of a Member is a party shall be determined in accordance with those
contracts.
ARTICLE XIV
TERMINATION
The rights and obligations of the Members shall terminate upon the written
agreement of all the Members hereto. In addition, notwithstanding the provisions
of Article XI herein, either Member may terminate this Agreement in the event of
----------
a dispute under Section 2 of the letter agreement attached hereto as Exhibit C
---------
upon providing the other Member with written notice of its desire to terminate.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 Notices. All notices, requests, or consents provided for or permitted
to be given under this Agreement must be in writing and are effective (a) on
actual receipt by the addressee if personally delivered (including delivery
against a written receipt by an internationally recognized courier) to the
address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a Business Day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next Business Day):
22
<PAGE>
To: Zaga at:
Grupo Industrial Zaga
Antigua Carretera Mexico-Queretaro Km. 7074
Edificio A-P.B.: Interior 19
Colonia San Mateo 2nd Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Attn: Rafael Zaga
Fax: (525) 333-0391
To: DRI at:
Dan River International Ltd.
c/o Dan River Inc.
1065 Avenue of the Americas
19th Floor
New York, NY 10018 USA
Attn: President, Apparel Fabrics Division
Fax: (212) 554-5711
With copy to:
Dan River Inc.
2291 Memorial Drive
Danville, Virginia 24541
Attn: General Counsel
Telecopy: (804) 799-7276
To: The Company at:
Aut. Mexico-Queretaro Km. 84
San Cayetano la Loma, Vega de Madera
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Any Member may change the address or facsimile number to which notices are to be
directed to it by notice to the other Members and the Company in the manner
specified above.
15.2 Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE MEMBERS
ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK, U.S.A. (WITHOUT REFERENCE TO CONFLICTS OF
LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION), EXCEPT TO
THE EXTENT THAT ANY OF THE MATTERS COVERED HEREIN ARE
23
<PAGE>
MANDATORILY GOVERNED BY THE LAWS OF MEXICO IN WHICH CASE SUCH MATTERS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF MEXICO (WITHOUT
REFERENCE TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER
JURISDICTION).
15.3 Interest. If any amount payable under this Agreement is not paid on or
before the date due, the Person liable for the payment also must pay interest on
the amount not paid from and including the date it was due to but excluding the
date actually paid at a rate per annum equal to the Specified Rate.
15.4 Further Assurances. Each Member shall take all additional actions and
shall execute all other and further deeds and documents as are necessary or
appropriate to give full effect to the provisions of this Agreement. In
addition, the Members shall cause the Company to take all additional actions as
are necessary or appropriate to give full effect to the provisions of this
Agreement.
15.5 No Further Relationship. The Members agree that no Member is the
agent of any other Member and no such Person is authorized to take any action on
behalf of the other, except as expressly provided in this Agreement or a Project
Contract.
15.6 Conflict of Terms. If the terms of this Agreement and the terms of
the Organizational Documents shall conflict, the Members shall endeavor to amend
the Organizational Documents so as to reflect the terms of this Agreement, so
far as permitted by applicable law.
15.7 Assignment. All the terms of this Agreement shall be binding on and
inure to the benefit of the parties, their permitted assigns and successors-in-
interests. Rights under this Agreement may be assigned only in conjunction with
a Transfer of Capital Interests permitted under this Agreement and the
Organizational Documents. It is expressly understood that DRI intends to assign
its interest in this Agreement to Dan River B.V., a newly formed corporation
organized under the laws of the Netherlands, and that such assignment is
permitted under this Agreement without Zaga's consent. If a Member ceases to own
its Capital Interest in a transaction permitted by this Agreement, it shall
cease to be a party to this Agreement and to have any liability to the other
Member and the Company (except as may be otherwise provided in the documentation
with respect to such transaction); provided, however, that it shall continue to
be bound by the provisions of Sections 12.2, 12.3 and 13.2 and Article XI, and
---------------------------- ----------
it shall continue to remain liable for matters accruing prior to its ceasing to
be a Member.
15.8 Specific Performance. The Members acknowledge that the harm that would
be caused by a breach of this Agreement, including, without limitati on Articles
--------
VII and XII, would be difficult, if not impossible, to calculate, and
- -----------
accordingly the Company, each Member, and its Affiliates shall be entitled to
injunctive relief to compel compliance with the provisions of this Agreement,
but nothing in this Section 15.8 shall amend or modify Article XII in any
------------ -----------
respect.
24
<PAGE>
15.9 Entire Agreement. This Agreement, the Marketing Agreement, the Letter
Agreements and the Agency Agreement constitute the entire agreement among the
Members with respect to the subject matter of this Agreement and supersede all
prior agreements and undertakings, oral or written, between the Members with
respect to the subject matter of this Agreement, including the letter of intent
between Dan River Inc. and Zaga dated March 9, 1999.
15.10 Amendment. An amendment or modification of this Agreement shall be
effective or binding on the parties only if it is in writing and signed by
Members having the vote to pass an Extraordinary Resolution; provided, however,
that an amendment or modification that alters the voting power of Members under
Article V shall be effective only if signed by all Members; and provided further
- ---------
that a Member's right to receive payments in its capacity as such may be reduced
only with that Member's consent.
15.11 Waivers. Any waiver, express or implied, by any of the Members of any
right under this Agreement or of any breach by another Member shall not
constitute or be deemed as a waiver of any other right or any other breach,
whether of a similar or dissimilar nature to the right or breach being waived. A
waiver of a Member's rights under this Agreement shall be effective only if that
Member agrees.
15.12 No Third Party Beneficiaries. Except as provided in Section 12.2,
------------
this Agreement is solely for the benefit of the Members and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party, including any Lender or
other creditor, any remedy, claim, liability, reimbursement, cause of action or
other right.
15.13 Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable under the applicable law of any jurisdiction, the
remaining provisions shall not be affected, and any such invalidity or
unenforceability shall not invalidate or render unenforceable that provision in
any other jurisdiction. In that event, the Members agree that the provisions of
this Agreement shall be modified and reformed so as to effect the original
intent of the Members as closely as possible with respect to those provisions
that were held to be invalid or unenforceable.
15.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
constitute but one agreement.
15.15 Interpretation. This Agreement shall be construed without regard to
the identity of the Member or Person who drafted the Agreement, and any rule of
construction that a document is to be construed against the drafting party shall
not be applicable.
15.16 Force Majeure. Neither Member shall be liable or deemed to be in
default on account of any breach of the terms of this Agreement due to a force
majeure event. For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances;
25
<PAGE>
riots; lightning; earthquakes; hurricanes; washouts; arrests; restraints of
government and people; explosions; change in government standards and
regulations; or any other cause, circumstance or event not reasonably within the
control of either Member.
[Rest of page purposely left blank]
26
<PAGE>
IN WITNESS WHEREOF, the Members have entered into this Agreement as of the
day and year first above written.
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
By:__________________________________
Name: Mayer Zaga
Title: President
DAN RIVER INTERNATIONAL LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
27
<PAGE>
ANNEX A
-------
DEFINITIONS
"Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Agreement" has the meaning set forth in the introductory paragraph.
"Agency Agreement" has the meaning given that term in the Recitals section
of this Agreement.
"Annual Business Plan" has the meaning given that term in Section 10.6.
------------
"Award" has the meaning given that term in Section 11.6.
------------
"Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in New York, New York, or Mexico City, Mexico are authorized or
required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Section 6.1.
-----------
"Capital Interest" has the meaning given that term in Section 3.1.
-----------
"Capital Interest Price" has the meaning given that term in Section 6.1.
-----------
"Claims" has the meaning given that term in Section 11.2.
------------
"Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
this Agreement and the Encumbrances provided for in Section 8.1(b), and (b) the
--------------
payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.
Annex A
Page 1
<PAGE>
"Code" means the General Law of Mercantile Companies of Mexico (Ley General
de Sociedades Mercantiles).
"Commitment Amounts" has the meaning given that term in Section 3.5.
-----------
"Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members pursuant to Article II.
----------
"Dan River Inc. Code of Business Conduct" means the code of business
conduct of Dan River Inc. and its Affiliates, as such code may be amended or
modified from time to time.
"Disputing Party" has the meaning given that term in Section 11.2.
------------
"Dollars" or "$" means freely transferable lawful money of the United
States of America.
"Dollar Amounts" has the meaning given that term in Section 3.4.
-----------
"DRI" has the meaning given such term in the introductory paragraph of this
Agreement.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.
"Exercise Notice" has the meaning given that term in Section 8.2(b).
--------------
"Extraordinary Resolutions" has the meaning given that term in Section 5.7.
-----------
"Extraordinary Members Meeting" has the meaning given that term in Section
-------
5.1.
- ---
"Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement or pursuant to Article VIII.
------------
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements
referred to in clause (a) above.
2
<PAGE>
"FCPA" has the meaning given that term in Section 12.1.
------------
"US GAAP" means generally accepted accounting principles in the United
States.
"ICC" means the Court of Arbitration of the International Chamber of
Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.
"Lenders" means the Persons providing loans or credit under the Financing
Agreements.
"Letter Agreements" has the meaning given that term in the Recitals section
of this Agreement.
"Marketing Agreement" has the meaning given that term in the Recitals
section of this Agreement.
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company, conducted
pursuant to this Agreement, the Organizational Documents and the Code, including
any Ordinary Members Meeting and Extraordinary Members Meeting.
"Mexico" means the United Mexican States.
"Mexico GAAP" means generally accepted accounting principles in Mexico.
"Offer" means a bona fide written offer.
"Ordinary Resolutions" has the meaning given that term in Section 5.6.
-----------
"Ordinary Members Meeting" has the meaning given that term in Section 5.1.
-----------
"Organizational Documents" means the Company's charter/bylaws (estatutos)
as further described in Section 2.1. Upon formation of the Company, the
-----------
Ownership Percentage of each Member shall be as set forth in Exhibit D.
---------
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
3
<PAGE>
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Section 8.2(b).
--------------
"Preferential Purchase Price" has the meaning given that term in Section
-------
8.2(b).
- ------
"Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric, and the development, financing, construction, ownership, maintenance,
and operation of such facility by or on behalf of the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) the Marketing Agreement;
(b) the Agency Agreement;
(c) the Letter Agreements;
(d) the agreement or agreements under which the Company will acquire
title to the sites for the Project or will be granted leasehold title to
those sites; and
(e) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Section 6.1.
-----------
"Regular Meetings" has the meaning given that term in Section 4.4.
-----------
"Representatives" has the meaning given that term in Section 9.2(c).
--------------
"Request for Arbitration" has the meaning given that term in Section
-------
11.3(a).
- -------
"Response Notice" has the meaning given that term in Section 6.2.
-----------
"Special Meetings" has the meaning given that term in Section 4.4.
-----------
"Specified Rate" means, for any period for which interest is to be
calculated, a rate of interest per annum for each day during that period equal
to 4% per annum over the three-month London Interbank Offered Rate for Dollars
quoted in The Wall Street Journal for that day (or if not published that day,
the next preceding day on which it is published), or if a range is quoted, the
midpoint of that range.
4
<PAGE>
"Subscriptions" has the meaning given that term in Section 3.4.
-----------
"Subject Capital Interests" has the meaning given that term in Section
-------
8.2(b).
- ------
"Three-Year Business Plan" has the meaning given that term in Section 10.6.
------------
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.
"Transfer Notice" has the meaning given that term in Section 8.2(b).
--------------
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates; thus, as of the date hereof the Ultimate Parent of Zaga is Zaga (as
no Affiliate controls Zaga) and the Ultimate Parent of DRI is Dan River Inc.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
"Zaga" has the meaning given such term in the introductory paragraph of
this Agreement.
5
<PAGE>
EXHIBIT A
---------
MARKETING AGREEMENT
This Marketing Agreement (this "Agreement"), dated as of January 5, 2000,
is entered into by and between DanZa Textil, S. de R.L. de C.V., a sociedad de
responsabilidad limitada de capital variable organized under the laws of the
United Mexican States ("Manufacturer") and Dan River Inc., a corporation
organized under the laws of the State of Georgia, United States of America
("DRI").
RECITALS
A subsidiary of DRI and Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga"), are parties to a Members Agreement dated as of January 5, 2000
(the "Members Agreement") whereby Zaga and a subsidiary of DRI are the sole
members, and thus own in the aggregate 100% of the corporate capital, of the
Manufacturer. Pursuant to the Members Agreement, Manufacturer is to develop,
build, own and operate a manufacturing plant at a location to be selected in
Mexico primarily for the manufacture of woven fabrics for sale to apparel
manufacturers and other sectors, including, without limitation, the manufacture
of greige sheeting fabric (the "Plant"). The Members Agreement provides that
Manufacturer shall enter into this Agreement, the purpose of which is to set
forth the terms and conditions upon which DRI will be the sole and exclusive
worldwide marketer of the products manufactured at the Plant (the "Products").
NOW THEREFORE, intending to be legally bound, Manufacturer and DRI agree as
follows:
Exhibit A
Page 1
<PAGE>
1. Definitions. Capitalized words and phrases used in this Agreement
-----------
shall have the meanings set forth in the Members Agreement, unless such words
and phrases are otherwise defined herein.
2. Grant of Marketing Rights. During the term of this Agreement, DRI
-------------------------
shall have the exclusive right to market, promote and sell the Products on
behalf of Manufacturer throughout the world. DRI's responsibilities shall
include, but shall not be limited to the following:
(a) utilizing DRI's existing marketing personnel and sales force to
determine where and to whom to market the Products;
(b) determining the terms and conditions of sale of the Products including
pricing and discounts;
(c) designing fabrics in cooperation with Manufacturer's customers
utilizing DRI's in-house design staff to meet Manufacturer's customer's needs
(including fabric specifications as well as artistic matters); and
(d) selecting trademarks and style names under which the fabrics produced
by the Plant will be marketed.
3. Best Efforts. DRI agrees to use its commercially reasonable best
------------
efforts to solicit orders for the Products from customers and to promote and
market the sale of the Products; it is understood, however, that DRI shall not
be liable for decisions made in good faith and in the absence of gross
negligence with regard to the marketing of the Products, specifically including,
without limitation, decisions made in respect of the creditworthiness of the
Manufacturer's customers. Manufacturer will use its commercially reasonable best
efforts to produce fabrics in a timely fashion in types and constructions
requested by DRI from time to time to fill approved orders solicited by DRI.
2
<PAGE>
4. Cooperation. DRI and the Manufacturer will work closely together to
-----------
help insure that delivery schedules and other production parameters are feasible
and are achieved as planned. DRI agrees to provide Manufacturer with all
marketing and customer information reasonably required by the general manager to
prepare the Annual Business Plan and Three Year Business Plan and other monthly
and quarterly reports pursuant to the Members Agreement.
5. Orders. Customer orders solicited by DRI will be forwarded to
------
Manufacturer for confirmation and acceptance by Manufacturer, which confirmation
and acceptance shall be reasonable. Order allocation, running schedules and
profitability of product mix for Manufacturer and DRI's remaining U.S. apparel
fabrics facilities will be reviewed quarterly. The parties will work in good
faith to identify the cause of any discrepancies between the plants, and
remedial action will be taken, if appropriate, to adjust for such discrepencies.
6. Trademarks, Copyrights and Other Intellectual Property.
------------------------------------------------------
(a) For purposes of this Agreement, the term "Intellectual Property" shall
mean trademarks, style names, copyrights and any other proprietary rights in and
to fabrics, fabric products, fabric designs and any packaging and marketing
materials.
(b) DRI hereby grants to the Manufacturer a non-exclusive license to use
the Intellectual Property of DRI which DRI, in its sole discretion, shall
determine from time to time to be useful in the performance of DRI's obligations
under this Agreement, such Intellectual Property to be used by Manufacturer
solely for the purposes of manufacturing Products at the Plant and marketing and
selling such Products as permitted by this Agreement. Manufacturer shall have no
right to sublicense these rights. All use of DRI's Intellectual Property shall
inure to DRI's sole benefit, shall immediately cease upon termination of this
Agreement, and Manufacturer shall acquire no rights therein, except as
specifically provided herein.
3
<PAGE>
(c) Intellectual Property which is created for Manufacturer and used
initially by Manufacturer on and in connection with Products shall be the
property of Manufacturer. Manufacturer hereby grants a non-exclusive worldwide
license to DRI to use such Intellectual Property on and in connection with its
products and those of its subsidiaries so long as this Agreement is in effect.
(d) Manufacturer and DRI each agrees that the quality of the products sold
by either of them utilizing the Intellectual Property of the other will be of
good quality and in no event less than the quality of goods using the
Intellectual Property sold by the owner of the Intellectual Property, that each
of them shall have the right to require delivery of a reasonable number of
sample products in order to verify the quality of such products, and that each
party will promptly correct any quality deficiencies which are called to its
attention by the owner of the Intellectual Property. In the event that any
quality deficiencies are not corrected to the reasonable satisfaction of the
owner of the Intellectual Property, such owner may terminate the license to such
Intellectual Property granted herein.
(e) The parties agree to cooperate reasonably in all of the efforts of the
owner of the Intellectual Property (at the sole cost and expense of the owner of
the Intellectual Property, and subject to its sole approval) to perfect and
protect all rights in and to the Intellectual Property.
7. Compensation. In consideration for the services and use of the
------------
Intellectual Property to be provided by the parties herein, the parties shall be
compensated as provided in that certain letter agreement dated as of January 5,
2000 between Zaga and DRI regarding the allocation of selling, general and
administrative expenses; provided, however, that it is understood that
reasonable commissions payable to third party sales agents shall be payable by
the Manufacturer.
4
<PAGE>
8. Sales Forecast: DRI will use reasonable commercial efforts to try to
--------------
achieve at least $65 million U.S. dollars in sales of Danza's products. This
means that, over time, DRI will use its reasonable commercial efforts to cause
Danza's net sales to be not less than 46% of total net sales of DRI's Apparel
Fabrics Division when the Danza plant is fully operational. It is understood
that the sales and percent allocation numbers are targets that the parties will
work diligently to achieve but are not guarantees. In the event of deviations
from the target allocation, the parties will work in good faith to identify the
cause of such discrepancies and remedial action will be taken, if appropriate,
to adjust for such discrepancies.
9. Term of the Agreement.
---------------------
(a) Unless earlier terminated as provided below, this Agreement shall be
effective upon execution by both parties for an initial term of five years. The
Agreement shall automatically continue on a month-to-month basis thereafter
unless and until terminated by either party with or without cause upon written
notice given at least one year prior to the effective date of termination.
(b) Notwithstanding the foregoing, this Agreement shall automatically
terminate in the event of (i) passage or implementation of any law or regulation
which materially and adversely impedes the parties' rights under the Agreement,
(ii) the withdrawal or suspension of any license or approval necessary in order
for the parties to perform their obligations under the Agreement or (iii) the
other party shall become the subject of any bankruptcy petition, or of a
compulsory or voluntary liquidation, compound with creditors generally,
appointment of receiver for all or a part of a parties' assets, the taking or
suffering any similar action to be taken in the consequence of debt, or becoming
unable to pay debts when they fall due.
5
<PAGE>
(c) Either party shall have the right to terminate the Agreement upon
written notice to the other party in the event of a material breach of the
Agreement; provided, however, the breaching party shall be given a reasonable
period of time (not to exceed ninety (90) days) within which to cure such
breach.
10. Independent Contractors. Neither party's employees shall be considered
-----------------------
the employees of the other party, nor shall any action taken by one party be
deemed to bind the other party unless and until accepted or acknowledged by the
other party in writing. Nothing in this Agreement shall be construed to require
DRI to indemnify Manufacturer against claims for injury or damage arising out of
or related to defects in the Products or otherwise relating in any way to
Manufacturer's operations.
11. Complaints. The parties shall cooperate fully in the resolution of any
----------
claims or disputes which may arise from complaints made by customers. DRI shall
have no authority to settle or adjust claims or disputes without Manufacturer's
consent.
12. Government Approvals. In the event this Agreement needs to be approved
--------------------
by any governmental authority, the parties agree to cooperate reasonably in
securing the necessary approvals.
13. Force Majeure. Neither party shall be liable or deemed to be in
-------------
default of this Agreement on account of any breach of the terms of this
Agreement due to a force majeure event. For purposes of this Agreement force
majeure shall include the following: acts of God; strikes, lockouts or similar
industrial disturbances; acts of public enemies; orders or restraints of any
kind by the government of Mexico or the United States, or any of their
departments, agencies, political subdivisions or officials, or any civil or
military authority; war; insurrections; civil disturbances; riots; lightning;
earthquakes; hurricanes; washouts; arrests; restraints of
6
<PAGE>
government and people; explosions; change in government standards and
regulations; or any other cause, circumstance or event not reasonably within the
control of either party.
14. Corrupt Practices. The parties understand and agree that no payment to
-----------------
be made hereunder shall be made for any purpose or in any manner prohibited by
applicable law.
15. Assignment. This Agreement may be assigned by either party to an
----------
Affiliate; no other assignment or assumption of this Agreement is permissible,
and no such assignment and assumption shall be valid until and unless approved
by the other party in writing. Subject of the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties, their successors and
assigns.
16. Notices. All notices, requests, or consents provided for or permitted
-------
to be given under this Agreement must be in writing and are effective (a) on
actual receipt by the addressee if personally delivered (including delivery
against a written receipt by an internationally recognized courier) to the
address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a business day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next business day):
Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificio A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo
C.P. 42850
Mexico
Attention: Rafael Zaga
Telecopy: 525-333-0391
7
<PAGE>
Dan River Inc.
1065 Avenue of the Americas
19th Floor
New York, New York 10018
Attention: President, Apparel Fabrics Division
Telecopy: 212-554-5711
with copy to:
Dan River Inc.
2291 Memorial Drive
Danville, Virginia 24541
Attention: General Counsel
DanZa Textil, S. de R.L. de C.V.
Aut. Mexico-Queretaro Km. 84
San Cayetano la Loma, Vega de Madera
Tepeji del Rio de Ocampo, Hidalgo, Mexico
Any party may change the address or facsimile number to which notices are to be
directed to it by notice to the other party in the manner specified above.
17. Indemnification.
---------------
(a) Manufacturer hereby agrees to defend, indemnify and hold harmless DRI,
its directors, trustees, officers, employees and agents from and against any
liability associated with the Products for bodily injury (including death at any
time resulting therefrom) and property damage, whether based on theories of
contract, tort, strict liability or otherwise, and Manufacturer shall pay any
and all claims, damages, costs, expenses (including without limitation
reasonable attorneys' fees), and any other damages arising or resulting from any
such claim, suit or demand.
(b) Each of the parties agrees to defend and indemnify the other with
respect to any claim, suit or demand associated with the alleged infringement of
any third party's intellectual
8
<PAGE>
property rights associated with either party's use of any Intellectual Property
of the other in accordance with the terms and conditions of this Agreement.
18. Party's Obligation Upon Termination. Upon termination of this
-----------------------------------
Agreement each of the parties shall return to the other any samples, price
lists, promotional materials or other confidential information pertaining to
such other party's business. Each party agrees not to utilize or disclose to any
third party during or after the termination of this Agreement, in competition
with or in any way to the detriment of the other party, any information or data
furnished to such party. All such information shall be kept confidential for a
period of five years after the termination of this Agreement.
19. Governing Law; Submission to Jurisdiction; Resolution of Disputes. THE
-----------------------------------------------------------------
PROVISIONS OF SECTION 15.2 AND ARTICLE XI OF THE MEMBERS AGREEMENT ARE HEREBY
INCORPORATED BY REFERENCE MUTATIS MUTANDI.
20. Language of the Agreement. This Agreement has been originally drafted
-------------------------
and negotiated in English, and the English language version shall be controlling
in all matters of interpretation of this Agreement.
21. Severability. If any portion of this Agreement shall be deemed
------------
unenforceable by a court of competent jurisdiction, then such portion shall be
deemed separate, and the remainder hereof shall be enforceable in accordance
with its terms.
22. Captions. Captions in this Agreement are for convenience only and
--------
shall not be considered in the construction and interpretation hereof.
23. Integrated Agreement; Previous Agreements. This Agreement constitutes
-----------------------------------------
the complete integrated agreement between the parties concerning the subject
matter hereof. All
9
<PAGE>
former agreements, understandings, negotiations or representations, whether oral
or in writing, relating to the subject matter of this Agreement are superseded
and canceled in their entirety.
10
<PAGE>
IN WITNESS WHEREOF the parties have hereunto caused this Agreement to be signed
by their duly authorized representatives as of the date set forth in the first
paragraph hereof.
DAN RIVER INC. DANZA TEXTIL, S. DE R.L. DE C.V.
By:____________________________ By:_______________________________
Title:_________________________ Title:____________________________
By:_______________________________
Title:____________________________
11
<PAGE>
EXHIBIT B
---------
January 5, 2000
Grupo Industrial Zaga
Antigua Carretera Mexico-Queretaro Km. 7074
Edificio A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo
C.P. 42850
Mexico
Gentlemen:
This letter ("Letter Agreement") will confirm and set forth the terms and
conditions under which Grupo Industrial Zaga, S.A. de C.V., a sociedad anonima
de capital variable, organized and existing under the laws of the United Mexican
States ("you," "your," "Zaga") is appointed and authorized as the independent
sales representatives to solicit orders for DanZa Textil, S. de R.L. de C.V.
(the "Company") in Mexico (the "Territory"). Notwithstanding any of the terms of
this Letter Agreement, Dan River Inc. (hereinafter "we," "us," "our," "Dan
River") shall have the exclusive worldwide right to market the products
manufactured by the Company (the "Products") pursuant to a Marketing Agreement
of even date herewith (the "Marketing Agreement").
Details concerning the arrangements generally described above are as
follows:
1. Term:
-----
This Agreement shall have the exact term provided for in Section 9 of the
Marketing Agreement, unless earlier terminated by mutual agreement of the
parties or pursuant to Section 15 below. Dan River shall give Zaga prompt notice
of any termination or anticipated termination of the Marketing Agreement.
2. Territory and Products:
----------------------
The rights granted pursuant hereto shall only be exercised in the
Territory, unless otherwise agreed by the parties hereto in writing, and shall
apply only to the Products. We will consider in good faith any requests made by
you for solicitations of orders outside of the Territory.
Exhibit B
Page 1
<PAGE>
3. Best Efforts:
-------------
You hereby agree to use your commercially reasonable best efforts to
solicit orders for the Products from customers in the Territory and to cooperate
generally with us in promoting the sale of the Products. You shall promptly
submit all inquiries and orders to Dan River. It is hereby acknowledged and
understood that you shall have no authority to undertake or enter into any
obligations, contractual or otherwise, on our behalf or on behalf of the
Company. You will supply at your own cost and expense all facilities and
services essential in fulfilling your duties hereunder.
4. Use of Trademarks; Copyright Protection:
---------------------------------------
(a) This letter Agreement does not grant any rights to the use of any of
Dan River's or the Company's trademarks, trade names, copyrights or other
intellectual property, except as used by us or the Company on and in connection
with the Products, and you shall not use any such trademarks, trade names,
copyrights or other intellectual property in your business name, your business
forms, in advertising material or otherwise without prior written approval and
permission from us or the Company, as the case may be. Any use by you of such
trademarks, trade names, copyrights or other intellectual property shall inure
solely to the benefit of the owner thereof, and you agree that you acquire no
rights therein, except as expressly provided herein. You agree to cease all
permitted use of such trademarks, trade names or other intellectual property
upon termination of this Agreement or upon the owner's earlier request.
(b) You will provide to us assistance generally in connection with the
sale of Products to customers in the Territory, including for example, keeping
us informed as to textile product activities generally and any improper or
wrongful use of any of the Dan River or the Company trademarks, trade names,
logos or designs which may come to your attention from time to time. You agree
to cooperate fully in any effort to maintain registration of the trademarks or
copyrights in the Territory or in any effort to terminate an infringement of any
such intellectual property in the Territory.
5. Taxes:
------
You shall be responsible for payment of any taxes arising out of your
activities arising under this Letter Agreement (except for taxes which may be
imposed on Dan River's or the Company's net income, or sales taxes and the
like).
6. Compensation:
-------------
In consideration for the services provided for herein, you shall be
compensated as provided in that certain letter dated as of January 5, 2000
between Zaga and Dan River regarding the allocation of selling, general and
administrative expenses; provided, however, that it is understood that
reasonable commissions payable to third party sales agents shall be payable by
the Company.
2
<PAGE>
7. Orders:
-------
Each order that we receive from you shall be subject to approval by us and
acceptance by the Company in Mexico.
8. Independent Representative:
--------------------------
Neither you nor any of your employees shall be considered our employees or
employees of the Company, and neither their actions nor your actions shall bind
Dan River or the Company to any agreement, nor shall you or your employees make
any representation or warranty concerning the Products or in any manner assume
or create any obligations or responsibility whatsoever in our name or in the
name of the Company. You agree to indemnify and hold us and the Company harmless
against any and all claims, actions, and damages whatsoever arising directly
from any unauthorized obligations or responsibility which you or your employees
may assume without proper authorization from us or the Company, or otherwise
arising directly or indirectly from your breach of this Letter Agreement or from
your acts or omissions. The parties agree that you shall function under this
Letter Agreement as independent sales representatives, and the manner and means
by which you perform your obligations hereunder shall be determined solely by
you. You will undertake to acquire at your cost any licenses or permission
necessary to your operations and to comply with all applicable laws or
registration requirements. NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO
REQUIRE YOU TO INDEMNIFY US OR THE COMPANY AGAINST CLAIMS FOR INJURY OR DAMAGE
ARISING OUT OF OR RELATED TO DEFECTS IN THE PRODUCTS.
9. Complaints:
-----------
You will promptly inform us and the Company of all complaints made by
customers and will assist us and the Company in adjusting any claims or disputes
which may arise, but you are not authorized to make any settlements or to adjust
any claims or disputes without the Company's or our prior written consent.
10. Governmental Approvals:
----------------------
If this Letter Agreement needs to be approved by any governmental entity in
the Territory, or any filings or registrations need to be made with the
governmental entity in connection herewith, you shall submit the Agreement to
the appropriate authorities for the purpose of securing such necessary approvals
and shall use your best efforts to obtain all necessary approvals. If approvals
are required and no such approval has been secured within ninety (90) days of
the date of this Letter Agreement, either party may give notice to the other
terminating this Letter Agreement without incurring any obligation in respect
thereto. All approvals contemplated in this Letter Agreement shall be obtained
at your expense, and you shall be solely responsible for and indemnify and hold
us and the Company harmless with respect to any fines, payments, costs and
expenses incurred in connection therewith. You warrant and represent that your
activities pursuant hereto shall not violate any law of any
3
<PAGE>
political entity or subdivision in the Territory and that your activities
pursuant hereto shall be conducted at all times in accordance with any law, rule
or regulation applicable in the Territory.
11. Competition:
-----------
During the term hereof, you agree not to sell or offer for sale, or to be
directly or indirectly interested in the sale in the Territory of any products
competitive to the Products, unless the prior written consent of Dan River and
the Company has first been secured.
12. Force Majeure:
--------------
Neither you, we, nor the Company shall be liable or deemed to be in default
on account of any breach of the terms of this Letter Agreement due to a force
majeure event. For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances; riots; lightning; earthquakes; hurricanes;
washouts; arrests; restraints of government and people; explosions; change in
government standards and regulations; or any other cause, circumstance or event
not reasonably within the control of either party.
13. Corrupt Practices:
-----------------
You understand and agree that no part of any payment we make to you is to
be used by you, or by any other person, for any purpose prohibited by applicable
law. If we learn or have reason to believe that any payments being made to you
by us or the Company hereunder are being used for such prohibited purposes, we
reserve the right to immediately terminate this Letter Agreement notwithstanding
any provisions hereof to the contrary, and to receive prompt reimbursement of
any funds so used.
14. Assignment; Notices:
-------------------
This Letter Agreement may be assigned to your affiliate with written notice
to us and to the Company; otherwise, this Letter Agreement is nonassignable and
nontransferable by you. All notices, requests, or consents provided for or
permitted to be given under this Agreement must be in writing and are effective
(a) on actual receipt by the addressee if personally delivered (including
delivery against a written receipt by an internationally recognized courier) to
the address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a business day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next business day):
4
<PAGE>
Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificio A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo
C.P. 42850
Mexico
Attention: Rafael Zaga
Telecopy: 525-333-0391
Dan River Inc.
1065 Avenue of the Americas
19th Floor
New York, New York 10018
Attention: President, Apparel Fabrics Division
Telecopy: 212-554-5711
with copy to:
Dan River Inc.
2291 Memorial Drive
Danville, Virginia 24541
Attention: General Counsel
DanZa Textil, S. de R.L. de C.V.
Aut. Mexico-Queretaro Km. 84
San Cayetano la Loma, Vega de Madera
Tepeji del Rio de Ocampo, Hidalgo, Mexico
15. Termination:
-----------
In addition to those circumstances set forth in Sections 1 and 10 above,
this Agreement shall also be subject to early termination in the following
circumstances:
(a) Upon occurrence of the following events, this Letter Agreement shall
automatically terminate:
(i) The passage or implementation of any laws or regulations which
materially and adversely change our rights or those of the Company under
this Letter Agreement; and
(ii) The withdrawal or suspension of any license or approval
necessary for you to operate under this Letter Agreement.
5
<PAGE>
(b) Upon occurrence of the following events, Dan River shall have the
right to terminate this Letter Agreement after notice to you and completion of a
thirty day period in which you may cure any defect:
(i) Your engaging in unauthorized sales of competing products;
(ii) Your repeated and/or gross negligence in promoting or marketing
the products;
(iii) Your refusal to comply with our reasonable, legitimate
instructions;
(iv) Your entry into bankruptcy, compulsory or voluntary liquidation,
or compound with your creditors generally, or the appointment of
a receiver for all or any part of your assets, or the taking or
suffering any similar action in consequence of debt or becoming
unable to pay your debts as they fall due; and
(v) Any other material breach of this Letter Agreement.
16. Waiver of Indemnification and Damages:
-------------------------------------
In the event of an early termination of this Letter Agreement or in the
event that this Letter Agreement is not renewed, you hereby agree to waive any
and all claims you may otherwise have under any law, rule, regulation, decree,
etc., whether of Mexico or any other country to receive indemnification and/or
damages from Dan River or the Company. This limitation shall not apply to those
claims arising directly out of the substantive law of the United States.
17. Your Obligations Upon Termination:
---------------------------------
After termination, you shall return to us all samples, price lists, any
promotional materials and other things furnished by us. You agree not to utilize
or disclose to any third party during or after termination of this Letter
Agreement, in competition with us or in any way to our detriment, any
information or data furnished by us pertaining to our business or that of the
Company.
18. Severability:
------------
If any portion of this Letter Agreement shall be deemed unenforceable by a
court of competent jurisdiction, then such portion shall be deemed separate, and
the remainder hereof shall be enforceable in accordance with its terms.
19. Governing Law; Resolution of Disputes:
-------------------------------------
THE PROVISIONS OF SECTION 15.2 AND ARTICLE XI OF THE MEMBERS AGREEMENT
DATED JANUARY 5, 2000 BETWEEN ZAGA AND DAN RIVER
6
<PAGE>
INTERNATIONAL LTD. (the "Members Agreement") ARE HEREBY INCORPORATED BY
REFERENCE MUTATIS MUTANDI.
20. Language of the Agreement:
-------------------------
This Agreement was originally drafted and negotiated in English, and the
English language version shall be controlling in all matters of interpretation
of the Agreement.
21. Authorization:
-------------
Each of the parties hereto represents that it is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and that it is duly authorized and empowered to
enter into, deliver and perform this Agreement, and that such delivery and
performance will not violate its charter, bylaws or other similar governing
documents, or result in any violation of law. Each of the parties represents
that the person signing this Agreement on its behalf is authorized to do so.
22. Entire Agreement:
----------------
This Letter Agreement supersedes and cancels all existing agreements and
understandings between us which pertain to the matters covered in this Letter
Agreement. This letter Agreement and Attachment hereto will hereafter constitute
our entire agreement and may be amended only in an instrument in writing signed
by both parties.
If the foregoing correctly states our complete understanding, please sign
both copies of this letter Agreement, evidencing your intention to be legally
bound, and return one copy to us. We look forward to continuing a beneficial
relationship for you and for us.
Very truly yours,
DAN RIVER INC.
By:______________________
Title:___________________
7
<PAGE>
Agreed:
GRUPO INDUSTRIAL ZAGA, S.A. DE C.V.
By:____________________________
Title:_________________________
DANZA TEXTIL, S. DE R.L. DE C.V.
By:____________________________
Title:_________________________
By:____________________________
Title:_________________________
<PAGE>
EXHIBIT C
---------
[Dan River Letterhead]
January 5, 2000
Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificia A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo
C.P. 42850
Dear Sirs:
Reference is made to the Members Agreement dated as of January 5, 2000
(the "Members Agreement") between Grupo Industrial Zaga, S.A. de C.V. ("Zaga")
and Dan River International Ltd. ("DRIL") with respect to the ownership and
management of DanZa Textil, S. de R.L. de C.V. ("Danza"). The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Dan River Inc. ("Dan River") regarding (i) the transfer of certain
manufacturing capacity from Dan River's U.S. facilities to Danza, (ii) the
purchase or lease by Danza of certain equipment from Dan River's U.S.
facilities, (iii) the procurement of yarn and finishing services by Danza from
outside sources (including, as appropriate, Zaga and Dan River), (iv) certain
restrictions on competition and (v) finishing services. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Members
Agreement. Zaga and Dan River are hereunder also referred to collectively as the
"Parties."
1. Dan River and Zaga hereby agree that manufacturing capacity
substantially equivalent to the apparel fabrics yardage currently
produced at Dan River's Division II shall be transferred to Danza.
2. Dan River shall sell or lease (or cause an Affiliate thereof to do
so) to Danza the looms, warping, drawing-in and other support equipment
from certain of Dan River's U.S. facilities (the "Equipment"). Dan
River will provide Zaga with a detailed list of the Equipment six
months following the date this Agreement is executed. As consideration
for the Equipment, Danza hereby agrees to purchase or lease the
Equipment from Dan River on a basis that will enable Dan River to
recover the appraised value of the Equipment over a five-year period,
plus interest at a market rate on the unpaid balance. The Equipment
shall be appraised pursuant to the mechanism set forth on the attached
EXHIBIT A; provided, however, that if the two appraisals referenced in
---------
EXHIBIT A differ by more than 10% and Dan River and Zaga cannot, in a
---------
good faith effort, agree upon a fair value for the Equipment, either
Zaga or DRIL may terminate the Members Agreement in accordance with
Article XIV thereof; provided, however, that neither Member shall be
able to terminate the Members Agreement 90 Days or more after the
second appraisal is rendered. The Members shall cause Danza to bear the
cost of
Exhibit C
Page 1
<PAGE>
shipping and installing the Equipment in Mexico; however, Dan
River shall be responsible, at its sole expense, for packing the
equipment for shipment to Mexico, supervising its installation and
ensuring that the Equipment is operational when installed in Mexico.
The Members agree that Danza shall not be required to pay for Equipment
that is not operational in Mexico. Once the appraisal referred to
herein has been agreed upon, the Parties shall agree on whether the
Equipment is to be purchased or leased and shall agree on the
definitive documents for the sale or lease thereof.
3. Dan River, through DRIL, its Affiliate, and Zaga hereby shall cause
Danza to purchase yarn from the most advantageous sources based on,
among other factors, price, quality and delivery schedules. However,
the Members shall cause Danza to purchase yarn from Dan River or its
Affiliate for a transition period that will end six months after the
manufacturing plant for the Project is fully operational (the
"Transition Period"). Yarn sold to Danza during the Transition Period
shall be at the market price for comparable yarns sold by U.S.
manufacturers. After the Transition Period is over, Zaga shall have the
right to sell substantially the same quantities and mix of yarns to
Danza as was sold by Dan River or its Affiliates during the Transition
Period at the market price for comparable yarns sold by Mexican
manufacturers (provided the yarn specifications, quality, weaving
performance, etc., meet Danza's requirements).
4. Neither Dan River nor its Affiliates shall add any additional
weaving capacity in the United States for apparel fabrics; however,
neither Dan River nor any Affiliate thereof shall be restricted from:
(i) modernizing existing facilities, as long as the weaving capacity is
not increased as a result of such modernization; (ii) adding capacity
to weave fabrics which are required by any U.S. law to be manufactured
in the United States (e.g., government and military fabrics); or (iii)
acquiring textile manufacturing businesses in the United States that
include apparel fabrics operations, so long as the apparel fabrics
sales of such acquired business do not represent more than 50% of total
sales of the acquired business.
Should Dan River or any Affiliate acquire a business (the "New
Business") in the United States that includes an apparel fabrics
business which manufactures fabrics manufactured by Danza (the
"Competing Apparel Fabrics Business"), Dan River shall, after the
closing of the acquisition, offer to sell the Competing Apparel Fabrics
Business to Danza (the "Offer") at a price equal to the price actually
paid by Dan River or its Affiliate for the New Business times a
fraction equal to the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Competing Apparel Fabrics Business
divided by the EBITDA of the New Business, in each case for the most
recently completed fiscal year of the New Business. If Danza rejects
any such Offer, Dan River or its Affiliates shall be free of
restrictions to run the Competing Apparel Fabrics Business.
For purposes of this section 4, the definition of apparel fabrics
shall include any fabric scheduled into the Danza plant by Dan River on
a consistent basis for a period of three months or more, with the
exception of fabrics for home fashion products, which shall not be
restricted in any way.
2
<PAGE>
5. Dan River agrees to provide finishing to Danza at its manufacturing
cost (excluding selling, general and administrative expenses). However,
the Members agree that Danza shall not be restricted from acquiring
finishing from any source that provides acceptable quality, delivery
schedules and prices.
This Agreement shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective successors and assigns; provided, that
it is understood that in the event the Members Agreement is terminated as
provided herein and therein, each of the obligations set forth herein shall be
terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination. The provisions of Articles XI and 15.2 of the Members
Agreement are hereby incorporated mutatis mutandi. This Agreement may be
modified or supplemented only by written agreement of the Parties hereto.
Signed:
Dan River Inc.
By:_____________________________________
Name: _______________________________
Title: ______________________________
Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.
By: _______________________________
Mayer Zaga
President
DanZa Textil, S.A. de C.V.
By: _________________________
Name:________________________
Title:_______________________
By: _________________________
Name:________________________
Title:_______________________
3
<PAGE>
[Intentionally Left Blank]
4
<PAGE>
EXHIBIT D
---------
[Dan River Letterhead]
January 5, 2000
Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificia A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Re: Allocation of Selling, General and Administrative Expenses
Dear Sirs:
Reference is made to that certain Members Agreement dated as of January
5, 2000 between Grupo Industrial Zaga, S.A. de C.V. ("Zaga") and Dan River
International Ltd. ("DRIL") with respect to the ownership and management of
DanZa Textil, S. de R.L. de C.V. ("Danza") and that certain Members Agreement
dated as of January 5. 2000 between Zaga and DRIL with respect to the ownership
and management of Zadar, S. de R.L. de C.V. ("Zadar"). The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Dan River Inc. ("DR") regarding the allocation of the selling, general and
administrative ("S, G & A") expenses of DR and Zaga, and their respective
affiliates, that are chargeable to Danza and Zadar. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
aforementioned Members Agreements.
The S, G & A expenses of DR and its Affiliates will be allocated to and
paid by Danza and Zadar to DR with respect to any fiscal year of DR in an amount
equal to: 10% of Danza's annual net sales, plus 0.5% of Zadar's annual net
sales, the total of which shall not exceed an amount equal to the product of
DR's actual annual divisional S, G & A expenses for its Apparel Fabrics Division
(excluding sample layout, dye lab and color matching expense) times a percentage
-----
equal to Danza's annual net sales divided by total Apparel Fabrics Division
----------
annual net sales plus an allocation of $2.4 million Dollars for DR's corporate
----
S, G & A/1/; provided, however, to the extent Danza's annual operating income
-------- -------
(earnings before interest and taxes) exceeds 10% of its annual net sales, DR may
charge an additional amount of corporate S G & A expenses up to an additional
$1.1 million Dollars, to the extent that such additional allocation does not
cause Danza's annual operating income as a percentage of its annual net sales to
drop below 10%. An example of the foregoing calculation is attached.
Notwithstanding the foregoing, it is understood that the allocation of
divisional S, G & A expenses shall not be increased based upon reductions in
DR's U.S. apparel fabrics sales, unless such reductions result
__________________
/1/ DR will allocate corporate S,G & A to the Apparel Fabrics Division based on
its cost of sales compared to DR's total cost of sales, calculated on a basis
consistent with prior practice. Danza will receive a proportionate part of that
allocation based on Danza's sales compared to total Apparel Fabrics Division's
sales, not to exceed $2.4 million Dollars or $3.5 million Dollars, as determined
herein.
Exhibit D
Page 1
<PAGE>
primarily from transfer of DR's production capacity to Danza. DR agrees that it
will make reasonable commercial efforts to limit increases in the Apparel
Fabrics Division's S, G & A expense over time.
It is further agreed that the S, G & A expenses of Zaga will be
allocated to and paid by Zadar and Danza with respect to any fiscal year of Zaga
in an amount equal to 3.5% of Zadar's annual net sales, plus 0.7% of Danza's
annual net sales, provided that the total amount of such allocation shall not
exceed $1.5 million Dollars. Examples of the calculations described above are
attached.
The amounts owed will be paid to DR and Zaga, as the case may be, as
soon as practicable following the end of each of Danza's and Zadar's fiscal
quarters, and in any event within 30 Days thereof. All payments shall be made in
U.S. Dollars.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns; provided, that
it is understood that in the event either Members Agreement referenced above is
terminated as provided therein, each of the obligations set forth herein shall
be terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, U.S.A.,
without reference to the conflicts of laws principles that would apply the laws
of another jurisdiction. In addition, the provisions of Article XI of the
aforementioned Members Agreements are hereby incorporated mutatis mutandi. This
Agreement may be modified or supplemented only by written agreement of the
parties hereto.
Signed:
Dan River Inc.
By:___________________________
Name:_________________________
Title:________________________
Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.
By:___________________________
Mayer Zaga
President
2
<PAGE>
CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
CORPORATE & DIVISIONAL SG&A
EXAMPLE 1 $ MILLIONS
Danza Sales 65.0
Zadar Sales 15.0
Danza Operating Inc. (EBIT) 5.0
Dan River AF Sales 140.0
Dan River AF Divisional SG&A 14.2
Sample, layout, dye lab & color matching 2.6
Danza Sales 65 = 46.4% Allocable %
--
Dan River AF Sales 140
Dan River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
-------------
Actual Dan River Divisional SG&A 11.6 MM
(Allocable %) X 46.4 %
-------------
5.38 MM
Corp. SG&A + 2.40 MM
--------------
7.78 MM
vs.
65.0 MM
Danza Sales X 10.0 %
--------------
6.5 MM
15.0 MM
Zadar Sales X 0.5 %
--------------
0.075MM
Dan River SG & A allocated to Danza and Zadar is $6.575 MM because $7.78 MM is
greater than the sum of 10.0% of Danza sales and 0.5% of Zadar sales.
Page 3
<PAGE>
CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
CORPORATE & DIVISIONAL SG&A
EXAMPLE 2 $ MILLIONS
Danza Sales 150.0
Zadar Sales 50.0
Danza Operating Inc. (EBIT) 14.5
Dan River AF Sales 250.0
Dan River AF Divisional SG&A 14.2
Sample, layout expense 2.6
Danza Sales 150 = 60.0% Allocable %
---
Dan River AF Sales 250
Dan River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
-------------
Actual Dan River Divisional SG&A 11.6 MM
(Allocable %) X 60.0 %
-------------
8.52 MM
Corp. SG&A + 2.40 MM
--------------
10.92 MM
Total 10.92 MM
10.92 SG&A = 7.28% (less than 10.0% of Danza sales
-----
150 Danza Sales and 0.5% of Zadar sales so full
so full amount allowed)
4
<PAGE>
EXHIBIT E
---------
DANZA TEXTIL, S. DE R.L. DE C.V.
CHAPTER I
NAME, DOMICILE, PURPOSE AND DURATION
FIRST.- The name of the Company is DANZA TEXTIL. This denomination
shall always be followed by the words "SOCIEDAD DE RESPONSABILIDAD LIMITADA DE
CAPITAL VARIABLE" or their abbreviation "S. DE R.L. DE C.V."
SECOND.- The domicile of the Company is Tepeji del Rio de Ocampo, State
of Hidalgo, Mexico, but the Company may establish agencies or branches elsewhere
in Mexico and designate conventional domiciles for the execution of specific
acts and contracts.
THIRD.- The purposes of the Company are:
(a) To develop, finance, build, own and operate a manufacturing plant
at a location to be selected by the Board of Managers in Mexico primarily for
the manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric.
(b) To establish agencies or branches in Mexico.
(c) To render technical, professional, administrative and consultant
services related to the purpose, as well as to hire workers, technicians,
distributors and administrative personnel.
(d) To acquire, hold and dispose of, in any legal manner, all kinds of
shares, capital interests or participations in other corporations or
associations, whether of a civil or mercantile nature, consistent with these
corporate purposes.
(e) To acquire, own, lease, encumber and transfer in any legal manner
such real or personal properties as may be required by or convenient for the
corporate purpose.
(f) To represent all kinds of companies and individuals within or
outside of Mexico as agent, commission agent, representative or
attorney-in-fact.
(g) To lend and borrow money with or without mortgage or pledge
security or in any other legal manner and to guarantee the obligations of third
persons by means of bond, mortgage, pledge, or otherwise.
(h) To sign and grant all kinds of credit instruments and other
documents and contracts of indebtedness and to guarantee the payment thereof in
any legal manner.
Exhibit E
Page 1
<PAGE>
(i) To acquire and dispose of in any legal manner such patents, patent
rights, inventions, trade-marks, copyrights and trade names as may be required
or convenient for attainment of the corporate purpose.
(j) To render any and all services whether of a civil, administrative
or mercantile nature relating to the corporate purpose.
(k) Such other activities as are lawful and approved by an
Extraordinary Resolution of the Members.
(l) In general, to carry out and perform any and all business or
activities relating to the corporate purpose.
FOURTH.- The term of duration of the Company shall be undefined from
the date of these by-laws.
CHAPTER II
CAPITAL AND CAPITAL INTERESTS
FIFTH.- The capital of the Company shall be variable. The Company shall
have a minimum fixed capital of $3,000 (THREE THOUSAND PESOS 00/100). Each
Member shall own one capital interest (parte social) ("Capital Interest"), which
initially shall have the value set forth in the transitory clauses. All
additional equity contributions in excess of the minimum fixed capital amount
shall constitute the variable capital of the Company, which shall have an
unlimited maximum and shall cause an increase in the Value of the Capital
Interest of such contributing Member by the amount of equity so contributed. The
Value of a Capital Interest shall always represent a multiple of one Peso.
(a) Subject to the Equity Contribution Agreement signed by the Members,
each Member shall be required, severally and not jointly, to make equity
contributions to provide its pro rata portion of the funds necessary to fund the
Company; provided that in no event shall any Member be required to make equity
contributions in excess of US$25,000,000 (TWENTY FIVE MILLION DOLLARS 00/100).
Each time that such equity contributions are to be made, they shall be made by
all Members on the same day pro rata in accordance with their Ownership
Percentages.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be contributed
from time to time in accordance with paragraph (a) above. The Company shall
register in its books any increase in the Value of a Member's Capital Interest
based on and corresponding to the amounts so contributed.
(c) If one Member fails or refuses to provide funds as required by this
Clause Fifth, and such failure or refusal continues for five Business Days after
receipt by such Member of
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<PAGE>
notice thereof from the other Member, the other Member may at its option provide
such funds, and the Member providing such funds shall have the Value of its
Capital Interest increased accordingly.
(d) Upon any decision of the Members to increase the capitalization of
the Company, except for increases pursuant to paragraphs (a), (b) and (c) above,
each Member shall have the right to subscribe for such increase pro rata based
on such Member's Ownership Percentage. If any Member fails to subscribe or pay
for the pro rata portion to which it is entitled, the other Member may take up
the unsubscribed or unpaid portion.
The funding needs of the Company to be provided by the Members shall be
denominated in Dollars, and the commitment of the Members to fund such needs
shall be made in Dollars (the "Commitment Amounts"). Notwithstanding the
foregoing, the amount of any equity contributions to the Company, and the
subscriptions of the Members in respect thereof, shall be denominated and paid
in Pesos (the "Subscriptions"), it being understood that foreign capital
contributed by the Members shall be converted to Pesos at the prevailing rate of
exchange published by the Banco de Mexico in the Official Daily Gazette (Diario
Oficial). Equity capital thus paid to the Company shall then be converted to
Dollars (the "Dollar Amounts"). To the extent that any Dollar Amount realized by
the Company in connection with any Subscription shall be less than the relevant
Commitment Amount, additional equity increases shall be made and the Members
shall subscribe for such increases and effect payment in connection therewith
until the Company shall have realized Dollar Amounts that are not less than the
Commitment Amounts.
SIXTH.- The Capital Interests which represent the capital shall be of
free subscription and may be subscribed or acquired by Mexican or foreign
individuals, companies or economic entities. The Capital Interests shall be
represented by certificates, which shall not be negotiable instruments.
The certificates shall be printed and cover one Capital Interest; they
shall be numbered consecutively and shall bear the autograph signatures of the
chairman and of the secretary of the Board of Managers. The certificates shall
contain the name, nationality and domicile of the Member, all the information
regarding the incorporation of the Company, the total capital and the capital
contribution. In addition, Clauses Fifth, Sixth, Seventh and Thirty-fourth of
these by-laws shall be transcribed on the certificates. Save in the case of
legal issuance of more than one series for reasons of preferential rights of
different participation in dividends or other reasons, Capital Interests will
confer on their holders the same rights and impose the same obligations.
SEVENTH.- The Company shall deem as owner of Capital Interests any
person who is registered as such in the Capital Interest register to be kept by
the Company.
(a) Notwithstanding any other provision of these by-laws, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital Interests of the
Company may only be made in accordance with the provisions of these by-laws, the
General Law of Commercial Companies and the Financing Agreements, and any other
attempted Transfer, Encumbrance or issuance shall be void. It shall be a
condition to the Transfer or issuance of Capital Interests to any Person
3
<PAGE>
under any provision hereof that such Person shall agree in writing (i) to be
bound by the provisions of these by-laws and (ii) to assume all liabilities and
obligations of the transferring Member (and Affiliates thereof) under or with
respect to any agreement between or among any of the Members (or Affiliates
thereof) in relation to the Project; and any Transfer or subscription in respect
of which such conditions have not been satisfied shall be void.
(b) No Member may Transfer or Encumber its Capital Interest or its
Value in a Capital Interest unless (i) such Transfer is to an Affiliate of the
transferor, (ii) such action is approved by the Board of Managers in accordance
with Clause Twenty-third herein, or (iii) if such action is not so approved by
the Board of Managers, such action is approved by an Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a
Capital Interest hereunder shall take effect as of the date of registration of
such Transfer in the books of the Company, and the Company shall not register
any Transfer that does not comply with this Clause Seventh, but the Members and
the Board of Managers agree promptly to take and cause to be taken any action
necessary under these by-laws and applicable law to effectuate and register any
such Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all bear
the following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the Capital Interest
represented by this certificate are restricted by and subject to the
provisions of the Estatutos of the Company, as well as a certain
Members Agreement, dated January 5, 2000, copies of which may be
reviewed at the Company's head office during business hours."
EIGHTH.-
(a) If a Member owning more than 50% of the capital of the Company or
any of its Affiliates desires to Transfer its Capital Interest (the
"Transferor") and such Transfer has been approved in accordance with the
provisions of Clause Seventh, the Transferor must first offer to the other
Member (the "Transferee"), in accordance with the terms of paragraph (b) below,
the right to purchase from the Transferor a portion of the Transferor's Capital
Interest in an amount sufficient to provide the Transferee with a 50%, but no
more and no less than a 50%, Ownership Percentage in accordance with paragraph
(b) below; provided, however, that this preferential purchase right shall not
apply if the Transferee's Ownership Percentage at the time of the Transfer is
less than 37%.
(b) Should a Member owning more than 50% of the capital of the Company
or any of its Affiliates desire to Transfer its Capital Interest (the
"Transferor") pursuant to an Offer from another Person (the "Potential
Acquirer") and such Transfer is permitted pursuant to the provisions of Clause
Seventh, the Transferor shall promptly give notice thereof (the "Transfer
Notice") to the Company and the Transferee. The Transfer Notice shall include a
copy of the Offer and shall set forth in reasonable detail all relevant
information with respect to the proposed
4
<PAGE>
Transfer, including the name and address of the Potential Acquirer, the cash
purchase price (expressed in Dollars) per Peso contributed to the equity of the
Company by the Transferor (the "Preferential Purchase Price"), the Capital
Interests that are to be the subject of the Transfer (the "Subject Capital
Interests"), and any other terms and conditions of the proposed Transfer. The
Transferee shall have the preferential right to purchase from the Transferor a
portion of the Transferor's Capital Interest in an amount sufficient to provide
the Transferee with a 50% Ownership Percentage at the Preferential Purchase
Price and on the same material terms and conditions set forth in the Transfer
Notice. The Transferee shall have 20 Business Days following the giving of the
Transfer Notice in which to notify the Transferor whether it desires to exercise
its preferential right. A notice in which the Transferee exercises such right is
referred to herein as an "Exercise Notice." The Exercise Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Transferor (or such other instrument or arrangement
reasonably satisfactory to the Transferor) in the amount of the Preferential
Purchase Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Transferor times (y) the percentage amount equal to the
positive difference between 50% and the Ownership Percentage of the Transferee
immediately prior to the exercise of the preferential purchase, times (z) 10%,
which letter of credit shall provide that in the event the Transferee fails for
any reason (other than due to the fault of the Transferor or the failure,
through no fault of the Transferor, to obtain any required consent of the
Lenders) to complete the closing of the transaction within the time period set
forth in paragraph (c) below, then the Transferor shall have the right (without
limitation to any other remedy available), for a period of 10 Business Days
after the expiration of such period, to draw on the letter of credit and to
retain the proceeds thereof. If the Transferee does not duly exercise such right
during the applicable period, it shall be deemed to have waived such right.
(c) If the preferential right is exercised in accordance with paragraph
(b) above, the closing of such purchase shall occur at the head office of the
Company on the first Business Day 120 days after the expiration of the
preferential right period. At the closing, the Closing Actions shall occur.
(d) If the Transferee does not deliver an Exercise Notice or if for any
reason (other than due to the fault of the Transferor or the failure of the
Lenders, other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close within the
time period set forth in paragraph (c) above) the preferential purchase
transaction does not close within the time period set forth in paragraph (c)
above, the Transferor shall have the right, subject to compliance with the other
provisions of these by-laws, to Transfer the Subject Capital Interests to the
Potential Acquirer in accordance with the terms of the Transfer Notice for a
period of 90 days after the expiration of the preferential right period. If,
however, the Transferor fails to Transfer the Subject Capital Interests within
such period, the proposed Transfer shall again become subject to the
preferential right set forth in this Clause Eighth.
NINTH.- The variable capital of the Company may be increased or reduced
without need of amending these by-laws. The only formality required for said
increase or reduction will be the approval by the Members in an Extraordinary
Meeting other than with respect to contributions made
5
<PAGE>
pursuant to Clause Fifth (a), (b) and (c). Every increase or reduction of the
capital of the Company shall be recorded in a Capital Interest register kept for
such purpose by the Company.
(a) Capital increases. In a capital increase the Members shall have the
preferential right to subscribe in accordance with Clause Fifth. No capital
increase may be declared until the previous increase has been fully paid for.
(b) Capital reductions. Reductions of the capital of the Company shall
be carried out by reimbursement to the Members.
The Members shall have the right to withdraw all or any part of their
contributions, and obtain reimbursement, in accordance with Articles 220 and 221
of the General Law of Commercial Companies, provided they so notify the Company
five years in advance, unless the Members agree to a shorter notice.
Reimbursement shall be made in proportion to the net worth of the Company in
accordance with the last approved balance sheet.
CHAPTER III
MEMBERS MEETINGS
TENTH.- The Members Meeting is the supreme authority of the Company.
Subject to the terms of the by-laws, the Members Meeting may adopt all kinds of
resolutions and appoint and remove any officer. Its resolutions shall be
enforced by the Board of Managers or the person or persons expressly designated
therefore by the Members.
Every Member as such submits and is subject to the stipulations of
these by-laws and the resolutions duly adopted by the Members in a Members
Meeting or by the Board of Managers.
The resolutions of the Members shall be binding even on absentees or
dissenters except for the right of opposition provided in the General Law of
Commercial Companies.
The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference. According to the General Law of Commercial Companies,
resolutions may be adopted outside of Members Meetings by unanimous written
consent of all of the Members. An Ordinary Members Meeting shall be held at
least once a year within the four (4) months following the closing of each
fiscal period. Ordinary Members Meetings may be those called to discuss any of
the matters that are not expressly reserved by these by-laws to the
Extraordinary Members Meeting. The matters reserved for Extraordinary Members
Meetings are any matters that are identified as Extraordinary Resolutions
pursuant to Clause Fifteenth below.
ELEVENTH.- A Members Meeting shall be called by any Member, the Board
of Managers or any other Person authorized under applicable law. Notice of a
Members Meeting
6
<PAGE>
shall be provided in writing by the Company or other applicable Person to each
Member at least 15 Business Days prior to such Members Meeting, unless a longer
period is required by applicable law or unless such requirement is waived by all
Members, and any Member that attends a Members Meeting shall be deemed to have
waived any requirement for notice thereof. The notice shall be published in a
newspaper of wide circulation in the Company's domicile and by means of a notice
sent by fax and confirmed by air mail confirmed receipt or courier addressed to
each Member at his domicile or to the place that he may have designated for such
purpose. The notice shall set forth the hour, date and place of the Meeting and
the agenda, and shall be signed by the person issuing the notice. The notice
shall include any matter submitted to the Company by any Member at least three
Business Days prior to the sending of the notice for such Members Meeting.
Unless approved by all Members of the Company, no matter may be considered at a
Members Meeting unless such matter was set forth in the notice for such Members
Meeting.
No notice shall be required in the case that a duly convened Members
Meeting is to be continued, provided that when the Members Meeting was
postponed, the date and hour for its continuation were determined.
TWELFTH.- The chairman of the Board of Managers shall act as the
chairman of the Members Meeting, and the secretary of the Company shall serve as
secretary of the Members Meeting. In the event that either the chairman of the
Board of Managers or the secretary of the Company are unavailable to so act,
then the chairman and the secretary shall be elected by the Members (or their
representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting. In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting. Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.
THIRTEENTH.- Unless a higher number is required by applicable law, a
quorum for any Members Meeting shall consist of Members present or represented
by proxy holding more than 75% of the total votes of the Members, provided that
the presence of a quorum shall not modify or lessen the affirmative vote
required by Clauses Fourteenth and Fifteenth; and provided, further, that a
quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Clause Eleventh but was not held due to the failure of a quorum shall consist of
Members present or represented by proxy holding any number of the total votes of
the Members.
Each Member shall have one vote for each one Peso contributed by the
Member and its predecessors to the equity of the Company. Votes shall be cast by
written ballot. Members may be represented at Members Meetings by proxies, the
holders of which need not be Members. Proxy holders that are Members shall be
entitled to vote based on the number of votes of the Members they represent
separately, in addition to voting based on their own number of votes. Proxies
shall be issued in accordance with the General Law of Commercial Companies.
7
<PAGE>
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
FOURTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Ordinary Members Meeting by the affirmative vote of
Members (or their representatives) representing more than 50% of the total votes
of the Members ("Ordinary Resolutions").
FIFTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Extraordinary Members Meeting by the affirmative
vote of Members (or their representatives) representing 75% or more of the total
votes of the Members with respect to the following matters ("Extraordinary
Resolutions"), unless such matters shall have been approved by the Board of
Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company,
or the Transfer during any fiscal year, exceeding an aggregate of more than 20%
of the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than
with respect to the contributions made pursuant to Clause Fifth (a), (b) and
(c);
(d) Any proposals for the Company to accept contributions of or
conversions of debt-to- capital from third parties in exchange for Capital
Interests;
(e) Any proposals by a Member to Transfer all of its Capital
Interests or a portion of the Value of its Capital Interest other than as
permitted by these by-laws;
(f) The dissolution of the Company;
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of the
Company's total assets;
(h) The amendment of these by-laws;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10% or greater
equity interest), member of the Board of Managers, officer, or executive of the
Company or a Member (or any individual who is a member of the immediate family
of such manager, officer or executive) that in the aggregate will have a value
during any fiscal year in excess of US$100,000 (ONE HUNDRED THOUSAND DOLLARS
00/100);
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to such
borrowing;
8
<PAGE>
(k) Borrowing for the purpose of accomplishing any matter listed in
this Clause; and
(l) Making payments of liquidating or partially liquidating
dividends.
SIXTEENTH.- If (a) at any time any Member desires to adopt one or more
Extraordinary Resolutions, but approval of the other Member for the passing of
such Extraordinary Resolutions cannot be obtained in accordance with Clause
Fifteenth and (b) such situation continues without resolution for at least 90
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Clause Eighteenth, then
the Receiving Member shall have the right (without limitation to any other
remedy available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.
SEVENTEENTH.- Not later than 30 days after the giving of the Buy-Sell
Notice to the Receiving Member, the Receiving Member shall notify (the "Response
Notice") the other Member whether such Receiving Member elects (a) to sell or
(b) to purchase, in either case at the Capital Interest Price. Failure to give
the Response Notice within such 30-day period shall be deemed to be an election
to sell by the Receiving Member. If the Receiving Member elects to purchase, the
Receiving Member shall be required to purchase all of the Capital Interest of
the Triggering Member and shall include with its Response Notice the original
letter of credit it received from the Triggering Member and a letter of credit
in favor of the Triggering Member substantially as described in Clause Sixteenth
above (except that the amount of the letter of credit shall be measured by
reference to the Triggering Member's equity contributions). If the Receiving
Member does not elect to purchase, the Receiving Member shall sell its Capital
Interest to the Triggering Member. In each case, the sale or purchase of the
Capital Interest shall be at the Capital Interest Price multiplied by the number
of whole Pesos contributed to the equity of the Company by the Member who is
selling its Capital Interest.
9
<PAGE>
EIGHTEENTH.- The closing of the sale and purchase in accordance with
Clauses Sixteenth and Seventeenth shall be consummated no later than the first
Business Day after 90 days after the giving of the Response Notice or the deemed
election (pursuant to Clause Seventeenth) to sell. Such closing shall occur at
the head office of the Company unless otherwise agreed, and at the closing, the
Closing Actions shall occur. Any tax withholding obligations with respect to the
Transfers of the Capital Interests imposed by the laws of Mexico shall be
complied with.
CHAPTER IV
ADMINISTRATION
NINETEENTH.- The Company shall be governed by a Board of Managers
consisting of six managers. The managers shall not be required to be nationals
of Mexico. Any Member shall be entitled to designate three persons to the Board
of Managers, and to the extent permitted by applicable law, shall have the right
to cause such managers to be removed. The appointment of the chairman and the
secretary of the Board of Managers will alternate annually between the managers
appointed by each Member.
The managers may but need not be Members of the Company.
The chairman of the Board of Managers shall not have the deciding vote
in case of a tie in the voting of the Board.
The chairman and the secretary of the Board shall have exclusively
those powers conferred upon them by these by-laws.
TWENTIETH.- Each Member entitled to nominate a manager pursuant to
Clause Nineteenth shall be entitled to designate an alternate manager for each
of its nominees (an "Alternate Manager"). Each Alternate Manager shall be
entitled to receive notice of all meetings of the Board of Managers and to
attend and vote at any such meeting at which the manager for whom he is the
Alternate Manager is not personally present, and generally to perform all
functions of the manager for whom he is the alternate as a manager in his
absence. An Alternate Manager shall cease to be an Alternate Manager if the
manager for whom he is the alternate ceases to be a manager; provided, however,
that if a manager retires and is immediately reappointed, any appointment of an
Alternate Manager for such manager that was in force immediately prior to his
retirement shall continue after his reappointment. An Alternate Manager shall be
deemed for all purposes a manager and shall alone be responsible for his own
acts and defaults and he shall not be deemed to be the agent of the manager for
whom he is the alternate.
TWENTY-FIRST.- The managers shall be elected for a term of office of
one year. A manager whose term of office expires may be reelected. Any vacancy
occurring in the managership of the Board of Managers shall be filled by the
Member that nominated the manager whose departure created such vacancy.
10
<PAGE>
TWENTY-SECOND.- The Board of Managers shall meet at least quarterly
("Regular Meetings"), and additional meetings may be convened by notice of the
chairman or by any manager at any time ("Special Meetings"). Regular Meetings
shall be held at the Company's head office or at such other location as may be
agreed by the Board of Managers. Unless otherwise agreed upon by the Board of
Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and in Danville, Virginia, U.S.A. Managers shall receive
not less than ten Business Days' written notice of any meeting, with such
written notice also provided to each Member. Managers may, by unanimous written
consent, waive the notice requirement for meetings, and any manager that attends
a meeting of the Board of Managers shall be deemed to have waived any
requirement for notice thereof. The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the General Law of Commercial Companies and these by-laws, but
shall include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting. Managers may
attend meetings of the Board of Managers by telephone.
TWENTY-THIRD.- A quorum for meetings of the Board of Managers shall
require the presence of at least four managers. All decisions of the Board of
Managers shall be taken by the affirmative vote of at least four managers. The
chairman of the Board of Managers shall not be entitled to any vote in addition
to his vote as a manager. In the event of a deadlock among the managers, the
matters shall be decided by vote of the Members as set forth in Chapter III. The
proceedings of meetings of the Board of Managers will be in English. Unless
otherwise required by applicable law, the official minutes of meetings and
resolutions taken therein shall be kept in English and Spanish, shall be
circulated to all managers before finalization and shall be kept in the minute
books of the Company. If permitted by applicable law, decisions may be taken by
the Board of Managers without a meeting if a proposal for action is submitted in
writing to each of the managers and each such manager consents in writing to
such action.
TWENTY-FOURTH.-. Except as otherwise expressly provided by applicable
law or these by-laws, the Board of Managers shall, consistent with any
resolution of the Members Meeting, administer the business and property of the
Company and manage the affairs of the Company and shall have full authority to
do so, provided that its resolutions and acts are consistent with the General
Law of Commercial Companies and these by-laws. Subject to the foregoing, the
functions and powers of the Board of Managers shall include, but not be limited
to:
(a) The appointment or removal of the general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or
capital expenditures having a value in excess of US$2,000,000 (TWO MILLION
DOLLARS 00/100);
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(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of US$1,000,000 (ONE MILLION DOLLARS
00/100) in the aggregate to any one Person or its Affiliates;
(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
(g) Any declaration by the Company of a default under, any exercise
by the Company of remediesunder, or any termination or cancellation by the
Company of, any Project Contract or Financing Agreement;
(h) General power of attorney for lawsuits and collections, in the
terms of the first paragraph of Article 2554 of the Civil Code for the Federal
District, with all general and such special powers as are mentioned in Article
2587 of said Code, including but not limited to the following:
To exercise all types of rights and actions before any and all
authorities and boards of conciliation and arbitration; to submit to any
jurisdiction; to desist from injunction (amparo) proceedings; to file charges
and complaints as aggrieved party and assist the District Attorney; and to sign
such documents as may be required in the exercise of this power of attorney;
(i) General power of attorney for acts of administration, in the
terms of the second paragraph of said Article 2554, with powers to carry out all
operations inherent in the corporate purpose;
(j) General power of attorney for acts of dominion, in the terms of
the third paragraph of said Article 2554;
(k) Power to grant and sign credit instruments in accordance with
Article 9 of the General Law of Credit Instruments and Operations;
(l) Power to carry out and enforce the resolutions adopted in Members
Meetings;
(m) Power to revoke and confer general and special powers of attorney
within the scope of the aforementioned powers; and
(n) The performance of any other acts necessary or appropriate for a
Board of Managers under these by-laws or the General Law of Commercial
Companies.
TWENTY-FIFTH.- To guarantee the faithful discharge of their duties, the
managers shall give the guaranty determined by the Ordinary Members Meeting
which appointed them, and it may consist of a cash deposit or bond.
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TWENTY-SIXTH.- The Board of Managers shall appoint the general manager
of the Company, who shall be the chief executive officers of the Company and
responsible for the day-to-day management and conduct of the operations of the
Company in accordance with powers granted by the Members Meeting and the Board
of Managers from time to time. The Board of Managers shall appoint a deputy
general manager. The general manager shall report to the Board of Managers. The
duration of the terms of the general manager, the deputy general manager and
other officers having authority to sign and execute documents on behalf of the
Company shall not be limited to the term of the managers.
CHAPTER V
FISCAL YEAR, BALANCE SHEET, PROFITS AND LOSSES
TWENTY-SEVENTH.- The fiscal year of the Company shall be a calendar
year.
TWENTY-EIGHTH.- A balance sheet shall be prepared within three months
following the close of the fiscal year and kept in the principal offices of the
Company, available to the Company Members and officers, together with its
supporting documents, one month before the respective Ordinary Members Meeting
is held.
TWENTY-NINTH.- The profits obtained in each fiscal year shall be
applied as follows:
(a) First the amount agreed upon by the Ordinary Members Meeting will
be set aside for the establishment or reconstitution, as the case may be, of the
legal reserve fund, an amount that at minimum will be 5% of the net profit,
until an amount equal to one fifth of the capital is accumulated.
(b) Such sum as may be determined by the Members shall be set aside for
creating or increasing reinvestment, contingency or such special reserves as may
be deemed advisable;
(c) Such sum as may be determined by the Members shall be distributed
to the Members in proportion to the Value of their Capital Interests;
(d) The remainder, if any, shall be passed to the undistributed profits
account.
THIRTY.- The Members shall be liable for the Company losses but their
liability shall be limited to payment of the unpaid portion of their Capital
Interests; hence, the owners of fully-paid Capital Interests shall have no
liability whatsoever.
CHAPTER VI
DISSOLUTION AND LIQUIDATION
THIRTY-FIRST.- The Company shall be dissolved:
13
<PAGE>
(a) If continued execution of the corporate purposes shall become
impossible;
(b) By resolution of the Members adopted in accordance with these by-
laws and the General Law of Commercial Companies; or
(c) In case of loss of two-thirds of the corporate capital unless the
Members restore or reduce same.
THIRTY-SECOND.-
(a) Upon dissolution, the Company shall be placed in liquidation which
shall be entrusted to one or more receivers, as determined by the Members in an
Extraordinary Meeting.
(b) The Board of Managers shall continue in the discharge of their
duties until the appointment of the receivers shall have been recorded in the
Public Registry of Commerce and the receivers shall have taken office.
(c) The liquidation shall be conducted as prescribed in the General Law
of Commercial Companies but the Members, upon determining to liquidate, shall
establish the rules which, in addition to the provisions of the General Law of
Commercial Companies and these by-laws, shall govern all action taken by the
receivers.
(d) The Extraordinary Members Meeting wherein the final balance sheet
is approved must be presided over by one of the receivers. The receivers shall
have the authority vested in the Board of Managers and the duties and
obligations granted to the receivers by the General Law of Commercial Companies.
CHAPTER VII
GENERAL PROVISIONS
THIRTY-THIRD.- The founding Members do not reserve to themselves any
special participation in the Company profits.
THIRTY-FOURTH..- Any foreigner who upon incorporation or at any time
thereafter acquires an interest or participation in the Company and/or the
property rights, concessions, participations or interests owned by such
companies or the rights and obligations derived from the agreements to which
such companies are parties with Mexican authorities, shall be considered ipso
facto as a Mexican citizen with respect to such interest, participation,
concession, right, obligation and agreement and it shall be understood that he
agrees not to seek the protection of his government under penalty, in case of
breaching said agreement, of forfeiting such interest or participation to the
Mexican Nation.
THIRTY-FIFTH.- In all matters not specifically provided for herein, the
provisions of the General Law of Commercial Companies shall govern.
14
<PAGE>
THIRTY-SIXTH.- No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Clause. Each Disputing Party shall, if
requested by another Disputing Party, select and appoint a senior executive (not
concerned with the day-to-day performance of the appointor's obligations under
these by-laws) to serve on a panel seeking to reach mutual agreement with
respect to the applicable Claim. Each such appointment shall be made by the
giving of notice by the appointor to the other Disputing Parties within ten
Business Days of the request for the appointment. The appointees shall meet and
shall endeavor to reach such mutual agreement as soon as practicable.
THIRTY-SEVENTH.- Any and all disputes, including claims, counterclaims,
demands, causes of action, controversies, and other matters in question arising
out of or relating to these by-laws, or the alleged breach hereof, or in any way
relating to the subject matter of these by-laws or the relationship between the
parties created by these by-laws (all of which are referred to herein as
"Claims") between the Members (each a "Disputing Party") that are not resolved
during the 60 day period provided in Clause Thirty-sixth shall be resolved by
binding arbitration.
THIRTY-EIGHTH.- If no such mutual agreement has been reached within
such 60 day period, then any Disputing Party may refer the claim to arbitration
under the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in accordance
with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel
of three arbitrators. One (1) arbitrator shall be nominated by each Disputing
Party in accordance with ICC Rules, and the third arbitrator shall be nominated
by the two (2) ICC-confirmed party-nominated arbitrators or, failing agreement,
shall be appointed by the ICC in accordance with ICC Rules. Each Disputing Party
shall be permitted to nominate an arbitrator that is of the same nationality as
the Disputing Party making the nomination.
THIRTY-NINTH.- The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the arbitration conducted
pursuant to this agreement to arbitrate, including, but not limited to, the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud in the
inducement" to enter into this agreement to arbitrate, allegations of waiver,
laches, delay or other defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an answer, the time
for the filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the issuance of
subpoenas, the times for the designation of experts, whether the arbitration is
to be stayed pending resolution of related litigation involving third parties
not bound by this agreement to arbitrate, the receipt of evidence, and the like)
shall be decided in accordance with the ICC Rules. However, the arbitrators
shall have absolutely no authority to award treble, exemplary or
15
<PAGE>
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of these by-laws. The Award shall fix the costs of the arbitration and
decide which of the Disputing Parties shall bear them or in what proportion they
shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.
FOURTIETH.- The arbitration proceeding shall be conducted in New York,
New York USA. The arbitration shall be conducted by the arbitrators as
expeditiously as possible. The arbitration proceedings and the award or decision
(the "Award") of the arbitrators shall be in English. The arbitration shall be
conducted under the ICC Rules. The Award shall be payable in cash in Dollars.
The arbitrators' Award shall, as between the Disputing Parties and
those in privity with them, be final and entitled to all of the protections and
benefits of a final judgment, e.g., res judicata (claim preclusion) and
collateral estoppel (issue preclusion), as to all Claims, including compulsory
counterclaims, that were or could have been presented to the arbitrators. The
arbitrators' Award shall not be reviewable by or appealable to any court;
provided, however, the Award may be corrected or interpreted pursuant to the ICC
Rules.
It is the intent of the parties that the arbitration proceeding shall
be conducted expeditiously, without initial recourse to the courts and without
interlocutory appeals of the arbitrators' decisions to the courts. However, if a
Disputing Party refuses to honor its obligations under this agreement to
arbitrate, any other Disputing Party may obtain appropriate relief compelling
arbitration in any court having jurisdiction over the Disputing Parties; the
order compelling arbitration shall require that the arbitration proceedings take
place in New York, New York, USA as specified above. The Disputing Parties may
apply to any court having jurisdiction for orders requiring witnesses to obey
subpoenas issued by the arbitrators. Moreover, any and all of the arbitrators'
orders and decisions may be enforced if necessary by any court having
jurisdiction. The arbitrators' Award may be confirmed in, and judgment upon the
Award entered by, any court having jurisdiction. FOR PURPOSES OF COMPELLING A
MEMBER TO HONOR ITS OBLIGATION TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY
CONSENTS AND SUBMITS UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, USA
AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH
PURPOSES.
To the fullest extent permitted by applicable law, the arbitration
proceeding and the arbitrators' Award shall be maintained in confidence by the
Disputing Parties. However, a violation of this covenant shall not affect the
enforceability of this agreement to arbitrate or of the arbitrators' Award.
A Disputing Party's breach of these by-laws shall not affect this
agreement to arbitrate. Moreover, the parties' obligations under this
arbitration provision are enforceable even after
16
<PAGE>
these by-laws have terminated. The invalidity or unenforceability of any
provision of this agreement to arbitrate shall not affect the validity or
enforceability of the Disputing Parties' obligation to submit their Claims to
binding arbitration or the other provisions of this agreement to arbitrate.
FOURTY-FIRST.- For purposes of these by-laws:
"Affiliate" means, with respect to any Person, any other Person that
(a) owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Alternate Manager" has the meaning given that term in Clause
Twentieth.
"Award" has the meaning given that term in Clause Fourtieth.
"Board of Managers" means the Board of Managers (consejo de gerentes)
of the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banks in New York, New York USA, or Mexico City, Mexico are authorized
or required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Clause Sixteenth.
"Capital Interest" has the meaning given that term in Clause Fifth.
"Capital Interest Price" has the meaning given that term in Clause
Sixteenth.
"Claims" has the meaning given that term in Clause Thirty-seventh.
"Closing Actions" means (a) the taking by the applicable selling
Members of all necessary or appropriate actions to Transfer the applicable
Capital Interests to the applicable purchasing Members, with such selling
Members warranting against all Encumbrances against such Capital Interests,
except for these by-laws and the Encumbrances provided for in Clause Seventh
(b), and (b) the payment by such purchasing Members to such selling Members of
the applicable purchase price in Dollars in immediately available funds.
"Commitment Amounts" has the meaning given that term in Clause Fifth.
"Company" means the limited liability company (sociedad de
responsabilidad limitada de capital variable) formed by the Members.
17
<PAGE>
"Disputing Party" has the meaning given that term in Clause
Thirty-seventh.
"Dollars" means freely transferable lawful money of the United States
of America.
"Dollar Amounts" has the meaning given that term in Clause Fifth.
"Equity Contribution Agreement" means the agreement signed by the
Members on January 5, 2000.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage
or similar encumbrance.
"Exercise Notice" has the meaning given that term in Clause Eighth.
"Extraordinary Resolutions" has the meaning given that term in Clause
Fifteenth.
"Extraordinary Members Meeting" has the meaning given that term in
Clause Tenth.
"Fair Market Value" means the value that would be obtained in an
arm's-length transaction between an informed and willing buyer and an informed
and willing seller, determined by mutual agreement.
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.
"General Law of Commercial Companies" means the Ley General de
Sociedades Mercantiles.
"ICC" means the International Chamber of Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber
of Commerce.
"Lenders" means the Persons providing loans or credit under the
Financing Agreements.
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company,
conducted pursuant to these by-laws, and the General Law of Commercial
Companies, including any Ordinary Members Meeting and Extraordinary Members
Meeting.
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"Mexico" means the United Mexican States.
"Offer" means a bona fide written offer.
"Ordinary Resolutions" has the meaning given that term in Clause
Fourteenth.
"Ordinary Members Meeting" has the meaning given that term in Clause
Tenth.
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Clause Eighth.
"Preferential Purchase Price" has the meaning given that term in Clause
Eighth.
"Project" means the construction and operation of a manufacturing plant
at a location to be selected by the Board of Managers in Mexico primarily for
the manufacture of woven fabrics for sale to apparel manufacturers and other
sectors, including, without limitation, the manufacture of greige sheeting
fabric, and the development, financing, construction, ownership, maintenance,
and operation of such facility by or on behalf of the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) the Marketing Agreement;
(b) the Agency Agreement;
(c) the Letter Agreements;
(d) the agreement or agreements under which the Company will acquire
title to the sites for the Project or will be granted leasehold
title to those sites; and
(e) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Clause
Sixteenth.
"Regular Meetings" has the meaning given that term in Clause Twenty-
second.
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"Request for Arbitration" has the meaning given that term in Clause
Thirty-eighth.
"Response Notice" has the meaning given that term in Clause
Seventeenth.
"Special Meetings" has the meaning given that term in Clause
Twenty-second.
"Subscriptions" has the meaning given that term in Clause Fifth.
"Subject Capital Interests" has the meaning given that term in Clause
Eighth.
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or
the act of doing any of the foregoing, but not the act of granting or imposing
an Encumbrance.
"Transferee" has the meaning given that term in Clause Eighth.
"Transferor" has the meaning given that term in Clause Eighth.
"Transfer Notice" has the meaning given that term in Clause Eighth.
"Triggering Member" has the meaning given that term in Clause
Sixteenth.
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
TRANSITORY CLAUSES
FIRST. The issuers subscribe to and pay for in cash the total value of the
minimum fixed capital of the Company of $3,000.00 (THREE THOUSAND PESOS 00/100),
which amount shall be allocated in the following way and proportion:
- -----------------------------------------------------------------------------
Member Value Capital Interest Votes
- -----------------------------------------------------------------------------
Dan River International Ltd. $1,501.00 1 1,501
- -----------------------------------------------------------------------------
Grupo Industrial Zaga, S.A.
de C.V. $1,499.00 2 1,499
- -----------------------------------------------------------------------------
SECOND. The issuers, pursuant to the meeting for the execution of these by-laws
that is the first Ordinary Members Meeting of the Company, adopt the following
by unanimous vote:
20
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RESOLUTION
FIRST. It is agreed to that the Company shall be managed by a Board of
Managers, which shall be comprised of the of the following individuals:
On behalf of Grupo Industrial Zaga, S.A. de C.V.
Managers Alternates
- -------- ----------
Marcos Zaga Galante Rafael Zaga Kalach
Mayer Zaga Galante Salomon Zaga Kalach
Jacobo Saadia Zaga Moises Saadia Zaga
On behalf of Dan River International Ltd.
Managers Alternates
- -------- ----------
Joseph L. Lanier, Jr. Richard L. Williams
Barry F. Shea G. Rodney Reynolds
James E. Martin Greg R. Boozer
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EXHIBIT F
- -------------------------------------------------------------------------------
MEMBER AMOUNT OF CAPITAL OWNERSHIP
CONTRIBUTION PERCENTAGE
- -------------------------------------------------------------------------------
Zaga 1,499 49.9%
- -------------------------------------------------------------------------------
DRI 1,501 50.1%
- -------------------------------------------------------------------------------
Exhibit F
Page 1
<PAGE>
EXHIBIT G
Chain of
Member Equity Ownership
------ ----------------
Dan River International Ltd. 100 % owned by Dan River Inc., a
publicly held company organized
under the laws of the State of
Georgia, U.S.A.
Exhibit G
Page 1
<PAGE>
EXECUTION COPY
EXHIBIT 10.19
MEMBERS AGREEMENT
by and between
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
and
DAN RIVER INTERNATIONAL LTD.
Dated as of
January 5, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS................................................................... 1
1.1 Definitions.................................................................. 1
1.2 Other References............................................................. 1
1.3 Governing Language........................................................... 2
ARTICLE II BASIC STRUCTURE OF COMPANY................................................... 2
2.1 Formation of the Company..................................................... 2
2.2 Name......................................................................... 2
2.3 Place of Business............................................................ 2
2.4 Purpose...................................................................... 2
ARTICLE III CAPITAL INTERESTS AND FUNDING............................................... 2
3.1 Capital of the Company....................................................... 2
3.2 Mandatory Member Funding..................................................... 3
3.3 Priority Subscription Rights................................................. 3
3.4 Subscription................................................................. 3
ARTICLE IV BOARD OF MANAGERS............................................................ 4
4.1 Board of Managers............................................................ 4
4.2 Alternate Manager............................................................ 4
4.3 Term and Vacancies........................................................... 4
4.4 Meetings and Agenda.......................................................... 4
4.5 Quorum and Decisions......................................................... 5
4.6 Powers of the Board of Managers.............................................. 5
4.7 Execution of Documents....................................................... 6
4.8 Compliance................................................................... 6
4.9 Remuneration................................................................. 6
ARTICLE V MEETING OF MEMBERS............................................................ 6
5.1 Members Meeting.............................................................. 6
5.2 Calling a Members Meeting; Agenda............................................ 6
5.3 Related Matters.............................................................. 7
5.4 Quorum for Members Meeting................................................... 7
5.5 Voting Generally............................................................. 7
5.6 Ordinary Resolutions......................................................... 7
5.7 Extraordinary Resolutions.................................................... 8
ARTICLE VI BUY-SELL..................................................................... 9
6.1 Buy-Sell Notice.............................................................. 9
6.2 Actions by Receiving Member.................................................. 9
6.3 Closing...................................................................... 9
ARTICLE VII COMPETITION................................................................. 10
7.1 Competition.................................................................. 10
ARTICLE VIII TRANSFERS.................................................................. 10
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New Issues... 10
</TABLE>
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<TABLE>
<S> <C>
8.2 Preferential Purchase Right.................................................. 11
ARTICLE IX MANAGEMENT................................................................... 13
9.1 Management................................................................... 13
9.2 Operation of the Project..................................................... 13
ARTICLE X REPORTING AND INFORMATION..................................................... 14
10.1 Accounting; Fiscal Year; Tax Information..................................... 14
10.2 Annual Financial Statements and Auditing..................................... 14
10.3 Inspection and Other Information............................................. 14
10.4 Reports...................................................................... 15
10.5 Tax Returns and Partnership Status........................................... 15
10.6 Submission of Annual and..................................................... 16
10.7 Approval of Annual Business Plan and Three-Year Business Plan................ 16
ARTICLE XI RESOLUTION OF DISPUTES....................................................... 17
11.1 Conciliation................................................................. 17
11.2 Agreement to Arbitrate....................................................... 17
11.3 Appointment of Arbitrators................................................... 17
11.4 Authority of the Arbitrators................................................. 17
11.5 Place of Arbitration......................................................... 18
11.6 Conduct of the Arbitration................................................... 18
11.7 ICC Rules.................................................................... 18
11.8 Payment of Award............................................................. 18
11.9 Finality of the Arbitrators' Award........................................... 18
11.10 Use of the Courts............................................................ 18
11.11 Confidentiality.............................................................. 19
11.12 Arbitration Provision Enforceable............................................ 19
ARTICLE XII OBLIGATIONS OF THE PARTIES.................................................. 19
12.1 Observance of Laws........................................................... 19
12.2 Confidentiality.............................................................. 20
12.3 Publicity.................................................................... 21
ARTICLE XIII REPRESENTATIONS, WARRANTIES, AND LIABILITIES............................... 21
13.1 Representations and Warranties............................................... 21
13.2 Limitation on Liability...................................................... 22
ARTICLE XIV MISCELLANEOUS PROVISIONS.................................................... 22
14.1 Notices...................................................................... 22
14.2 Governing Law................................................................ 23
14.3 Interest..................................................................... 24
14.4 Further Assurances........................................................... 24
14.5 No Further Relationship...................................................... 24
14.6 Conflict of Terms............................................................ 24
14.7 Assignment................................................................... 24
14.8 Specific Performance......................................................... 24
14.9 Entire Agreement............................................................. 24
14.10 Amendment.................................................................... 25
14.11 Waivers...................................................................... 25
14.12 No Third Party Beneficiaries................................................. 25
</TABLE>
ii
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<TABLE>
<S> <C>
14.13 Severability................................................................. 25
14.14 Counterparts................................................................. 25
14.15 Interpretation............................................................... 25
14.16 Force Majeure................................................................ 25
ANNEX A DEFINITIONS.................................................................... 1
EXHIBIT A ........................................................................... 1
EXHIBIT B ........................................................................... 1
EXHIBIT C ........................................................................... 1
EXHIBIT D ........................................................................... 1
</TABLE>
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MEMBERS AGREEMENT
This Members Agreement (this "Agreement"), dated as of January 5, 2000, is
entered into by and between Grupo Industrial Zaga, S.A. de C.V., a sociedad
anonima de capital variable organized under the laws of the United Mexican
States ("Zaga") and Dan River International Ltd., a corporation organized under
the laws of the Commonwealth of Virginia, USA ("Dan River").
RECITALS
Zaga and Dan River shall be the sole Members, and thus shall own in the
aggregate 100% of the corporate capital of the Company. The Company shall own
and operate the Project.
The Members desire to set forth herein the terms and conditions concerning
their ownership of and cooperation concerning the Company.
Contemporaneously with the execution of this Agreement, Dan River Inc., the
parent company of Dan River, and Zaga shall enter into a separate letter
agreement for the allocation of certain selling, general and administrative
expenses, a copy of which is attached hereto as Exhibit A.
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NOW, THEREFORE, intending to be legally bound, the Members agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized words and phrases set forth on Annex A
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hereto, and the capitalized words and phrases defined elsewhere in this
Agreement, have the indicated meanings for purposes of this Agreement.
1.2 Other References. Unless otherwise provided, all references to
"Articles" and "Sections" are to Articles and Sections of this Agreement, and
all references to "Exhibits" are to Exhibits attached to this Agreement, each of
which is made a part of this Agreement for all purposes. References to any
gender include all others if applicable in the context. Terms defined in the
singular shall have the corresponding meaning when used in the plural and vice
versa. All uses of "include" or "including" mean without limitation. References
to a law, rule, regulation, contract, agreement, or other document mean that
law, rule, regulation, contract, agreement, or document as amended, modified, or
supplemented, if applicable. Any definition of one part of speech of a word,
such as definition of the noun form of that word, shall have a comparable
meaning when used as a different part of speech, such as the verb form of that
word.
<PAGE>
1.3 Governing Language. The governing language of this Agreement shall be
the English language; provided, however, that with respect to the Organizational
Documents, their governing language shall be Spanish. Except as otherwise
required by applicable law, all notices, correspondence, information,
literature, reports, data, manuals, procedures and other documents required
under this Agreement shall be in the English language.
ARTICLE II
BASIC STRUCTURE OF COMPANY
2.1 Formation of the Company. The Members agree to form the Company within
fifteen (15) days following the date of this Agreement, and the Company shall be
governed by the Organizational Documents attached hereto as Exhibit B; provided,
---------
however, that the Company shall not be formed unless and until DanZa Textil, S.
de R.L. de C.V. is formed.
2.2 Name. Subject to the approval from the Ministry of Foreign Affairs
(Secretaria de Relaciones Exteriores), the name of the Company shall be Zadar,
S. de R.L. de C.V.
2.3 Place of Business. The corporate domicile and principal place of
business of the Company shall be located in Jilotepec, State of Mexico, or such
other place as the Members may from time to time designate.
2.4 Purpose. The purposes for which the Company shall be organized
include, but are not limited to, the following:
(a) to develop, finance, build, own and operate a manufacturing plant
at a location to be selected by the Board of Managers in Mexico, and
to engage in manufacturing operations, primarily for the manufacture
of finished garments, and the sale of such finished garments to
garment retailers and other sectors; and
(b) such other activities as are lawful and approved by an
Extraordinary Resolution of the Members.
ARTICLE III
CAPITAL INTERESTS AND FUNDING
3.1 Capital of the Company. The Company shall have a minimum fixed
capital of 3,000 Pesos. Each Member shall own one capital interest (parte
social) ("Capital Interest"), which initially shall have the value set forth in
Exhibit C. All additional equity contributions in excess of the minimum fixed
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capital amount shall constitute the variable capital of the Company and shall
cause an increase in the Value of the Capital Interest of such contributing
Member by
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the amount of equity so contributed. The Value of a Capital Interest shall
always represent a multiple of one Peso. The Capital Interests shall be of free
subscription.
3.2 Mandatory Member Funding.
(a) Each Member shall be required, severally and not jointly, to make
equity contributions to provide its pro rata portion of the funds
necessary to fund the Project; provided that in no event shall any
Member be required to make equity contributions in excess of $6
million Dollars. Each time that such equity contributions are to be
made, they shall be made by all Members on the same day pro rata in
accordance with their Ownership Percentages. The timing for the
making of the equity contributions shall be governed by a separate
agreement among the Members.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be
contributed from time to time in accordance with Section 3.2(a). The
--------------
Company shall register in its books any increase in the Value of a
Member's Capital Interest based on and corresponding to the amounts so
contributed.
(c) If one Member fails or refuses to provide funds as required by
this Section 3.2, and such failure or refusal continues for five
-----------
Business Days after receipt by such Member of notice thereof from the
other Member, the other Member may at its option provide such funds,
and the Member providing such funds shall have the Value of its
Capital Interest increased accordingly.
3.3 Priority Subscription Rights. Upon any decision of the Members to
increase the capitalization of the Company, except for increases pursuant to
Section 3.2, each Member shall have the right to subscribe for such increase pro
- -----------
rata based on such Member's Ownership Percentage. If any Member fails to
subscribe or pay for the pro rata portion to which it is entitled, the other
Member may take up the unsubscribed or unpaid portion.
3.4 Subscription. The funding needs of the Company to be provided by the
Members shall be denominated in Dollars, and the commitment of the Members to
fund such needs shall be made in Dollars (the "Commitment Amounts").
Notwithstanding the foregoing, the amount of any equity contributions to the
Company, and the subscriptions of the Members in respect thereof, shall be
denominated and paid in Pesos (the "Subscriptions"), it being understood that
foreign capital contributed by the Members shall be converted to Pesos at the
prevailing rate of exchange published by the Banco de Mexico in the Official
Daily Gazette (Diario Oficial). Equity capital thus paid to the Company shall
then be converted to Dollars (the "Dollar Amounts"). To the extent that any
Dollar Amount realized by the Company in connection with any Subscription shall
be less than the relevant Commitment Amount, additional equity increases shall
be made and the Members shall subscribe for such increases and effect payment in
connection therewith until the Company shall have realized Dollar Amounts that
are not less than the Commitment Amounts.
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ARTICLE IV
BOARD OF MANAGERS
4.1 Board of Managers. The Company shall be governed by a Board of
Managers consisting of six managers. The managers shall not be required to be
nationals of Mexico. Dan River shall be entitled to designate three persons to
the Board of Managers, and to the extent permitted by applicable law, Dan River
shall have the right to cause such managers to be removed. Zaga shall be
entitled to designate three persons to the Board of Managers, and to the extent
permitted by applicable law, Zaga shall have the right to cause such managers to
be removed. Each Member agrees to vote its Capital Interest so as to achieve
the results referred to in this Section 4.1. Zaga shall appoint a manager to
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serve as chairman of the Board of Managers during the first year, after which
control of the chairmanship of the Board of Managers will alternate annually
between Zaga and Dan River appointed managers.
4.2 Alternate Manager. Each Member entitled to nominate a manager
pursuant to Section 4.1 shall be entitled to designate an alternate manager for
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each of its nominees (an "Alternate Manager"). Each Alternate Manager shall be
entitled to receive notice of all meetings of the Board of Managers and to
attend and vote at any such meeting at which the manager for whom he is the
Alternate Manager is not personally present, and generally to perform all
functions of the manager for whom he is the alternate as a manager in his
absence. An Alternate Manager shall cease to be an Alternate Manager if the
manager for whom he is the alternate ceases to be a manager; provided, however,
that if a manager retires and is immediately reappointed, any appointment of an
Alternate Manager for such manager that was in force immediately prior to his
retirement shall continue after his reappointment. An Alternate Manager shall
be deemed for all purposes a manager and shall alone be responsible for his own
acts and defaults and he shall not be deemed to be the agent of the manager for
whom he is the alternate.
4.3 Term and Vacancies. The managers shall be elected for a term of
office of one year. A manager whose term of office expires may be reelected.
Any vacancy on the Board of Managers shall be filled by the Member that
nominated the manager whose departure created such vacancy.
4.4 Meetings and Agenda. The Board of Managers shall meet at least
quarterly ("Regular Meetings"), and additional meetings may be convened by call
of the chairman or by any manager at any time ("Special Meetings"). Regular
Meetings shall be held at the Company's head office or at such other location as
may be agreed by the Board of Managers. Unless otherwise agreed upon by the
Board of Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and at the offices of Dan River Inc. in Danville,
Virginia, U.S.A. Managers shall receive not less than ten Business Days'
written notice of any meeting, with such written notice also provided to each
Member. Managers may, by unanimous written consent, waive the notice
requirement for meetings, and any manager that attends a
4
<PAGE>
meeting of the Board of Managers shall be deemed to have waived any requirement
for notice thereof. The agenda of each meeting shall be included in the notice
for such meeting and shall be established in accordance with the requirements of
the Code and the Organizational Documents, but shall include any matter
submitted to the Company by any manager at least three Business Days prior to
the sending of the notice for such meeting. Managers may attend meetings of the
Board of Managers by telephone or videoconference.
4.5 Quorum and Decisions. A quorum for meetings of the Board of Managers
shall require the presence of at least four managers. All decisions of the
Board of Managers shall be taken by the affirmative vote of at least four
managers. The chairman of the Board of Managers shall not be entitled to any
vote in addition to his vote as a manager. In the event of a deadlock among the
managers, the matters shall be decided by vote of the Members as set forth in
Article V. The proceedings of meetings of the Board of Managers will be in
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English. Unless otherwise required by applicable law, the official minutes of
meetings and resolutions taken therein shall be kept in English and Spanish,
shall be circulated to all managers before finalization and shall be kept in the
minute books of the Company. If permitted by applicable law, decisions may be
taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.
4.6 Powers of the Board of Managers. Except as otherwise expressly
provided by applicable law or this Agreement, the Board of Managers shall,
consistent with any resolution of the Members Meeting, administer the business
and property of the Company and manage the affairs of the Company and shall have
full authority to do so, provided that its resolutions and acts are consistent
with the Code, this Agreement and the Organizational Documents. Subject to the
foregoing, the functions and powers of the Board of Managers shall include, but
not be limited to:
(a) The appointment or removal of the director of marketing and the
general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or capital
expenditures having a value in excess of $250,000;
(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of $200,000 in the aggregate to
any one Person or its Affiliates;
(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
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<PAGE>
(g) Any declaration by the Company of a default under, any exercise
by the Company of remedies under, or any termination or cancellation
by the Company of, any Project Contract or Financing Agreement; and
(h) The performance of any other acts necessary or appropriate for a
Board of Managers under this Agreement, the Organizational Documents
or the Code.
4.7 Execution of Documents. To be valid and binding, all notes, offers and
acceptances, powers of attorney, commitments, deeds, transfers, assignments,
contracts, obligations, certificates and other instruments of the Company must
be authorized by the Board of Managers. Subject to the Code, this Agreement and
the Organizational Documents, the Board of Managers may delegate such of this
authority and power as it considers appropriate to the director of marketing,
the general manager and other executives of the Company (subject to
authorization and spending limits to be specified by the Board of Managers).
4.8 Compliance. The Members hereby expressly covenant and agree to cause
each manager elected from nominees nominated by it to comply in full with the
provisions of this Agreement, the Organizational Documents, and the Code.
4.9 Remuneration. Remuneration, if any, of the managers shall be as
stipulated by the Members. The reasonable out-of-pocket expenses of such
managers incurred with respect to attendance at meetings of the Board of
Managers shall be reimbursed by the Company.
ARTICLE V
MEETING OF MEMBERS
5.1 Members Meeting. The Members Meeting is the supreme authority of the
Company. The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and Members may attend such meetings by telephone or
videoconference. According to the Code, resolutions may be adopted outside of
Members Meetings by unanimous written consent of all of the Members. An
Ordinary Members Meeting shall be held at least once a year within the four (4)
months following the closing of each fiscal period. Ordinary Members Meetings
may be those called to discuss any of the matters that are not expressly
reserved by this Agreement to the Extraordinary Members Meeting. The matters
reserved for Extraordinary Members Meetings are any matters that are identified
as Extraordinary Resolutions pursuant to Section 5.7 below.
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5.2 Calling a Members Meeting; Agenda. A Members Meeting shall be called
by any Member, the Board of Managers or any other Person authorized under the
Organizational Documents or applicable law. Notice of a Members Meeting shall
be provided in writing by the Company or other applicable Person to each Member
at least 15 Business Days prior to such Members Meeting, unless a longer period
is required by applicable law or unless such
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<PAGE>
requirement is waived by all Members, and any Member that attends a Members
Meeting shall be deemed to have waived any requirement for notice thereof. The
agenda of each meeting shall be included in the notice for such meeting and
shall be established in accordance with the requirements of the Code and the
Organizational Documents, but shall include any matter submitted to the Company
by any Member at least three Business Days prior to the sending of the notice
for such Members Meeting. Unless approved by all Members of the Company, no
matter may be considered at a Members Meeting unless such matter was set forth
in the notice for such Members Meeting.
5.3 Related Matters. The chairman of the Board of Managers shall act as
the chairman of the Members Meeting, and the secretary of the Company shall
serve as secretary of the Members Meeting. In the event that either the
chairman of the Board of Managers or the secretary of the Company are
unavailable to so act, then the chairman and the secretary shall be elected by
the Members (or their representatives) by a majority vote of the total votes of
the Members represented at the relevant meeting. In all instances, the vote
collector shall be elected from among the Members (or their representatives) by
a majority vote of the total votes of the Members represented at the relevant
meeting. Unless otherwise required by applicable law, each Members Meeting
shall be conducted in English, and the minutes of each Members Meeting shall be
prepared in English and Spanish promptly after each meeting, shall be circulated
to all Members before finalization and shall be kept in the minute books of the
Company.
5.4 Quorum for Members Meeting. Unless a higher number is required by
applicable law, a quorum for any Members Meeting shall consist of Members
present or represented by proxy holding more than 75% of the total votes of the
Members, provided that the presence of a quorum shall not modify or lessen the
affirmative vote required by Sections 5.6 and 5.7; and provided, further, that a
--------------------
quorum for a Members Meeting that is held with notice at least five Business
Days following the date that a Members Meeting was properly called pursuant to
Section 5.2 but was not held due to the failure of a quorum shall consist of
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Members present or represented by proxy holding any number of the total votes of
the Members.
5.5 Voting Generally. Each Member shall have one vote for each one Peso
contributed by the Member and its predecessors to the equity of the Company.
Votes shall be cast by written ballot. Members may be represented at Members
Meetings by proxies, the holders of which need not be Members. Proxy holders
that are Members shall be entitled to vote based on the number of votes of the
Members they represent separately, in addition to voting based on their own
number of votes. Proxies shall be issued in accordance with the Code.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
5.6 Ordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Ordinary Members Meeting by the
affirmative vote of Members (or their representatives) representing more than
50% of the total votes of the Members ("Ordinary Resolutions").
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<PAGE>
5.7 Extraordinary Resolutions. Resolutions, actions and decisions of the
Members shall be adopted, taken or made at an Extraordinary Members Meeting by
the affirmative vote of Members (or their representatives) representing 75% or
more of the total votes of the Members with respect to the following matters
("Extraordinary Resolutions"), unless such matters shall have been approved by
the Board of Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company,
or the Transfer during any fiscal year, exceeding an aggregate of
more than 20% of the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than
with respect to the contributions made pursuant to Section 3.2;
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(d) Any proposals for the Company to accept contributions of or
conversions of debt-to-capital from third parties in exchange for
Capital Interests;
(e) Any proposals by a Member to Transfer all of its Capital
Interests or a portion of the Value of its Capital Interest other than
as permitted by this Agreement;
(f) The dissolution of the Company;
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of
the Company's total assets;
(h) The amendment of the Organizational Documents;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10%
or greater equity interest), member of the Board of Managers, officer,
or executive of the Company or a Member (or any individual who is a
member of the immediate family of such manager, officer or executive)
that in the aggregate will have a value during any fiscal year in
excess of $100,000;
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to
such borrowing;
(k) Borrowing for the purpose of accomplishing any matter listed in
Section 5.7; and
-----------
(l) Making payments of liquidating or partially liquidating
dividends.
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<PAGE>
ARTICLE VI
BUY-SELL
6.1 Buy-Sell Notice. If (a) at any time any Member desires to adopt one
or more Extraordinary Resolutions, but approval of the other Member for the
passing of such Extraordinary Resolutions cannot be obtained in accordance with
Article V and (b) such situation continues without resolution for at least 90
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days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice shall
constitute an offer by the Triggering Member either (i) to sell the Capital
Interest of the Triggering Member or (ii) to purchase the Capital Interest of
the Receiving Member, in either case for a cash price in Dollars equal to the
price per one Peso contributed to the equity of the Company (the "Capital
Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice shall be
accompanied by an irrevocable letter of credit issued by a reputable financial
institution in favor of the Receiving Member in the amount of 10% of the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Receiving Member, which letter of credit shall provide
that in the event the Receiving Member elects to sell its Capital Interest and
the Triggering Member for any reason (other than due to the fault of the
Receiving Member or the failure, through no fault of the Receiving Member, to
obtain the consent, if required, of the Lenders) fails to complete the closing
of the transaction within the time period set forth in Section 6.3, then the
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Receiving Member shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of such
period, to draw on the letter of credit and retain the proceeds thereof.
6.2 Actions by Receiving Member. Not later than 30 days after the giving
of the Buy-Sell Notice to the Receiving Member, the Receiving Member shall
notify (the "Response Notice") the other Member whether such Receiving Member
elects (a) to sell or (b) to purchase, in either case at the Capital Interest
Price. Failure to give the Response Notice within such 30-day period shall be
deemed to be an election to sell by the Receiving Member. If the Receiving
Member elects to purchase, the Receiving Member shall be required to purchase
all of the Capital Interest of the Triggering Member and shall include with its
Response Notice the original letter of credit it received from the Triggering
Member and a letter of credit in favor of the Triggering Member substantially as
described in Section 6.1 above (except that the amount of the letter of credit
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shall be measured by reference to the Triggering Member's equity
contributions). If the Receiving Member does not elect to purchase, the
Receiving Member shall sell its Capital Interest to the Triggering Member. In
each case, the sale or purchase of the Capital Interest shall be at the Capital
Interest Price multiplied by the number of whole Pesos contributed to the equity
of the Company by the Member who is selling its Capital Interest.
6.3 Closing. The closing of the sale and purchase in accordance with this
Article VI shall be consummated no later than the first Business Day after 90
- ----------
days after the giving of the
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Response Notice or the deemed election (pursuant to Section 6.2) to sell. Such
-----------
closing shall occur at the head office of the Company unless otherwise agreed,
and at the closing, the Closing Actions shall occur. Any tax withholding
obligations with respect to the Transfers of the Capital Interests imposed by
the laws of Mexico shall be complied with.
ARTICLE VII
COMPETITION
7.1 Competition. The objectives of the Company, in general terms, are the
development, financing, building, ownership and operation of the Project.
Except as set forth below in Section 7.2, no Member or Affiliate of a Member, by
-----------
reason of the Member's participation in the ownership of the Company or the
election of any representative of that Member to the Board of Managers, shall be
precluded in any manner whatsoever from engaging in any other similar or related
activities in Mexico, the United States, or anywhere else, nor shall any Member
or Affiliate of a Member have any obligation, by reason of its participation in
the ownership of the Company or the election of any representative of that
Member to the Board of Managers, to make available to the Company or any of the
other Members or their Affiliates any other opportunity that such Member or its
Affiliates may have to develop, construct, finance or operate any other project.
7.2 Restrictions on Competition. Notwithstanding the provisions in Section
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7.1, no Member or Affiliate of a Member shall directly or indirectly engage in
- ---
the manufacture of shirts, blouses and/or trousers (pants) from woven apparel
fabrics in Mexico.
ARTICLE VIII
TRANSFERS
8.1 Restrictions on Capital Interest Transfers and Encumbrances and New
Issues.
(a) Notwithstanding any other provision of this Agreement, a Transfer
or Encumbrance of Capital Interests or an issuance of new Capital
Interests of the Company may only be made in accordance with the
provisions of this Agreement, the Code, the Organizational Documents
and the Financing Agreements, and any other attempted Transfer,
Encumbrance or issuance shall be void. It shall be a condition to the
Transfer or issuance of Capital Interests to any Person under any
provision hereof that such Person shall agree in writing (i) to be
bound by the provisions of this Agreement and (ii) to assume all
liabilities and obligations of the transferring Member (and Affiliates
thereof) under or with respect to any agreement between or among any
of the Members (or Affiliates thereof) in relation to the Project; and
any Transfer or subscription in respect of which such conditions have
not been satisfied shall be void.
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(b) No Member may Transfer or Encumber its Capital Interest or its
Value in a Capital Interest unless (i) such Transfer is to an
Affiliate of the transferor, (ii) such action is approved by the Board
of Managers in accordance with Section 4.5 herein, or (iii) if such
-----------
action is not so approved by the Board of Managers, such action is
approved by an Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a
Capital Interest hereunder shall take effect as of the date of
registration of such Transfer in the books of the Company, and the
Company shall not register any Transfer that does not comply with this
Article VIII, but the Members and the Board of Managers agree promptly
------------
to take and cause to be taken any action necessary under the
Organizational Documents, this Agreement and applicable law to
effectuate and register any such Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all
bear the following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the
Capital Interest represented by this certificate are
restricted by and subject to the provisions of the
Estatutos of the Company, as well as a certain Members
Agreement, dated January 5, 2000, copies of which may
be reviewed at the Company's head office during
business hours."
8.2 Preferential Purchase Right.
(a) If Zaga or any of its Affiliates desires to Transfer its Capital
Interest and such Transfer has been approved in accordance with the
provisions of Section 8.1, Zaga must first offer Dan River, in
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accordance with the terms of Section 8.2(b), the right to purchase
--------------
from Zaga a portion of Zaga's Capital Interest in an amount sufficient
to provide Dan River with a 50%, but no more and no less than a 50%,
Ownership Percentage in accordance with Section 8.2(b); provided,
--------------
however, that this preferential purchase right shall not apply if Dan
River's Ownership Percentage at the time of the Transfer is less than
37%.
(b) Should Zaga or any of its Affiliates desire to Transfer its
Capital Interest pursuant to an Offer from another Person (the
"Potential Acquirer") and such Transfer is permitted pursuant to the
provisions of Section 8.1, Zaga shall promptly give notice thereof
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(the "Transfer Notice") to the Company and Dan River. The Transfer
Notice shall include a copy of the Offer and shall set forth in
reasonable detail all relevant information with respect to the
proposed Transfer, including the name and address of the Potential
Acquirer, the cash purchase price (expressed in Dollars) per Peso
contributed to the equity of the Company by Zaga (the "Preferential
Purchase Price"), the Capital Interests that are to be the subject of
the Transfer (the "Subject Capital Interests"), and any other terms
and conditions of the proposed Transfer. Dan River shall have the
preferential right to purchase from Zaga a portion of Zaga's Capital
Interest in an amount sufficient to
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provide Dan River with a 50% Ownership Percentage at the Preferential
Purchase Price and on the same material terms and conditions set forth
in the Transfer Notice. Dan River shall have 20 Business Days
following the giving of the Transfer Notice in which to notify Zaga
whether it desires to exercise its preferential right. A notice in
which Dan River exercises such right is referred to herein as an
"Exercise Notice." The Exercise Notice shall be accompanied by an
irrevocable letter of credit issued by a reputable financial
institution in favor of Zaga (or such other instrument or arrangement
reasonably satisfactory to Zaga) in the amount of the Preferential
Purchase Price multiplied by the number of whole Pesos contributed to
the equity of the Company by Zaga times (y) the percentage amount
equal to the positive difference between 50% and the Ownership
Percentage of Dan River immediately prior to the exercise of the
preferential purchase, times (z) 10%, which letter of credit shall
provide that in the event Dan River fails for any reason (other than
due to the fault of Zaga or the failure, through no fault of Zaga, to
obtain any required consent of the Lenders) to complete the closing of
the transaction within the time period set forth in Section 8.2(c),
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then Zaga shall have the right (without limitation to any other remedy
available), for a period of 10 Business Days after the expiration of
such period, to draw on the letter of credit and to retain the
proceeds thereof. If Dan River does not duly exercise such right
during the applicable period, it shall be deemed to have waived such
right.
(c) If the preferential right is exercised in accordance with Section
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8.2(b), the closing of such purchase shall occur at the head office of
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the Company on the first Business Day 120 days after the expiration of
the preferential right period. At the closing, the Closing Actions
shall occur.
(d) If Dan River does not deliver an Exercise Notice or if for any
reason (other than due to the fault of Zaga or the failure of the
Lenders, other than the failure to grant any required consent, to take
any action that prevented the preferential purchase transaction to
close within the time period set forth in Section 8.2(c)) the
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preferential purchase transaction does not close within the time
period set forth in Section 8.2(c), Zaga shall have the right, subject
to compliance with the other provisions of this Article VIII, to
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Transfer the Subject Capital Interests to the Potential Acquirer in
accordance with the terms of the Transfer Notice for a period of 90
days after the expiration of the preferential right period. If,
however, Zaga fails to Transfer the Subject Capital Interests within
such period, the proposed Transfer shall again become subject to the
preferential right set forth in this Section 8.2.
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ARTICLE IX
MANAGEMENT
9.1 Management. The Board of Managers shall appoint the general manager,
the director of marketing, the deputy general manager and the other officers of
the Company. The officers shall be responsible for the day-to-day management
and conduct of the operations of the Company in accordance with powers granted
by the Members Meeting and the Board of Managers from time to time. The duration
of the terms of the general manager, the director of marketing, the deputy
general manager and other officers having authority to sign and execute
documents on behalf of the Company shall not be limited to the term of the
managers.
9.2 Operation of the Project.
(a) The parties to this Agreement, in cooperation with the director
of marketing, will work together to determine the product mix for the
Project. Zaga will provide its help and expertise on all local
matters, including, but not limited to, issues associated with
locating and constructing the Project in Mexico, complying with any
governmental authorities or regulations, and addressing labor issues.
The layout, manning and equipping of the Project will be approved by
the Board of Managers. The efforts of the Members in regard to the
foregoing matters will be subject to the provisions of Section 12.2.
------------
(b) The Project will be managed and operated on a day-to-day basis by
a team hired by the Company and headed by the director of marketing
and the general manager, in accordance with guidelines and reporting
authority established by the Board of Managers.
(c) The Members shall create a task force consisting of one
individual selected by each Member (the "Representatives"). The
Representatives shall be directly responsible for working with the
director of marketing and the general manager to supervise the
construction, equipping and initial operations of the Project during
construction and the first year of the Project's full operation. The
Representatives will work closely with the director of marketing and
the general manager and will have significant approval authority on
behalf of the Members whom they represent. In the event it becomes
necessary to replace the director of marketing or the general manager,
a separate task force will be formed by the Board of Managers in the
manner provided above to recommend candidates to the Board of
Managers.
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ARTICLE X
REPORTING AND INFORMATION
10.1 Accounting; Fiscal Year; Tax Information. The Members shall cause the
Company to keep, in addition to any books and accounts required under the Code,
books and records in accordance with US GAAP and Mexico GAAP applied on a
consistent basis. The Members shall cause the Company to make and keep books,
records, and accounts that, in reasonable detail, accurately and fairly reflect
all of its transactions. The records shall include monthly unaudited financial
reports (including an income statement, balance sheet and statement of cash
flows) prepared in accordance with US GAAP and Mexico GAAP by or under the
supervision of the Company's chief financial officer, which shall be furnished
to each of the Members. The fiscal year of the Company shall be the year ending
December 31. The Members shall cause the Company to furnish to each Member such
information concerning the Company and its operations as is required for each
Member and its Affiliates to prepare their tax returns on a timely basis.
10.2 Annual Financial Statements and Auditing. The books and records of
the Company maintained under Section 10.1 shall be audited annually by Ernst &
------------
Young. The Board of Managers shall direct that the audit be completed on or
before the 90/th/ day following the end of each fiscal year of the Company and
that the auditors provide drafts of the annual financial statements and their
report thereon to each Member prior to finalization thereof. The audit shall be
in accordance with US GAAP and Mexico GAAP applied on a consistent basis. The
audit under this Section 10.2 is in addition to any audit required under the
------------
Code.
10.3 Inspection and Other Information.
(a) Each Member, through its authorized representatives, shall have,
from time to time upon reasonable advance notice, (i) full and
complete access to the managers, officers and employees of the
Company, and (ii) the right, at such Member's expense, (A) to inspect,
copy, audit and retain copies of any Company books and records, (B) to
cause the Company to provide such financial and support information or
information about Project operations in such detail and with such
frequency as such Member reasonably may require, (C) to have the
Company prepare financial statements of the Company, in such manner
and by such date as such Member may reasonably request (in addition to
the financial statements provided for in Sections 10.1 and 10.2), and
----------------------
(D) to inspect the plants, properties and physical assets of the
Company.
(b) All inspection, auditing or other activities conducted by a
Member pursuant to this Section 10.3 shall be conducted so as to not
------------
unreasonably interfere with the conduct of the business of the
Company.
(c) Without limitation, the provisions of Section 12.2 shall be
------------
complied with in connection with actions undertaken pursuant to this
Section 10.3.
------------
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10.4 Reports. In addition to the reports provided for in Sections 10.6 and
-----------------
10.7, the director of marketing and the general manager of the Project shall
- ----
furnish the following monthly reports to the Board of Managers and to the
Members:
(a) income statement, balance sheet and statement of cash flows as
compared to the Annual Business Plan;
(b) competitive position and unfilled order position; and
(c) analysis of variances from the then current Annual Business Plan.
On a quarterly basis, the director of marketing and the general manager of
the Project shall furnish the foregoing information as well as the following
information:
(a) Marketing overview -- current and anticipated product mix,
current market conditions, strategy, organization, competitive
position and unfilled order position;
(b) Manufacturing review -- capital expenditure status, plans and
needs, status of cost reduction programs, variance analysis, safety,
management issues and running conditions;
(c) Financial review -- sales, operating income, working capital
management, and status of systems implementation. The actual and
forecast is to be compared to the Annual Business Plan;
(d) Forecast covering the current and three succeeding quarters;
(e) Analysis of developments in governmental relations concerning the
Project;
(f) Matters requiring action in the immediate future and an analysis
of the status of such matters listed in prior monthly reports;
(g) An overall statement as to the status of the Project, including
with particularity any matters that director of marketing and the
general manager determine should be brought to the attention of the
Managers or Members; and
(h) Any other report reasonably requested by any manager or Member.
10.5 Tax Returns and Partnership Status. Each Member, through its
authorized representatives and at its expense, may review all Mexican income and
other tax returns filed by the Company to comply with Mexican laws. The Members
shall cause the Company to provide to each Member a preliminary copy of all
income tax returns on or before the 30/th/ day prior to the due date of the
returns. Promptly after the filing of any such return with the appropriate
governmental authority, the Members shall cause the Company to provide each
Member with a copy of the return, along with copies of proof of payment remitted
in connection with the return.
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Each Member agrees that the Company will be treated as a partnership for United
States federal income tax purposes and that it will not take any action or omit
to take any action that would cause the Company to be treated differently. For
US federal tax purposes, each Member agrees that it will take such actions as
may be requested by Dan River Inc. from time to time, including the execution
and delivery of a United States Internal Revenue Service Form 8832, in order to
achieve the classification of the Company for such purposes as a partnership,
pursuant to United States Treasury Regulations (S)(S) 301.7701-1 through
301.7701-3.
10.6 Submission of Annual and Three-Year Business Plans. At least ninety
(90) days prior to the end of the calendar year beginning with December 31,
1999, the director of marketing and general manager of the Company shall prepare
a report on the Company's working capital requirements and operating budget for
the succeeding calendar year, which will substantially contain an estimate or
projection of (a) working capital requirements, including breakout of accounts
receivable, inventory, and accounts payable, (b) sources of revenue (by
geographic area, product type, trade areas, or established areas of
distribution), (c) the cost of goods sold, (d) selling, general, and
administrative expense detail, (e) interest expense, (f) an income statement,
balance sheet, and statement of cash flows, all on a quarterly basis, (g)
funding requirements, capital expenditures, and repairs and maintenance expense,
(h) manufacturing objectives, including yield objectives by product type and
planned capacity, (i) distribution objectives, (j) information technology
objectives, (k) engineering objectives, (l) sales plan, (m) marketing plan,
including marketing programs, (n) finance goals, (o) general administrative
goals, and (p) all expenditures proposed to be undertaken by the Company for
such year (the "Annual Business Plan"). Upon preparation of the Annual Business
Plan, the director of marketing and the general manager shall promptly submit
the Annual Business Plan to the Board of Managers for consideration.
Approximately mid-year, beginning in 2000, the director of marketing and the
general manager shall prepare a three year business plan containing essentially
the same elements as are contained in the Annual Business Plan (the "Three-Year
Business Plan").
10.7 Approval of Annual Business Plan and Three-Year Business Plan.
Promptly after receipt of the Annual Business Plan, but in any event not less
than thirty (30) days prior to the end of the fiscal year, the Board of Managers
shall meet to review the Annual Business Plan. Upon such review, the Board of
Managers will vote on the Annual Business Plan. If the Annual Business Plan is
approved, the Annual Business Plan shall become the Company's operating budget
for the succeeding calendar year. If the Annual Business Plan is not approved,
the director of marketing and the general manager will revise the Annual
Business Plan as soon as possible and resubmit it to the Board of Managers for
consideration. The operating budget for the previous calendar year shall
continue to govern the operations of the Company until such time as an Annual
Business Plan is approved by the Board of Managers. Similarly, the Three Year
Business Plan shall be in a form and shall contain information satisfactory to
the Board of Managers.
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ARTICLE XI
RESOLUTION OF DISPUTES
11.1 Conciliation. No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Section 11.1. Each Disputing Party
------------
shall, if requested by another Disputing Party, select and appoint a senior
executive (not concerned with the day-to-day performance of the appointor's
obligations under this Agreement) to serve on a panel seeking to reach mutual
agreement with respect to the applicable Claim. Each such appointment shall be
made by the giving of notice by the appointor to the other Disputing Parties
within ten Business Days of the request for the appointment. The appointees
shall meet and shall endeavor to reach such mutual agreement as soon as
practicable.
11.2 Agreement to Arbitrate. Any and all disputes, including claims,
counterclaims, demands, causes of action, controversies, and other matters in
question arising out of or relating to this Agreement, or the alleged breach
hereof, or in any way relating to the subject matter of this Agreement or the
relationship between the parties created by this Agreement (all of which are
referred to herein as "Claims") between the Members (each a "Disputing Party")
that are not resolved during the 60 day period provided in Section 11.1 shall be
------------
resolved by binding arbitration.
11.3 Appointment of Arbitrators. If no such mutual agreement has been
reached within such 60 day period, then any Disputing Party may refer the claim
to arbitration under the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit
its Request for Arbitration to the ICC and the other Disputing Parties
in accordance with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel
of three arbitrators. One (1) arbitrator shall be nominated by each
Disputing Party in accordance with ICC Rules, and the third arbitrator
shall be nominated by the two (2) ICC-confirmed party-nominated
arbitrators or, failing agreement, shall be appointed by the ICC in
accordance with ICC Rules. Each Disputing Party shall be permitted to
nominate an arbitrator that is of the same nationality as the
Disputing Party making the nomination.
11.4 Authority of the Arbitrators. The validity, construction, and
interpretation of this agreement to arbitrate, and all procedural aspects of the
arbitration conducted pursuant to this agreement to arbitrate, including, but
not limited to, the determination of the issues that are subject to arbitration
(i.e., arbitrability), the scope of the arbitrable issues, allegations of "fraud
in the inducement" to enter into this agreement to arbitrate, allegations of
waiver, laches, delay or other defenses to arbitrability, and the rules
governing the conduct of the arbitration (including the time for filing an
answer, the time for the filing of counterclaims, the times for amending the
17
<PAGE>
pleadings, the specificity of the pleadings, the extent and scope of discovery,
the issuance of subpoenas, the times for the designation of experts, whether the
arbitration is to be stayed pending resolution of related litigation involving
third parties not bound by this agreement to arbitrate, the receipt of evidence,
and the like) shall be decided in accordance with the ICC Rules. However, the
arbitrators shall have absolutely no authority to award treble, exemplary or
punitive damages of any type under any circumstances, regardless of whether such
damages may be available under applicable law; in addition, the arbitrators
shall have no authority to amend, modify, supplement or otherwise change any of
the terms of this Agreement. The Award shall fix the costs of the arbitration
and decide which of the Disputing Parties shall bear them or in what proportion
they shall be borne by the Disputing Parties; provided that each Disputing Party
shall bear its own attorneys' fees, and the arbitrators shall have no authority
to award attorneys' fees.
11.5 Place of Arbitration. The arbitration proceeding shall be conducted
in New York, New York.
11.6 Conduct of the Arbitration. The arbitration shall be conducted by the
arbitrators as expeditiously as possible. The arbitration proceedings and the
award or decision (the "Award") of the arbitrators shall be in English.
11.7 ICC Rules. The arbitration shall be conducted under the ICC Rules.
11.8 Payment of Award. The Award shall be payable in cash in Dollars.
11.9 Finality of the Arbitrators' Award. The arbitrators' Award shall, as
between the Disputing Parties and those in privity with them, be final and
entitled to all of the protections and benefits of a final judgment, e.g., res
judicata (claim preclusion) and collateral estoppel (issue preclusion), as to
all Claims, including compulsory counterclaims, that were or could have been
presented to the arbitrators. The arbitrators' Award shall not be reviewable by
or appealable to any court; provided, however, the Award may be corrected or
interpreted pursuant to the ICC Rules.
11.10 Use of the Courts. It is the intent of the parties that the
arbitration proceeding shall be conducted expeditiously, without initial
recourse to the courts and without interlocutory appeals of the arbitrators'
decisions to the courts. However, if a Disputing Party refuses to honor its
obligations under this agreement to arbitrate, any other Disputing Party may
obtain appropriate relief compelling arbitration in any court having
jurisdiction over the Disputing Parties; the order compelling arbitration shall
require that the arbitration proceedings take place in New York, New York as
specified above. The Disputing Parties may apply to any court having
jurisdiction for orders requiring witnesses to obey subpoenas issued by the
arbitrators. Moreover, any and all of the arbitrators' orders and decisions may
be enforced if necessary by any court having jurisdiction. The arbitrators'
Award may be confirmed in, and judgment upon the Award entered by, any court
having jurisdiction. FOR PURPOSES OF COMPELLING A MEMBER TO HONOR ITS OBLIGATION
TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY CONSENTS AND SUBMITS
UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
OF
18
<PAGE>
COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND IRREVOCABLY WAIVES ANY
PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH PURPOSES.
11.11 Confidentiality. To the fullest extent permitted by applicable law,
the arbitration proceeding and the arbitrators' Award shall be maintained in
confidence by the Disputing Parties. However, a violation of this covenant shall
not affect the enforceability of this agreement to arbitrate or of the
arbitrators' Award.
11.12 Arbitration Provision Enforceable. A Disputing Party's breach of
this Agreement shall not affect this agreement to arbitrate. Moreover, the
parties' obligations under this arbitration provision are enforceable even after
this Agreement has terminated. The invalidity or unenforceability of any
provision of this agreement to arbitrate shall not affect the validity or
enforceability of the Disputing Parties' obligation to submit their Claims to
binding arbitration or the other provisions of this agreement to arbitrate.
ARTICLE XII
OBLIGATIONS OF THE PARTIES
12.1 Observance of Laws.
(a) With respect to all matters and activities relating to the
Project and the Company, each Member shall comply with and shall
cause its Affiliates that are involved in the Project as well as the
Company to comply with all applicable laws, rules, or regulations of
Mexico, and any other jurisdiction that is applicable to the
Company's business and the Members' and their such Affiliates'
activities in connection with the Project. In particular, each
Member agrees that it and its Affiliates, in connection with their
activities in connection with the Company and the Project, will
comply with the United States Foreign Corrupt Practices Act (the
"FCPA"), and the Members shall cause the Company and its employees
to comply with the Dan River Inc. Code of Business Conduct. Each
Member shall comply with, and shall cause its Affiliates and the
Company to comply with all laws applicable to its or their
performance under this Agreement dealing with improper or illegal
payment, gifts, or gratuities. Furthermore, each Member agrees that
it, its Affiliates and the Company will not take any action or fail
to take any action, which act or failure to act would subject any
other Member or any of its Affiliates to liability under the laws of
its country of domicile dealing with improper payments as described
in this Section 12.1.
------------
(b) Each Member agrees that it, its Affiliates or the Company will
obtain the agreement of each consultant or contractor it or, if
applicable, its Affiliates employs in conducting activities for,
related to or on behalf of the Project to
19
<PAGE>
comply with the FCPA, and if the employment cost exceeds $100,000 in
the aggregate, shall obtain written agreement to that effect.
(c) Each Member warrants and represents to the other Members and
the Company that prior to the execution of this Agreement it and its
Affiliates have not taken any action, or failed to take any action,
with respect to the Project that would have violated this Section
-------
12.1 had this Section 12.1 then been in effect.
---- ------------
12.2 Confidentiality.
(a) Subject to the provisions of Section 12.2(c), any and all data,
---------------
plans, customer lists, fabric or garment specifications, proposals,
or other material related to the Company, including the design,
construction, configuration, operation, or financing of the Project,
provided to a Member or any of its Affiliates by or on behalf of the
Company or another Member or Affiliate of a Member in writing and
identified as being confidential shall be used only with regard to
the Project and not for any other purpose and shall be held in
confidence and shall not be disclosed to any third party, except to
attorneys or other consultants or representatives with respect to
the business of the Company who are bound by a comparable
confidentiality agreement or who are bound by a duty of non-
disclosure of confidential information and except as reasonably may
be required in the fulfillment of this Agreement or in connection
with the procurement of financing or the Financing Agreements.
Notwithstanding the foregoing, the obligation of confidentiality
shall not apply to any disclosure (i) of information that is in or
enters the public domain through no fault of the receiving Person,
(ii) of information that was in the possession of the receiving
Person prior to receipt under this Agreement, or (iii) required by
law, regulation, legal process, stock exchange, or order of any
court or governmental body having jurisdiction.
(b) Notwithstanding Section 12.2(a), in the course of an offer to a
---------------
third party to sell its Capital Interest, a Member may disclose
information concerning the Company to the third party, provided:
(i) the Member informs the Company and the other Member of all
information disclosed, and
(ii) information is disclosed only after the third party has
delivered to the Company a written agreement to comply with and
be bound by the provisions of this Section 12.2 as if it were a
------------
Member.
(c) The provisions of this Section 12.2 are intended to benefit,
------------
and to be enforceable by, the Company, each Member and its
Affiliates.
(d) The Members recognize that the Company may enter into more
detailed and encompassing confidentiality agreements with third
parties. Each Member waives any right it may have to examine
information subject to any such
20
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agreement unless and until it enters into an agreement to be bound
by the same restrictions that bind the Company.
12.3 Publicity. To the fullest extent possible in light of any applicable
legal requirements, each Member shall provide the other Member and the Company
with a copy of each public announcement or filing with or notification to any
governmental authority regarding the Company or the Project or identifying any
Member or Affiliate of a Member by name in connection with the Project that the
Company or a Member or Affiliate of a Member, as applicable, intends to make
prior to making it, and shall entertain in good faith suggestions from each
receiving Member and, if applicable, the Company regarding the announcement,
filing or notification. Such announcement, filing or notification shall not be
made without the approval of the Members; provided, that the approval of the
Members shall not be required in the case of announcements, filings or
notifications that are required to be made by applicable stock exchange rules,
or any law or regulation.
ARTICLE XIII
REPRESENTATIONS, WARRANTIES, AND LIABILITIES
13.1 Representations and Warranties. Each Member represents and warrants
to the other Member that:
(a) It is a duly organized, validly existing entity of the type
described in the introductory paragraph of this Agreement and is in
good standing under the laws of the jurisdiction of its formation.
It has all requisite corporate or other applicable power and
authority to own its Capital Interest and to enter into and to
perform its obligations under this Agreement and has obtained (to
the extent applicable law permits the obtaining of same at this
point in time) all permits and approvals from applicable
governmental authorities necessary for it to enter into and to
perform its obligations under this Agreement.
(b) Its execution, delivery, and performance of this Agreement have
been authorized by all necessary action on its part and that of its
equity owners (if required), and do not and will not (i) violate any
law, rule, regulation, order, or decree applicable to it or (ii)
violate its organizational documents.
(c) This Agreement is a legal and binding obligation of that
Member, enforceable against that Member in accordance with its
terms, except to the extent enforceability is modified by
bankruptcy, reorganization and other similar laws affecting the
rights of creditors generally and by general principles of equity.
(d) There is no litigation pending or, to the best of its
knowledge, threatened to which that Member or any of its Affiliates
is a party that could reasonably be expected to have a material
adverse effect on the financial condition, prospects, or
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<PAGE>
business of that Member or its ability to perform its obligations
under this Agreement.
(e) The execution, delivery and performance of this Agreement will
not conflict with, violate or breach the terms of any agreement of
that Member or of any agreement to which its properties are subject.
(f) That Member has provided to other Member, concurrently with the
execution hereof, (i) a balance sheet of that Member as of the date
there indicated (which date is not more than 60 days prior to the
date of this Agreement), and such balance sheet has been prepared in
accordance with US GAAP or Mexico GAAP (except to the extent, if
any, therein otherwise specifically indicated) and presents fairly
the financial condition of that Member as of the date thereof, and
(ii) a certificate setting forth a description in reasonable detail
of all Projects, if any, in existence or in the developmental or
planning phase (A) that may reasonably be considered to be
competitive with the Project and (B) in which that Member or its
Affiliates own an equity interest.
(g) The information set forth in Exhibit D concerning the equity
---------
owners of that Member is true and correct.
13.2 Limitation on Liability. Notwithstanding any other provision of this
Agreement, but without prejudice to the provisions of any other agreement
entered into in connection with the Project, neither a Member nor any of its
Affiliates shall be liable, whether in contract, tort, warranty, negligence,
strict liability, or otherwise, for any special, indirect, incidental, or
consequential damages arising out of or in connection with this Agreement or its
status as a Member or an Affiliate of a Member; provided, however, that
liabilities arising under any of the Project Contracts to which a Member or an
Affiliate of a Member is a party shall be determined in accordance with those
contracts.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Notices. All notices, requests, or consents provided for or
permitted to be given under this Agreement must be in writing and are effective
(a) on actual receipt by the addressee if personally delivered (including
delivery against a written receipt by an internationally recognized courier) to
the address below or (b) on transmission (with written confirmation of receipt,
whether from the transmitter's machine or otherwise) to the addressee if
transmitted by facsimile to the number below during normal business hours of the
addressee on a Business Day (or if transmitted outside such hours, as of the
opening of business of the addressee on the next Business Day):
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To: Zaga at:
Grupo Industrial Zaga
Antigua Carretera Mexico-Queretaro Km. 7074
Edificio A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Attn: Rafael Zaga
Fax: (525) 333-0391
To: Dan River at:
Dan River International Ltd.
c/o Dan River Inc.
1065 Avenue of the Americas
19/th/ Floor
New York, NY 10018 USA
Attn: President, Apparel Fabrics Division
Fax: (212) 554-5711
With copy to:
Dan River Inc.
2291 Memorial Drive
Danville, Virginia 24541 USA
Attn: General Counsel
Fax: (804) 799-7276
To: The Company at:
Fraccionamiento Industrial Jilotepec
Manzana 2, Lote 1
Jilotepec, Estado de Mexico
Mexico
Any Member may change the address or facsimile number to which notices are
to be directed to it by notice to the other Members and the Company in the
manner specified above.
14.2 Governing Law. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
MEMBERS ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, U.S.A. (WITHOUT REFERENCE TO
CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION),
EXCEPT TO THE EXTENT THAT ANY OF THE MATTERS COVERED HEREIN ARE MANDATORILY
GOVERNED BY THE LAWS OF MEXICO IN WHICH CASE
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SUCH MATTERS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
MEXICO (WITHOUT REFERENCE TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD APPLY THE
LAWS OF ANOTHER JURISDICTION).
14.3 Interest. If any amount payable under this Agreement is not paid on
or before the date due, the Person liable for the payment also must pay interest
on the amount not paid from and including the date it was due to but excluding
the date actually paid at a rate per annum equal to the Specified Rate.
14.4 Further Assurances. Each Member shall take all additional actions
and shall execute all other and further deeds and documents as are necessary or
appropriate to give full effect to the provisions of this Agreement. In
addition, the Members shall cause the Company to take all additional actions as
are necessary or appropriate to give full effect to the provisions of this
Agreement.
14.5 No Further Relationship. The Members agree that no Member is the
agent of any other Member and no such Person is authorized to take any action on
behalf of the other, except as expressly provided in this Agreement or a Project
Contract.
14.6 Conflict of Terms. If the terms of this Agreement and the terms of
the Organizational Documents shall conflict, the Members shall endeavor to amend
the Organizational Documents so as to reflect the terms of this Agreement, so
far as permitted by applicable law.
14.7 Assignment. All the terms of this Agreement shall be binding on and
inure to the benefit of the parties, their permitted assigns and successors-in-
interests. Rights under this Agreement may be assigned only in conjunction with
a Transfer of Capital Interests permitted under this Agreement and the
Organizational Documents. It is expressly understood that Dan River intends to
assign its interest in this Agreement to Dan River B.V., a newly formed
corporation organized under the laws of The Netherlands, and that such
assignment is permitted under this Agreement without Zaga's consent. If a
Member ceases to own its Capital Interest in a transaction permitted by this
Agreement, it shall cease to be a party to this Agreement and to have any
liability to the other Member and the Company (except as may be otherwise
provided in the documentation with respect to such transaction); provided,
however, that it shall continue to be bound by the provisions of Sections 12.2,
--------------
12.3 and 13.2 and Article XI, and it shall continue to remain liable for matters
- ------------- ----------
accruing prior to its ceasing to be a Member.
14.8 Specific Performance. The Members acknowledge that the harm that
would be caused by a breach of this Agreement, including, without limitation,
Articles VII and XII, would be difficult, if not impossible, to calculate, and
- --------------------
accordingly the Company, each Member, and its Affiliates shall be entitled to
injunctive relief to compel compliance with the provisions of this Agreement,
but nothing in this Section 14.8 shall amend or modify Article XII in any
------------ -----------
respect.
14.9 Entire Agreement. This Agreement, together with the Exhibits hereto,
constitutes the entire agreement among the Members with respect to the subject
matter of this Agreement
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and supersedes all prior agreements and undertakings, oral or written, between
the Members with respect to the subject matter of this Agreement.
14.10 Amendment. An amendment or modification of this Agreement shall be
effective or binding on the parties only if it is in writing and signed by
Members having the vote to pass an Extraordinary Resolution; provided, however,
that an amendment or modification that alters the voting power of Members under
Article V shall be effective only if signed by all Members; and provided further
- ---------
that a Member's right to receive payments in its capacity as such may be reduced
only with that Member's consent.
14.11 Waivers. Any waiver, express or implied, by any of the Members of
any right under this Agreement or of any breach by another Member shall not
constitute or be deemed as a waiver of any other right or any other breach,
whether of a similar or dissimilar nature to the right or breach being waived. A
waiver of a Member's rights under this Agreement shall be effective only if that
Member agrees.
14.12 No Third Party Beneficiaries. Except as provided in Section 12.2,
------------
this Agreement is solely for the benefit of the Members and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party, including any Lender or
other creditor, any remedy, claim, liability, reimbursement, cause of action or
other right.
14.13 Severability. If any of the provisions of this Agreement are held to
be invalid or unenforceable under the applicable law of any jurisdiction, the
remaining provisions shall not be affected, and any such invalidity or
unenforceability shall not invalidate or render unenforceable that provision in
any other jurisdiction. In that event, the Members agree that the provisions of
this Agreement shall be modified and reformed so as to effect the original
intent of the Members as closely as possible with respect to those provisions
that were held to be invalid or unenforceable.
14.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
constitute but one agreement.
14.15 Interpretation. This Agreement shall be construed without regard to
the identity of the Member or Person who drafted the Agreement, and any rule of
construction that a document is to be construed against the drafting party shall
not be applicable.
14.16 Force Majeure. Neither Member shall be liable or deemed to be in
default on account of any breach of the terms of this Agreement due to a force
majeure event. For purposes of this Agreement, force majeure shall include the
following: acts of God; strikes, lockouts or similar industrial disturbances;
acts of public enemies; orders or restraints of any kind by the government of
Mexico or the United States, or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; war;
insurrections; civil disturbances; riots; lightning; earthquakes; hurricanes;
washouts; arrests; restraints of government and people; explosions; change in
government standards and regulations; or any other cause, circumstance or event
not reasonably within the control of either Member.
25
<PAGE>
[Rest of page purposely left blank]
26
<PAGE>
IN WITNESS WHEREOF, the Members have entered into this Agreement as of the
day and year first above written.
GRUPO INDUSTRIAL ZAGA, S.A. de C.V.
By:______________________________________
Name: Mayer Zaga
Title: President
DAN RIVER INTERNATIONAL LTD.
By:______________________________________
Name:____________________________________
Title:___________________________________
27
<PAGE>
ANNEX A
DEFINITIONS
"Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Agreement" has the meaning set forth in the introductory paragraph.
"Alternate Manager" shall have the meaning set forth in Section 4.2.
-----------
"Annual Business Plan" has the meaning given that term in Section 10.6.
------------
"Award" has the meaning given that term in Section 11.6.
------------
"Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in New York, New York, or Mexico City, Mexico are authorized or
required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Section 6.1.
-----------
"Capital Interest" has the meaning given that term in Section 3.1.
-----------
"Capital Interest Price" has the meaning given that term in Section 6.1.
-----------
"Claims" has the meaning given that term in Section 11.2.
------------
"Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
this Agreement and the Encumbrances provided for in Section 8.1(b), and (b) the
--------------
payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.
"Code" means the General Law of Mercantile Companies of Mexico (Ley General
de Sociedades Mercantiles).
"Commitment Amounts" has the meaning given that term in Section 3.5.
-----------
Annex A
Page 1
<PAGE>
"Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members pursuant to Article II.
----------
"Dan River Inc. Code of Business Conduct" means the code of business
conduct of Dan River Inc. and its Affiliates, as such code may be amended or
modified from time to time.
"Disputing Party" has the meaning given that term in Section 11.2.
------------
"Dollars" or "$" means freely transferable lawful money of the United
States of America.
"Dollar Amounts" has the meaning given that term in Section 3.4.
-----------
"Dan River" has the meaning given such term in the introductory paragraph
of this Agreement.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.
"Exercise Notice" has the meaning given that term in Section 8.2(b).
--------------
"Extraordinary Resolutions" has the meaning given that term in Section 5.7.
-----------
"Extraordinary Members Meeting" has the meaning given that term in Section
-------
5.1.
- ---
"Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement or pursuant to Article VIII.
------------
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.
"FCPA" has the meaning given that term in Section 12.1.
------------
"US GAAP" means generally accepted accounting principles in the United
States.
"ICC" means the Court of Arbitration of the International Chamber of
Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.
"Lenders" means the Persons providing loans or credit under the Financing
Agreements.
Annex A
Page 2
<PAGE>
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company, conducted
pursuant to this Agreement, the Organizational Documents and the Code, including
any Ordinary Members Meeting and Extraordinary Members Meeting.
"Mexico" means the United Mexican States.
"Mexico GAAP" means generally accepted accounting principles in Mexico.
"Offer" means a bona fide written offer.
"Ordinary Resolutions" has the meaning given that term in Section 5.6.
-----------
"Ordinary Members Meeting" has the meaning given that term in Section 5.1.
-----------
"Organizational Documents" means the Company's charter/bylaws (estatutos)
as further described in Section 2.1. Upon formation of the Company, the
-----------
Ownership Percentage of each Member shall be as set forth in Exhibit C.
---------
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Section 8.2(b).
--------------
"Preferential Purchase Price" has the meaning given that term in Section
-------
8.2(b).
- ------
"Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of finished garments, and the sale of such finished garments to
garment retailers and other sectors, including, without limitation, the
development, financing, construction, ownership, maintenance, and operation of
such facility and the sale and marketing of products thereof by or on behalf of
the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) Any agreement with an Affiliate pertaining to the leasing or
purchase of real estate, construction of Project facilities,
employment or labor matters;
Annex A
Page 3
<PAGE>
(b) the agreement or agreements under which the Company will acquire
title to the sites for the Project or will be granted leasehold title
to those sites; and
(c) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Section 6.1.
-----------
"Regular Meetings" has the meaning given that term in Section 4.4.
-----------
"Representatives" has the meaning given that term in Section 9.2(c).
--------------
"Request for Arbitration" has the meaning given that term in Section 11.3
(a).
"Response Notice" has the meaning given that term in Section 6.2.
-----------
"Special Meetings" has the meaning given that term in Section 4.4.
-----------
"Specified Rate" means, for any period for which interest is to be
calculated, a rate of interest per annum for each day during that period equal
to 4% per annum over the three-month London Interbank Offered Rate for Dollars
quoted in The Wall Street Journal for that day (or if not published that day,
the next preceding day on which it is published), or if a range is quoted, the
midpoint of that range.
"Subscriptions" has the meaning given that term in Section 3.4.
-----------
"Subject Capital Interests" has the meaning given that term in Section
-------
8.2(b).
- ------
"Three-Year Business Plan" has the meaning given that term in Section 10.6.
------------
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.
"Transfer Notice" has the meaning given that term in Section 8.2(b).
--------------
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates; thus, as of the date hereof the Ultimate Parent of Zaga is Zaga (as
no Affiliate controls Zaga) and the Ultimate Parent of Dan River is Dan River
Inc.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
"Zaga" has the meaning given such term in the introductory paragraph of
this Agreement.
Annex A
Page 4
<PAGE>
EXHIBIT A
---------
[Dan River Letterhead]
January 5, 2000
Grupo Industrial Zaga, S.A. de C.V.
Antigua Carretera Mexico-Queretaro Km. 7074
Edificia A-P.B.: Interior 19
Colonia San Mateo 2/nd/ Secc.
Tepeji del Rio de Ocampo, Hidalgo, Mexico
C.P. 42850
Re: Allocation of Selling, General and Administrative Expenses
Dear Sirs:
Reference is made to that certain Members Agreement dated as of January 5,
2000 between Grupo Industrial Zaga, S.A. de C.V. ("Zaga") and Dan River
International Ltd. ("DRIL") with respect to the ownership and management of
DanZa Textil, S. de R.L. de C.V. ("Danza") and that certain Members Agreement
dated as of January 5, 2000 between Zaga and DRIL with respect to the ownership
and management of Zadar, S. de R.L. de C.V. ("Zadar"). The purpose of this
letter agreement (the "Agreement") is to set out the understanding between Zaga
and Dan River Inc. ("DR") regarding the allocation of the selling, general and
administrative ("S, G & A") expenses of DR and Zaga, and their respective
affiliates, that are chargeable to Danza and Zadar. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
aforementioned Members Agreements.
The S, G & A expenses of DR and its Affiliates will be allocated to and
paid by Danza and Zadar to DR with respect to any fiscal year of DR in an amount
equal to: 10% of Danza's annual net sales, plus 0.5% of Zadar's annual net
sales, the total of which shall not exceed an amount equal to the product of
DR's actual annual divisional S, G & A expenses for its Apparel Fabrics Division
(excluding sample layout, dye lab and color matching expense) times a percentage
-----
equal to Danza's annual net sales divided by total Apparel Fabrics Division
----------
annual net sales plus an allocation of $2.4 million Dollars for DR's corporate
----
S, G & A/1/; provided, however, to the extent Danza's annual operating income
-----------------
(earnings before interest and taxes) exceeds 10% of its annual net sales, DR may
charge an additional amount of corporate S G & A expenses up to an additional
$1.1 million Dollars, to the extent that such additional allocation does not
cause Danza's annual operating income as a percentage of its annual net sales to
drop below 10%. An example of the foregoing calculation is attached.
Notwithstanding the foregoing, it is understood that the allocation of
divisional S, G & A expenses shall not be
___________________
/1/ DR will allocate corporate S,G & A to the Apparel Fabrics Division based on
its cost of sales compared to DR's total cost of sales, calculated on a basis
consistent with prior practice. Danza will receive a proportionate part of that
allocation based on Danza's sales compared to total Apparel Fabrics Division's
sales, not to exceed $2.4 million Dollars or $3.5 million Dollars, as determined
herein.
Exhibit A
Page 1
<PAGE>
increased based upon reductions in DR's U.S. apparel fabrics sales, unless such
reductions result primarily from transfer of DR's production capacity to Danza.
DR agrees that it will make reasonable commercial efforts to limit increases in
the Apparel Fabrics Division's S, G & A expense over time.
It is further agreed that the S, G & A expenses of Zaga will be allocated
to and paid by Zadar and Danza with respect to any fiscal year of Zaga in an
amount equal to 3.5% of Zadar's annual net sales, plus 0.7% of Danza's annual
net sales, provided that the total amount of such allocation shall not exceed
$1.5 million Dollars. Examples of the calculations described above are attached.
The amounts owed will be paid to DR and Zaga, as the case may be, as soon
as practicable following the end of each of Danza's and Zadar's fiscal quarters,
and in any event within 30 Days thereof. All payments shall be made in U.S.
Dollars.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided, that it is
understood that in the event either Members Agreement referenced above is
terminated as provided therein, each of the obligations set forth herein shall
be terminated, and no party shall have any further obligation to the other
thereafter, other than with respect to any obligations that have accrued to the
date of termination. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, U.S.A.,
without reference to the conflicts of laws principles that would apply the laws
of another jurisdiction. In addition, the provisions of Article XI of the
aforementioned Members Agreements are hereby incorporated mutatis mutandi. This
Agreement may be modified or supplemented only by written agreement of the
parties hereto.
Signed:
Dan River Inc.
By:_______________________
Name:_____________________
Title:____________________
Acknowledged and agreed to:
Grupo Industrial Zaga, S.A. de C.V.
By:___________________________
Mayer Zaga
President
Exhibit A
Page 2
<PAGE>
CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
CORPORATE & DIVISIONAL SG&A
<TABLE>
<CAPTION>
EXAMPLE 1 $ MILLIONS
<S> <C>
Danza Sales 65.0
Zadar Sales 15.0
Danza Operating Inc. (EBIT) 5.0
Dan River AF Sales 140.0
Dan River AF Divisional SG&A 14.2
Sample, layout, dye lab & color matching 2.6
Danza Sales 65 = 46.4% Allocable %
---
Dan River AF Sales 140
Dan River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
------
Actual Dan River Divisional SG&A 11.6 MM
(Allocable %) X 46.4 %
------
5.38 MM
Corp. SG&A + 2.40 MM
-------
7.78 MM
vs.
65.0 MM
Danza Sales X 10.0 %
------
6.5 MM
15.0 MM
Zadar Sales X 0.5 %
------
0.075 MM
</TABLE>
Dan River SG & A allocated to Danza and Zadar is $6.575 MM because $7.78 MM is
greater than the sum of 10.0% of Danza sales and 0.5% of Zadar sales.
Exhibit A
Page 3
<PAGE>
CALCULATION OF THE ALLOCATION OF DAN RIVER (US)
CORPORATE & DIVISIONAL SG&A
<TABLE>
<CAPTION>
EXAMPLE 2 $ MILLIONS
<S> <C>
Danza Sales 150.0
Zadar Sales 50.0
Danza Operating Inc. (EBIT) 14.5
Dan River AF Sales 250.0
Dan River AF Divisional SG&A 14.2
Sample, layout expense 2.6
Danza Sales 150 = 60.0% Allocable %
---
Dan River AF Sales 250
Dan River AF Divisional SG&A 14.2 MM
Less Sample Layout etc. 2.6 MM
---------
Actual Dan River Divisional SG&A 11.6 MM
(Allocable %) X 60.0 %
---------
8.52 MM
Corp. SG&A + 2.40 MM
---------
10.92 MM
Total 10.92 MM
</TABLE>
10.92 SG&A = 7.28% (less than 10.0% of Danza sales
-----
150 Danza Sales and 0.5% of Zadar sales so full
so full amount allowed)
Exhibit A
4
<PAGE>
EXHIBIT B
---------
ZADAR, S. DE R.L. DE C.V.
CHAPTER I
NAME, DOMICILE, PURPOSE AND DURATION
FIRST.- The name of the Company is ZADAR. This denomination shall always
be followed by the words "SOCIEDAD DE RESPONSABILIDAD LIMITADA DE CAPITAL
VARIABLE" or their abbreviation "S. DE R.L. DE C.V."
SECOND.- The domicile of the Company is Jilotepec, State of Mexico, Mexico,
but the Company may establish agencies or branches elsewhere in Mexico and
designate conventional domiciles for the execution of specific acts and
contracts.
THIRD.- The purposes of the Company are:
(a) To develop, finance, build, own and operate a manufacturing plant at a
location to be selected by the Board of Managers in Mexico, and to engage in
manufacturing operations, primarily for the manufacture of finished garments,
and the sale of such finished garments to garment retailers and other sectors.
(b) To establish agencies or branches in Mexico.
(c) To render technical, professional, administrative and consultant
services related to the purpose, as well as to hire workers, technicians,
distributors and administrative personnel.
(d) To acquire, hold and dispose of, in any legal manner, all kinds of
shares, capital interests or participations in other corporations or
associations, whether of a civil or mercantile nature, consistent with these
corporate purposes.
(e) To acquire, own, lease, encumber and transfer in any legal manner such
real or personal properties as may be required by or convenient for the
corporate purpose.
(f) To represent all kinds of companies and individuals within or outside
of Mexico as agent, commission agent, representative or attorney-in-fact.
(g) To lend and borrow money with or without mortgage or pledge security
or in any other legal manner and to guarantee the obligations of third persons
by means of bond, mortgage, pledge, or otherwise.
(h) To sign and grant all kinds of credit instruments and other documents
and contracts of indebtedness and to guarantee the payment thereof in any legal
manner.
Exhibit B
1
<PAGE>
(i) To acquire and dispose of in any legal manner such patents, patent
rights, inventions, trade-marks, copyrights and trade names as may be required
or convenient for attainment of the corporate purpose.
(j) To render any and all services whether of a civil, administrative or
mercantile nature relating to the corporate purpose.
(k) Such other activities as are lawful and approved by an Extraordinary
Resolution of the Members.
(l) In general, to carry out and perform any and all business or
activities relating to the corporate purpose.
FOURTH.- The term of duration of the Company shall be undefined from the
date of these by-laws.
CHAPTER II
CAPITAL AND CAPITAL INTERESTS
FIFTH.- The capital of the Company shall be variable. The Company shall
have a minimum fixed capital of $3,000 (THREE THOUSAND PESOS 00/100). Each
Member shall own one capital interest (parte social) ("Capital Interest"), which
initially shall have the value set forth in the transitory clauses. All
additional equity contributions in excess of the minimum fixed capital amount
shall constitute the variable capital of the Company, which shall have an
unlimited maximum and shall cause an increase in the Value of the Capital
Interest of such contributing Member by the amount of equity so contributed.
The Value of a Capital Interest shall always represent a multiple of one Peso.
(a) Subject to the Equity Contribution Agreement signed by the Members,
each Member shall be required, severally and not jointly, to make equity
contributions to provide its pro rata portion of the funds necessary to fund the
Company; provided that in no event shall any Member be required to make equity
contributions in excess of US$6,000,000 (SIX MILLION DOLLARS 00/100). Each time
that such equity contributions are to be made, they shall be made by all Members
on the same day pro rata in accordance with their Ownership Percentages.
(b) The Members shall authorize and cause the Company to increase the
capital of the Company to correspond to the amounts required to be contributed
from time to time in accordance with paragraph (a) above. The Company shall
register in its books any increase in the Value of a Member's Capital Interest
based on and corresponding to the amounts so contributed.
Exhibit B
2
<PAGE>
(c) If one Member fails or refuses to provide funds as required by this
Clause Fifth, and such failure or refusal continues for five Business Days after
receipt by such Member of notice thereof from the other Member, the other Member
may at its option provide such funds, and the Member providing such funds shall
have the Value of its Capital Interest increased accordingly.
(d) Upon any decision of the Members to increase the capitalization of the
Company, except for increases pursuant to paragraphs (a), (b) and (c) above,
each Member shall have the right to subscribe for such increase pro rata based
on such Member's Ownership Percentage. If any Member fails to subscribe or pay
for the pro rata portion to which it is entitled, the other Member may take up
the unsubscribed or unpaid portion.
The funding needs of the Company to be provided by the Members shall be
denominated in Dollars, and the commitment of the Members to fund such needs
shall be made in Dollars (the "Commitment Amounts"). Notwithstanding the
foregoing, the amount of any equity contributions to the Company, and the
subscriptions of the Members in respect thereof, shall be denominated and paid
in Pesos (the "Subscriptions"), it being understood that foreign capital
contributed by the Members shall be converted to Pesos at the prevailing rate of
exchange published by the Banco de Mexico in the Official Daily Gazette (Diario
Oficial). Equity capital thus paid to the Company shall then be converted to
Dollars (the "Dollar Amounts"). To the extent that any Dollar Amount realized
by the Company in connection with any Subscription shall be less than the
relevant Commitment Amount, additional equity increases shall be made and the
Members shall subscribe for such increases and effect payment in connection
therewith until the Company shall have realized Dollar Amounts that are not less
than the Commitment Amounts.
SIXTH.- The Capital Interests which represent the capital shall be of free
subscription and may be subscribed or acquired by Mexican or foreign
individuals, companies or economic entities. The Capital Interests shall be
represented by certificates, which shall not be negotiable instruments.
The certificates shall be printed and cover one Capital Interest; they
shall be numbered consecutively and shall bear the autograph signatures of the
chairman and of the secretary of the Board of Managers. The certificates shall
contain the name, nationality and domicile of the Member, all the information
regarding the incorporation of the Company, the total capital and the capital
contribution. In addition, Clauses Fifth, Sixth, Seventh and Thirty-fourth of
these by-laws shall be transcribed on the certificates. Save in the case of
legal issuance of more than one series for reasons of preferential rights of
different participation in dividends or other reasons, Capital Interests will
confer on their holders the same rights and impose the same obligations.
SEVENTH.- The Company shall deem as owner of Capital Interests any person
who is registered as such in the Capital Interest register to be kept by the
Company.
Exhibit B
3
<PAGE>
(a) Notwithstanding any other provision of these by-laws, a Transfer or
Encumbrance of Capital Interests or an issuance of new Capital Interests of the
Company may only be made in accordance with the provisions of these by-laws, the
General Law of Commercial Companies and the Financing Agreements, and any other
attempted Transfer, Encumbrance or issuance shall be void. It shall be a
condition to the Transfer or issuance of Capital Interests to any Person under
any provision hereof that such Person shall agree in writing (i) to be bound by
the provisions of these by-laws and (ii) to assume all liabilities and
obligations of the transferring Member (and Affiliates thereof) under or with
respect to any agreement between or among any of the Members (or Affiliates
thereof) in relation to the Project; and any Transfer or subscription in respect
of which such conditions have not been satisfied shall be void.
(b) No Member may Transfer or Encumber its Capital Interest or its Value
in a Capital Interest unless (i) such Transfer is to an Affiliate of the
transferor, (ii) such action is approved by the Board of Managers in accordance
with Clause Twenty-third herein, or (iii) if such action is not so approved by
the Board of Managers, such action is approved by an Extraordinary Resolution.
(c) Any Transfer of a Capital Interest or of a Member's Value in a Capital
Interest hereunder shall take effect as of the date of registration of such
Transfer in the books of the Company, and the Company shall not register any
Transfer that does not comply with this Clause Seventh, but the Members and the
Board of Managers agree promptly to take and cause to be taken any action
necessary under these by-laws and applicable law to effectuate and register any
such Transfer that does so comply.
(d) The certificates representing the Capital Interests shall all bear the
following legend in English and in Spanish:
"The transfer or encumbrance in any manner of the Capital Interest
represented by this certificate are restricted by and subject to the
provisions of the Estatutos of the Company, as well as a certain Members
Agreement, dated January 5, 2000, copies of which may be reviewed at the
Company's head office during business hours."
EIGHTH.-
(a) If a Member owning more than 50% of the capital of the Company or any
of its Affiliates desires to Transfer its Capital Interest (the "Transferor")
and such Transfer has been approved in accordance with the provisions of Clause
Seventh, the Transferor must first offer to the other Member (the "Transferee"),
in accordance with the terms of paragraph (b) below, the right to purchase from
the Transferor a portion of the Transferor's Capital Interest in an amount
sufficient to provide the Transferee with a 50%, but no more and no less than a
50%, Ownership Percentage in accordance with paragraph (b) below; provided,
however, that this preferential purchase right shall not apply if the
Transferee's Ownership Percentage at the time of the Transfer is less than 37%.
Exhibit B
4
<PAGE>
(b) Should a Member owning more than 50% of the capital of the Company or
any of its Affiliates desire to Transfer its Capital Interest (the "Transferor")
pursuant to an Offer from another Person (the "Potential Acquirer") and such
Transfer is permitted pursuant to the provisions of Clause Seventh, the
Transferor shall promptly give notice thereof (the "Transfer Notice") to the
Company and the Transferee. The Transfer Notice shall include a copy of the
Offer and shall set forth in reasonable detail all relevant information with
respect to the proposed Transfer, including the name and address of the
Potential Acquirer, the cash purchase price (expressed in Dollars) per Peso
contributed to the equity of the Company by the Transferor (the "Preferential
Purchase Price"), the Capital Interests that are to be the subject of the
Transfer (the "Subject Capital Interests"), and any other terms and conditions
of the proposed Transfer. The Transferee shall have the preferential right to
purchase from the Transferor a portion of the Transferor's Capital Interest in
an amount sufficient to provide the Transferee with a 50% Ownership Percentage
at the Preferential Purchase Price and on the same material terms and conditions
set forth in the Transfer Notice. The Transferee shall have 20 Business Days
following the giving of the Transfer Notice in which to notify the Transferor
whether it desires to exercise its preferential right. A notice in which the
Transferee exercises such right is referred to herein as an "Exercise Notice."
The Exercise Notice shall be accompanied by an irrevocable letter of credit
issued by a reputable financial institution in favor of the Transferor (or such
other instrument or arrangement reasonably satisfactory to the Transferor) in
the amount of the Preferential Purchase Price multiplied by the number of whole
Pesos contributed to the equity of the Company by the Transferor times (y) the
percentage amount equal to the positive difference between 50% and the Ownership
Percentage of the Transferee immediately prior to the exercise of the
preferential purchase, times (z) 10%, which letter of credit shall provide that
in the event the Transferee fails for any reason (other than due to the fault of
the Transferor or the failure, through no fault of the Transferor, to obtain any
required consent of the Lenders) to complete the closing of the transaction
within the time period set forth in paragraph (c) below, then the Transferor
shall have the right (without limitation to any other remedy available), for a
period of 10 Business Days after the expiration of such period, to draw on the
letter of credit and to retain the proceeds thereof. If the Transferee does not
duly exercise such right during the applicable period, it shall be deemed to
have waived such right.
(c) If the preferential right is exercised in accordance with paragraph
(b) above, the closing of such purchase shall occur at the head office of the
Company on the first Business Day 120 days after the expiration of the
preferential right period. At the closing, the Closing Actions shall occur.
(d) If the Transferee does not deliver an Exercise Notice or if for any
reason (other than due to the fault of the Transferor or the failure of the
Lenders, other than the failure to grant any required consent, to take any
action that prevented the preferential purchase transaction to close within the
time period set forth in paragraph (c) above) the preferential purchase
transaction does not close within the time period set forth in paragraph (c)
above, the Transferor shall have the right, subject to compliance with the other
provisions of these by-laws, to Transfer
Exhibit B
5
<PAGE>
the Subject Capital Interests to the Potential Acquirer in accordance with the
terms of the Transfer Notice for a period of 90 days after the expiration of the
preferential right period. If, however, the Transferor fails to Transfer the
Subject Capital Interests within such period, the proposed Transfer shall again
become subject to the preferential right set forth in this Clause Eighth.
NINTH.- The variable capital of the Company may be increased or reduced
without need of amending these by-laws. The only formality required for said
increase or reduction will be the approval by the Members in an Extraordinary
Meeting other than with respect to contributions made pursuant to Clause Fifth
(a), (b) and (c). Every increase or reduction of the capital of the Company
shall be recorded in a Capital Interest register kept for such purpose by the
Company.
(a) Capital increases. In a capital increase the Members shall have the
preferential right to subscribe in accordance with Clause Fifth. No capital
increase may be declared until the previous increase has been fully paid for.
(b) Capital reductions. Reductions of the capital of the Company shall be
carried out by reimbursement to the Members.
The Members shall have the right to withdraw all or any part of their
contributions, and obtain reimbursement, in accordance with Articles 220 and 221
of the General Law of Commercial Companies, provided they so notify the Company
five years in advance, unless the Members agree to a shorter notice.
Reimbursement shall be made in proportion to the net worth of the Company in
accordance with the last approved balance sheet.
CHAPTER III
MEMBERS MEETINGS
TENTH.- The Members Meeting is the supreme authority of the Company.
Subject to the terms of the by-laws, the Members Meeting may adopt all kinds of
resolutions and appoint and remove any officer. Its resolutions shall be
enforced by the Board of Managers or the person or persons expressly designated
therefore by the Members.
Every Member as such submits and is subject to the stipulations of these
by-laws and the resolutions duly adopted by the Members in a Members Meeting or
by the Board of Managers.
The resolutions of the Members shall be binding even on absentees or
dissenters except for the right of opposition provided in the General Law of
Commercial Companies.
The Members Meeting may be ordinary (an "Ordinary Members Meeting") or
extraordinary (an "Extraordinary Members Meeting"), depending on the matters to
be discussed at each meeting. Members Meetings shall be held at the corporate
domicile of the Company and
Exhibit B
6
<PAGE>
Members may attend such meetings by telephone or . According to the General Law
of Commercial Companies, resolutions may be adopted outside of Members Meetings
by unanimous written consent of all of the Members. An Ordinary Members Meeting
shall be held at least once a year within the four (4) months following the
closing of each fiscal period. Ordinary Members Meetings may be those called to
discuss any of the matters that are not expressly reserved by these by-laws to
the Extraordinary Members Meeting. The matters reserved for Extraordinary
Members Meetings are any matters that are identified as Extraordinary
Resolutions pursuant to Clause Fifteenth below.
ELEVENTH.- A Members Meeting shall be called by any Member, the Board of
Managers or any other Person authorized under applicable law. Notice of a
Members Meeting shall be provided in writing by the Company or other applicable
Person to each Member at least 15 Business Days prior to such Members Meeting,
unless a longer period is required by applicable law or unless such requirement
is waived by all Members, and any Member that attends a Members Meeting shall be
deemed to have waived any requirement for notice thereof. The notice shall be
published in a newspaper of wide circulation in the Company's domicile and by
means of a notice sent by fax and confirmed by air mail confirmed receipt or
courier addressed to each Member at his domicile or to the place that he may
have designated for such purpose. The notice shall set forth the hour, date and
place of the Meeting and the agenda, and shall be signed by the person issuing
the notice. The notice shall include any matter submitted to the Company by any
Member at least three Business Days prior to the sending of the notice for such
Members Meeting. Unless approved by all Members of the Company, no matter may be
considered at a Members Meeting unless such matter was set forth in the notice
for such Members Meeting.
No notice shall be required in the case that a duly convened Members
Meeting is to be continued, provided that when the Members Meeting was
postponed, the date and hour for its continuation were determined.
TWELFTH.- The chairman of the Board of Managers shall act as the chairman
of the Members Meeting, and the secretary of the Company shall serve as
secretary of the Members Meeting. In the event that either the chairman of the
Board of Managers or the secretary of the Company are unavailable to so act,
then the chairman and the secretary shall be elected by the Members (or their
representatives) by a majority vote of the total votes of the Members
represented at the relevant meeting. In all instances, the vote collector shall
be elected from among the Members (or their representatives) by a majority vote
of the total votes of the Members represented at the relevant meeting. Unless
otherwise required by applicable law, each Members Meeting shall be conducted in
English, and the minutes of each Members Meeting shall be prepared in English
and Spanish promptly after each meeting, shall be circulated to all Members
before finalization and shall be kept in the minute books of the Company.
THIRTEENTH.- Unless a higher number is required by applicable law, a
quorum for any Members Meeting shall consist of Members present or represented
by proxy holding more than 75% of the total votes of the Members, provided that
the presence of a quorum shall not modify
Exhibit B
7
<PAGE>
or lessen the affirmative vote required by Clauses Fourteenth and Fifteenth; and
provided, further, that a quorum for a Members Meeting that is held with notice
at least five Business Days following the date that a Members Meeting was
properly called pursuant to Clause Eleventh but was not held due to the failure
of a quorum shall consist of Members present or represented by proxy holding any
number of the total votes of the Members.
Each Member shall have one vote for each one Peso contributed by the Member
and its predecessors to the equity of the Company. Votes shall be cast by
written ballot. Members may be represented at Members Meetings by proxies, the
holders of which need not be Members. Proxy holders that are Members shall be
entitled to vote based on the number of votes of the Members they represent
separately, in addition to voting based on their own number of votes. Proxies
shall be issued in accordance with the General Law of Commercial Companies.
Resolutions may be approved by the Members without a meeting if the resolution
is submitted in writing to each Member and each such Member consents in writing
to such resolution.
FOURTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Ordinary Members Meeting by the affirmative vote of
Members (or their representatives) representing more than 50% of the total votes
of the Members ("Ordinary Resolutions").
FIFTEENTH.- Resolutions, actions and decisions of the Members shall be
adopted, taken or made at an Extraordinary Members Meeting by the affirmative
vote of Members (or their representatives) representing 75% or more of the total
votes of the Members with respect to the following matters ("Extraordinary
Resolutions"), unless such matters shall have been approved by the Board of
Managers or are required by law to be approved of by the Members:
(a) Any merger, consolidation or similar amalgamation of the Company, or
the Transfer during any fiscal year, exceeding an aggregate of more than 20% of
the Fair Market Value of the Company's total assets;
(b) The appointment or removal of auditors;
(c) Any proposal for additional contributions of capital, other than with
respect to the contributions made pursuant to Clause Fifth (a), (b) and (c);
(d) Any proposals for the Company to accept contributions of or
conversions of debt-to-capital from third parties in exchange for Capital
Interests;
(e) Any proposals by a Member to Transfer all of its Capital Interests or
a portion of the Value of its Capital Interest other than as permitted by these
by-laws;
(f) The dissolution of the Company;
Exhibit B
8
<PAGE>
(g) Any acquisitions or capital expenditures during any fiscal year
exceeding an aggregate of more than 20% of the Fair Market Value of the
Company's total assets;
(h) The amendment of these by-laws;
(i) Entering into a transaction or series of transactions with any
Affiliate (or any Person in which a Member or its Affiliate has a 10% or greater
equity interest), member of the Board of Managers, officer, or executive of the
Company or a Member (or any individual who is a member of the immediate family
of such manager, officer or executive) that in the aggregate will have a value
during any fiscal year in excess of US$100,000 (ONE HUNDRED THOUSAND DOLLARS
00/100);
(j) Incurring additional indebtedness if the ratio of debt to total
capitalization of the Company would exceed 60% after giving effect to such
borrowing;
(k) Borrowing for the purpose of accomplishing any matter listed in this
Clause; and
(l) Making payments of liquidating or partially liquidating dividends.
SIXTEENTH.- If (a) at any time any Member desires to adopt one or more
Extraordinary Resolutions, but approval of the other Member for the passing of
such Extraordinary Resolutions cannot be obtained in accordance with Clause
Fifteenth and (b) such situation continues without resolution for at least 90
days (during which period the Members shall conduct good faith negotiations and
discussions, which shall include, without limitation, a requirement of a face to
face meeting of the chief executive officers of the respective Member's Ultimate
Parents), then any Member (the "Triggering Member") may, at any time thereafter
while such situation continues without resolution, send a notice (the "Buy-Sell
Notice") to the other Member (the "Receiving Member"). The Buy-Sell Notice
shall constitute an offer by the Triggering Member either (i) to sell the
Capital Interest of the Triggering Member or (ii) to purchase the Capital
Interest of the Receiving Member, in either case for a cash price in Dollars
equal to the price per one Peso contributed to the equity of the Company (the
"Capital Interest Price") set forth in the Buy-Sell Notice. The Buy-Sell Notice
shall be accompanied by an irrevocable letter of credit issued by a reputable
financial institution in favor of the Receiving Member in the amount of 10% of
the Capital Interest Price multiplied by the number of whole Pesos contributed
to the equity of the Company by the Receiving Member, which letter of credit
shall provide that in the event the Receiving Member elects to sell its Capital
Interest and the Triggering Member for any reason (other than due to the fault
of the Receiving Member or the failure, through no fault of the Receiving
Member, to obtain the consent, if required, of the Lenders) fails to complete
the closing of the transaction within the time period set forth in Clause
Eighteenth, then the Receiving Member shall have the right (without limitation
to any other remedy available), for a period of 10 Business Days after the
expiration of such period, to draw on the letter of credit and retain the
proceeds thereof.
Exhibit B
9
<PAGE>
SEVENTEENTH.- Not later than 30 days after the giving of the Buy-Sell
Notice to the Receiving Member, the Receiving Member shall notify (the "Response
Notice") the other Member whether such Receiving Member elects (a) to sell or
(b) to purchase, in either case at the Capital Interest Price. Failure to give
the Response Notice within such 30-day period shall be deemed to be an election
to sell by the Receiving Member. If the Receiving Member elects to purchase,
the Receiving Member shall be required to purchase all of the Capital Interest
of the Triggering Member and shall include with its Response Notice the original
letter of credit it received from the Triggering Member and a letter of credit
in favor of the Triggering Member substantially as described in Clause Sixteenth
above (except that the amount of the letter of credit shall be measured by
reference to the Triggering Member's equity contributions). If the Receiving
Member does not elect to purchase, the Receiving Member shall sell its Capital
Interest to the Triggering Member. In each case, the sale or purchase of the
Capital Interest shall be at the Capital Interest Price multiplied by the number
of whole Pesos contributed to the equity of the Company by the Member who is
selling its Capital Interest.
EIGHTEENTH.- The closing of the sale and purchase in accordance with
Clauses Sixteenth and Seventeenth shall be consummated no later than the first
Business Day after 90 days after the giving of the Response Notice or the deemed
election (pursuant to Clause Seventeenth) to sell. Such closing shall occur at
the head office of the Company unless otherwise agreed, and at the closing, the
Closing Actions shall occur. Any tax withholding obligations with respect to the
Transfers of the Capital Interests imposed by the laws of Mexico shall be
complied with.
CHAPTER IV
ADMINISTRATION
NINETEENTH.- The Company shall be governed by a Board of Managers
consisting of six managers. The managers shall not be required to be nationals
of Mexico. Any Member shall be entitled to designate three persons to the
Board of Managers, and to the extent permitted by applicable law, shall have the
right to cause such managers to be removed. The appointment of the chairman and
the secretary of the Board of Managers will alternate annually between the
managers appointed by each Member.
The managers may but need not be Members of the Company.
The chairman of the Board of Managers shall not have the deciding vote in
case of a tie in the voting of the Board.
The chairman and the secretary of the Board shall have exclusively those
powers conferred upon them by these by-laws.
Exhibit B
10
<PAGE>
TWENTIETH.- Each Member entitled to nominate a manager pursuant to Clause
Nineteenth shall be entitled to designate an alternate manager for each of its
nominees (an "Alternate Manager"). Each Alternate Manager shall be entitled to
receive notice of all meetings of the Board of Managers and to attend and vote
at any such meeting at which the manager for whom he is the Alternate Manager is
not personally present, and generally to perform all functions of the manager
for whom he is the alternate as a manager in his absence. An Alternate Manager
shall cease to be an Alternate Manager if the manager for whom he is the
alternate ceases to be a manager; provided, however, that if a manager retires
and is immediately reappointed, any appointment of an Alternate Manager for such
manager that was in force immediately prior to his retirement shall continue
after his reappointment. An Alternate Manager shall be deemed for all purposes
a manager and shall alone be responsible for his own acts and defaults and he
shall not be deemed to be the agent of the manager for whom he is the alternate.
TWENTY-FIRST.- The managers shall be elected for a term of office of one
year. A manager whose term of office expires may be reelected. Any vacancy
occurring in the managership of the Board of Managers shall be filled by the
Member that nominated the manager whose departure created such vacancy.
TWENTY-SECOND.- The Board of Managers shall meet at least quarterly
("Regular Meetings"), and additional meetings may be convened by notice of the
chairman or by any manager at any time ("Special Meetings"). Regular Meetings
shall be held at the Company's head office or at such other location as may be
agreed by the Board of Managers. Unless otherwise agreed upon by the Board of
Managers, Special Meetings shall be held on an alternating basis at the
Company's head office and in Danville, Virginia, U.S.A. Managers shall receive
not less than ten Business Days' written notice of any meeting, with such
written notice also provided to each Member. Managers may, by unanimous written
consent, waive the notice requirement for meetings, and any manager that attends
a meeting of the Board of Managers shall be deemed to have waived any
requirement for notice thereof. The agenda of each meeting shall be included in
the notice for such meeting and shall be established in accordance with the
requirements of the General Law of Commercial Companies and these by-laws, but
shall include any matter submitted to the Company by any manager at least three
Business Days prior to the sending of the notice for such meeting. Managers may
attend meetings of the Board of Managers by telephone.
TWENTY-THIRD.- A quorum for meetings of the Board of Managers shall
require the presence of at least four managers. All decisions of the Board of
Managers shall be taken by the affirmative vote of at least four managers. The
chairman of the Board of Managers shall not be entitled to any vote in addition
to his vote as a manager. In the event of a deadlock among the managers, the
matters shall be decided by vote of the Members as set forth in Chapter III.
The proceedings of meetings of the Board of Managers will be in English. Unless
otherwise required by applicable law, the official minutes of meetings and
resolutions taken therein shall be kept in English and Spanish, shall be
circulated to all managers before finalization and shall be kept in
Exhibit B
11
<PAGE>
the minute books of the Company. If permitted by applicable law, decisions may
be taken by the Board of Managers without a meeting if a proposal for action is
submitted in writing to each of the managers and each such manager consents in
writing to such action.
TWENTY-FOURTH.-. Except as otherwise expressly provided by applicable law
or these by-laws, the Board of Managers shall, consistent with any resolution of
the Members Meeting, administer the business and property of the Company and
manage the affairs of the Company and shall have full authority to do so,
provided that its resolutions and acts are consistent with the General Law of
Commercial Companies and these by-laws. Subject to the foregoing, the functions
and powers of the Board of Managers shall include, but not be limited to:
(a) The appointment or removal of the director of marketing and the
general manager of the Project;
(b) The approval of the Annual Business Plan;
(c) The approval of the annual audited financial statements;
(d) The approval of any acquisition or Transfer of assets or capital
expenditures having a value in excess of US$250,000 (TWO HUNDRED FIFTY THOUSAND
DOLLARS 00/100);
(e) The approval of any loans or the issuance of any credits in the
ordinary course of business in excess of US$200,000 (TWO HUNDRED THOUSAND
DOLLARS 00/100) in the aggregate to any one Person or its Affiliates;
(f) Any material amendment or modification of any Project Contract or
Financing Agreement;
(g) Any declaration by the Company of a default under, any exercise by the
Company of remedies under, or any termination or cancellation by the Company of,
any Project Contract or Financing Agreement;
(h) General power of attorney for lawsuits and collections, in the terms
of the first paragraph of Article 2554 of the Civil Code for the Federal
District, with all general and such special powers as are mentioned in Article
2587 of said Code, including but not limited to the following:
To exercise all types of rights and actions before any and all authorities
and boards of conciliation and arbitration; to submit to any jurisdiction; to
desist from injunction (amparo) proceedings; to file charges and complaints as
aggrieved party and assist the District Attorney; and to sign such documents as
may be required in the exercise of this power of attorney;
Exhibit B
12
<PAGE>
(i) General power of attorney for acts of administration, in the terms of
the second paragraph of said Article 2554, with powers to carry out all
operations inherent in the corporate purpose;
(j) General power of attorney for acts of dominion, in the terms of the
third paragraph of said Article 2554;
(k) Power to grant and sign credit instruments in accordance with Article
9 of the General Law of Credit Instruments and Operations;
(l) Power to carry out and enforce the resolutions adopted in Members
Meetings;
(m) Power to revoke and confer general and special powers of attorney
within the scope of the aforementioned powers; and
(n) The performance of any other acts necessary or appropriate for a Board
of Managers under these by-laws or the General Law of Commercial Companies.
TWENTY-FIFTH.- To guarantee the faithful discharge of their duties, the
managers shall give the guaranty determined by the Ordinary Members Meeting
which appointed them, and it may consist of a cash deposit or bond.
TWENTY-SIXTH.- The Board of Managers shall appoint the general manager,
the director of marketing, the deputy general manager and the other officers of
the Company. The officers shall be responsible for the day-to-day management
and conduct of the operations of the Company in accordance with powers granted
by the Members Meeting and the Board of Managers from time to time. The
duration of the terms of the general manager, the director of marketing, the
deputy general manager and other officers having authority to sign and execute
documents on behalf of the Company shall not be limited to the term of the
managers.
CHAPTER V
FISCAL YEAR, BALANCE SHEET, PROFITS AND LOSSES
TWENTY-SEVENTH.- The fiscal year of the Company shall be a calendar year.
TWENTY-EIGHTH.- A balance sheet shall be prepared within three months
following the close of the fiscal year and kept in the principal offices of the
Company, available to the Company Members and officers, together with its
supporting documents, one month before the respective Ordinary Members Meeting
is held.
TWENTY-NINTH.- The profits obtained in each fiscal year shall be applied
as follows:
Exhibit B
13
<PAGE>
(a) First the amount agreed upon by the Ordinary Members Meeting will be
set aside for the establishment or reconstitution, as the case may be, of the
legal reserve fund, an amount that at minimum will be 5% of the net profit,
until an amount equal to one fifth of the capital is accumulated.
(b) Such sum as may be determined by the Members shall be set aside for
creating or increasing reinvestment, contingency or such special reserves as may
be deemed advisable;
(c) Such sum as may be determined by the Members shall be distributed to
the Members in proportion to the Value of their Capital Interests;
(d) The remainder, if any, shall be passed to the undistributed profits
account.
THIRTY.- The Members shall be liable for the Company losses but their
liability shall be limited to payment of the unpaid portion of their Capital
Interests; hence, the owners of fully-paid Capital Interests shall have no
liability whatsoever.
CHAPTER VI
DISSOLUTION AND LIQUIDATION
THIRTY-FIRST.- The Company shall be dissolved:
(a) If continued execution of the corporate purposes shall become
impossible;
(b) By resolution of the Members adopted in accordance with these by-laws
and the General Law of Commercial Companies; or
(c) In case of loss of two-thirds of the corporate capital unless the
Members restore or reduce same.
THIRTY-SECOND.-
(a) Upon dissolution, the Company shall be placed in liquidation which
shall be entrusted to one or more receivers, as determined by the Members in an
Extraordinary Meeting.
(b) The Board of Managers shall continue in the discharge of their duties
until the appointment of the receivers shall have been recorded in the Public
Registry of Commerce and the receivers shall have taken office.
(c) The liquidation shall be conducted as prescribed in the General Law of
Commercial Companies but the Members, upon determining to liquidate, shall
establish the rules which, in
Exhibit B
14
<PAGE>
addition to the provisions of the General Law of Commercial Companies and these
by-laws, shall govern all action taken by the receivers.
(d) The Extraordinary Members Meeting wherein the final balance sheet is
approved must be presided over by one of the receivers. The receivers shall
have the authority vested in the Board of Managers and the duties and
obligations granted to the receivers by the General Law of Commercial Companies.
CHAPTER VII
GENERAL PROVISIONS
THIRTY-THIRD.- The founding Members do not reserve to themselves any
special participation in the Company profits.
THIRTY-FOURTH..- Any foreigner who upon incorporation or at any time
thereafter acquires an interest or participation in the Company and/or the
property rights, concessions, participations or interests owned by such
companies or the rights and obligations derived from the agreements to which
such companies are parties with Mexican authorities, shall be considered ipso
facto as a Mexican citizen with respect to such interest, participation,
concession, right, obligation and agreement and it shall be understood that he
agrees not to seek the protection of his government under penalty, in case of
breaching said agreement, of forfeiting such interest or participation to the
Mexican Nation.
THIRTY-FIFTH.- In all matters not specifically provided for herein, the
provisions of the General Law of Commercial Companies shall govern.
THIRTY-SIXTH.- No Claim (as defined below) shall be submitted to
arbitration until 60 days have passed (without mutual agreement having been
reached) following the first written notice from a Disputing Party to the other
Disputing Party that sets forth the subject matter of the Claim and that states
that it is being given pursuant to this Clause. Each Disputing Party shall, if
requested by another Disputing Party, select and appoint a senior executive (not
concerned with the day-to-day performance of the appointor's obligations under
these by-laws) to serve on a panel seeking to reach mutual agreement with
respect to the applicable Claim. Each such appointment shall be made by the
giving of notice by the appointor to the other Disputing Parties within ten
Business Days of the request for the appointment. The appointees shall meet and
shall endeavor to reach such mutual agreement as soon as practicable.
Exhibit B
15
<PAGE>
THIRTY-SEVENTH.- Any and all disputes, including claims, counterclaims,
demands, causes of action, controversies, and other matters in question arising
out of or relating to these by-laws, or the alleged breach hereof, or in any way
relating to the subject matter of these by-laws or the relationship between the
parties created by these by-laws (all of which are referred to herein as
"Claims") between the Members (each a "Disputing Party") that are not resolved
during the 60 day period provided in Clause Thirty-sixth shall be resolved by
binding arbitration.
THIRTY-EIGHTH.- If no such mutual agreement has been reached within such
60 day period, then any Disputing Party may refer the claim to arbitration under
the following provisions:
(a) To refer a claim to arbitration, a Disputing Party must submit its
Request for Arbitration to the ICC and the other Disputing Parties in accordance
with the ICC Rules.
(b) The Disputing Parties shall endeavor to agree promptly on a panel of
three arbitrators. One (1) arbitrator shall be nominated by each Disputing Party
in accordance with ICC Rules, and the third arbitrator shall be nominated by the
two (2) ICC-confirmed party-nominated arbitrators or, failing agreement, shall
be appointed by the ICC in accordance with ICC Rules. Each Disputing Party
shall be permitted to nominate an arbitrator that is of the same nationality as
the Disputing Party making the nomination.
THIRTY-NINTH.- The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the arbitration conducted
pursuant to this agreement to arbitrate, including, but not limited to, the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud in the
inducement" to enter into this agreement to arbitrate, allegations of waiver,
laches, delay or other defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an answer, the time
for the filing of counterclaims, the times for amending the pleadings, the
specificity of the pleadings, the extent and scope of discovery, the issuance of
subpoenas, the times for the designation of experts, whether the arbitration is
to be stayed pending resolution of related litigation involving third parties
not bound by this agreement to arbitrate, the receipt of evidence, and the like)
shall be decided in accordance with the ICC Rules. However, the arbitrators
shall have absolutely no authority to award treble, exemplary or punitive
damages of any type under any circumstances, regardless of whether such damages
may be available under applicable law; in addition, the arbitrators shall have
no authority to amend, modify, supplement or otherwise change any of the terms
of these by-laws. The Award shall fix the costs of the arbitration and decide
which of the Disputing Parties shall bear them or in what proportion they shall
be borne by the Disputing Parties; provided that each Disputing Party shall bear
its own attorneys' fees, and the arbitrators shall have no authority to award
attorneys' fees.
FOURTIETH.- The arbitration proceeding shall be conducted in New York, New
York USA. The arbitration shall be conducted by the arbitrators as
expeditiously as possible. The arbitration proceedings and the award or
decision (the "Award") of the arbitrators shall be in
Exhibit B
16
<PAGE>
English. The arbitration shall be conducted under the ICC Rules. The Award shall
be payable in cash in Dollars.
The arbitrators' Award shall, as between the Disputing Parties and those in
privity with them, be final and entitled to all of the protections and benefits
of a final judgment, e.g., res judicata (claim preclusion) and collateral
estoppel (issue preclusion), as to all Claims, including compulsory
counterclaims, that were or could have been presented to the arbitrators. The
arbitrators' Award shall not be reviewable by or appealable to any court;
provided, however, the Award may be corrected or interpreted pursuant to the ICC
Rules.
It is the intent of the parties that the arbitration proceeding shall be
conducted expeditiously, without initial recourse to the courts and without
interlocutory appeals of the arbitrators' decisions to the courts. However, if
a Disputing Party refuses to honor its obligations under this agreement to
arbitrate, any other Disputing Party may obtain appropriate relief compelling
arbitration in any court having jurisdiction over the Disputing Parties; the
order compelling arbitration shall require that the arbitration proceedings take
place in New York, New York, USA as specified above. The Disputing Parties may
apply to any court having jurisdiction for orders requiring witnesses to obey
subpoenas issued by the arbitrators. Moreover, any and all of the arbitrators'
orders and decisions may be enforced if necessary by any court having
jurisdiction. The arbitrators' Award may be confirmed in, and judgment upon the
Award entered by, any court having jurisdiction. FOR PURPOSES OF COMPELLING A
MEMBER TO HONOR ITS OBLIGATION TO ARBITRATE, EACH OF THE MEMBERS IRREVOCABLY
CONSENTS AND SUBMITS UNCONDITIONALLY TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, USA
AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO SUCH VENUE FOR SUCH
PURPOSES.
To the fullest extent permitted by applicable law, the arbitration
proceeding and the arbitrators' Award shall be maintained in confidence by the
Disputing Parties. However, a violation of this covenant shall not affect the
enforceability of this agreement to arbitrate or of the arbitrators' Award.
A Disputing Party's breach of these by-laws shall not affect this agreement
to arbitrate. Moreover, the parties' obligations under this arbitration
provision are enforceable even after these by-laws have terminated. The
invalidity or unenforceability of any provision of this agreement to arbitrate
shall not affect the validity or enforceability of the Disputing Parties'
obligation to submit their Claims to binding arbitration or the other provisions
of this agreement to arbitrate.
FOURTY-FIRST.- For purposes of these by-laws:
Exhibit B
17
<PAGE>
"Affiliate" means, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
"own" means ownership of 50% or more of the equity interests or rights to
distributions on account of equity of the Person and "control" means the power
to direct the management or policies of the Person, whether through the
ownership of voting securities, by contract, or otherwise; provided, however,
that the Company shall not be considered to be an Affiliate of a Member or of an
Affiliate of a Member.
"Alternate Manager" has the meaning given that term in Clause Twentieth.
"Award" has the meaning given that term in Clause Fourtieth.
"Board of Managers" means the Board of Managers (consejo de gerentes) of
the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
which banks in New York, New York USA, or Mexico City, Mexico are authorized or
required by law to be closed.
"Buy-Sell Notice" has the meaning given that term in Clause Sixteenth.
"Capital Interest" has the meaning given that term in Clause Fifth.
"Capital Interest Price" has the meaning given that term in Clause
Sixteenth.
"Claims" has the meaning given that term in Clause Thirty-seventh.
"Closing Actions" means (a) the taking by the applicable selling Members of
all necessary or appropriate actions to Transfer the applicable Capital
Interests to the applicable purchasing Members, with such selling Members
warranting against all Encumbrances against such Capital Interests, except for
these by-laws and the Encumbrances provided for in Clause Seventh (b), and (b)
the payment by such purchasing Members to such selling Members of the applicable
purchase price in Dollars in immediately available funds.
"Commitment Amounts" has the meaning given that term in Clause Fifth.
"Company" means the limited liability company (sociedad de responsabilidad
limitada de capital variable) formed by the Members.
"Disputing Party" has the meaning given that term in Clause Thirty-seventh.
"Dollars" means freely transferable lawful money of the United States of
America.
Exhibit B
18
<PAGE>
"Dollar Amounts" has the meaning given that term in Clause Fifth.
"Equity Contribution Agreement" means the agreement signed by the Members
on January 5, 2000.
"Encumbrance" means a security interest, charge, lien, pledge, mortgage or
similar encumbrance.
"Exercise Notice" has the meaning given that term in Clause Eighth.
"Extraordinary Resolutions" has the meaning given that term in Clause
Fifteenth.
"Extraordinary Members Meeting" has the meaning given that term in Clause
Tenth.
"Fair Market Value" means the value that would be obtained in an arm's-
length transaction between an informed and willing buyer and an informed and
willing seller, determined by mutual agreement.
"Financing Agreement" means any of:
(a) the Company's agreements with Persons (other than the Members and
their Affiliates) for the making available to the Company of loans, credit
facilities, or other funds (other than by way of equity or quasi-equity
participation); and
(b) the security documents, direct agreements, and other ancillary
undertakings in favor of Lenders required pursuant to the agreements referred to
in clause (a) above.
"General Law of Commercial Companies" means the Ley General de Sociedades
Mercantiles.
"ICC" means the International Chamber of Commerce.
"ICC Rules" means the Rules of Arbitration of the International Chamber of
Commerce.
"Lenders" means the Persons providing loans or credit under the Financing
Agreements.
"Member" means any registered owner of a Capital Interest.
"Members Meeting" means any meeting of Members of the Company, conducted
pursuant to these by-laws, and the General Law of Commercial Companies,
including any Ordinary Members Meeting and Extraordinary Members Meeting.
"Mexico" means the United Mexican States.
"Offer" means a bona fide written offer.
Exhibit B
19
<PAGE>
"Ordinary Resolutions" has the meaning given that term in Clause
Fourteenth.
"Ordinary Members Meeting" has the meaning given that term in Clause Tenth.
"Ownership Percentage" of any Member means at the time in question the
ratio (expressed as a percentage) that the Value of a Capital Interest then
owned by such Member bears to the aggregate amount of all equity contributions
made by the Members.
"Person" means any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association.
"Pesos" means freely transferable lawful money of Mexico.
"Potential Acquirer" has the meaning given that term in Clause Eighth.
"Preferential Purchase Price" has the meaning given that term in Clause
Eighth.
"Project" means the construction and operation of a manufacturing plant at
a location to be selected by the Board of Managers in Mexico primarily for the
manufacture of finished garments, and the sale of such finished garments to
garment retailers and other sectors, including, without limitation, the
development, financing, construction, ownership, maintenance, and operation of
such facility and the sale and marketing of products thereof by or on behalf of
the Company.
"Project Contract" means any of the following agreements to which the
Company will be a party:
(a) Any agreement with an Affiliate pertaining to the leasing or purchase
of real estate, construction of Project facilities, employment or labor matters;
(b) to the sites for the Project or will be granted leasehold title to
those sites; and
(c) any other agreement material to the completion of the Project.
"Receiving Members" has the meaning given that term in Clause Sixteenth.
"Regular Meetings" has the meaning given that term in Clause Twenty-second.
"Request for Arbitration" has the meaning given that term in Clause Thirty-
eighth.
"Response Notice" has the meaning given that term in Clause Seventeenth.
Exhibit B
20
<PAGE>
"Special Meetings" has the meaning given that term in Clause Twenty-second.
"Subscriptions" has the meaning given that term in Clause Fifth.
"Subject Capital Interests" has the meaning given that term in Clause
Eighth.
"Transfer" means to sell, transfer, assign, or otherwise dispose of, or the
act of doing any of the foregoing, but not the act of granting or imposing an
Encumbrance.
"Transferee" has the meaning given that term in Clause Eighth.
"Transferor" has the meaning given that term in Clause Eighth.
"Transfer Notice" has the meaning given that term in Clause Eighth.
"Triggering Member" has the meaning given that term in Clause Sixteenth.
"Ultimate Parent" means the Affiliate of the applicable Member that
controls, directly or indirectly, such Member and all of such Member's other
Affiliates.
"United States" or "US" means the United States of America.
"Value of a Capital Interest" means the aggregate amount of equity
contributions expressed in multiples of one Peso made by a Member and its
predecessors to the Company.
TRANSITORY CLAUSES
FIRST. The issuers subscribe to and pay for in cash the total value of
the minimum fixed capital of the Company of $3,000.00 (THREE THOUSAND PESOS
00/100), which amount shall be allocated in the following way and proportion:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Member Value Capital Interest Votes
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Dan River $1,499.00 1 1,499
International Ltd.
- ----------------------------------------------------------------------
Grupo Industrial $1,501.00 2 1,501
Zaga, S.A. de C.V.
- ----------------------------------------------------------------------
</TABLE>
SECOND. The issuers, pursuant to the meeting for the execution of these by-
laws that is the first Ordinary Members Meeting of the Company, adopt the
following by unanimous vote:
Exhibit B
21
<PAGE>
RESOLUTION
FIRST. It is agreed to that the Company shall be managed by a Board of
Managers, which shall be comprised of the of the following individuals:
On behalf of Grupo Industrial Zaga, S.A. de C.V.
Managers Alternates
- -------- ----------
Marcos Zaga Galante Rafael Zaga Kalach
Mayer Zaga Galante Salomon Zaga Kalach
Jacobo Saadia Zaga Moises Saadia Zaga
On behalf of Dan River International Ltd.
Managers Alternates
- -------- ----------
Joseph L. Lanier, Jr. Richard L. Williams
Barry F. Shea G. Rodney Reynolds
James E. Martin Greg R. Boozer
Exhibit B
22
<PAGE>
EXHIBIT C
---------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
MEMBER AMOUNT OF CAPITAL OWNERSHIP
CONTRIBUTION PERCENTAGE
- -------------------------------------------------------------
<S> <C> <C>
Dan River 1,499 49.9%
- -------------------------------------------------------------
Zaga 1,501 50.1%
- --------------------------------------------------------------
</TABLE>
Exhibit C
Page 1
<PAGE>
EXHIBIT D
---------
Chain of
Member Equity Ownership
------ ----------------
Dan River International Ltd. 100% owned by Dan River Inc., a publicly
held company organized under the laws of
the State of Georgia, USA
Exhibit D
Page 1
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
of
Subsidiary Organization
---------- ------------
<S> <C>
1. Dan River Factory Stores, Inc.............................. Georgia
2. The Bibb Company........................................... Delaware
3. Dan River International Ltd................................ Virginia
4. DanZa S. de R.L. de C.V.................................... Mexico
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-67083) pertaining to The Bibb Company 1997 Omnibus Stock
Incentive Plan, Dan River Inc. Amended and Restated Stock Option Plan, as
Amended, Dan River Inc. 1997 Stock Incentive Plan, Dan River Inc 1997 Stock
Plan for Outside Directors of our report dated February 4, 2000 (except for
the last paragraph in Note 14, as to which the date is March 1, 2000), with
respect to the consolidated financial statements and schedule of Dan River
Inc. included in this Annual Report (Form 10-K) for the year ended January 1,
2000.
/s/ Ernst & Young LLP
Greensboro, North Carolina
March 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF DAN RIVER, INC. AS OF JANUARY 1, 2000 AND THE
RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED JANUARY 1, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 2,084
<SECURITIES> 0
<RECEIVABLES> 77,009
<ALLOWANCES> 0
<INVENTORY> 168,487
<CURRENT-ASSETS> 265,093
<PP&E> 476,438
<DEPRECIATION> 179,705
<TOTAL-ASSETS> 684,582
<CURRENT-LIABILITIES> 90,728
<BONDS> 292,416
0
0
<COMMON> 227
<OTHER-SE> 270,725
<TOTAL-LIABILITY-AND-EQUITY> 684,582
<SALES> 628,899
<TOTAL-REVENUES> 628,899
<CGS> 512,977
<TOTAL-COSTS> 512,977
<OTHER-EXPENSES> (2,267)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,416
<INCOME-PRETAX> 22,970
<INCOME-TAX> 8,255
<INCOME-CONTINUING> 14,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,715
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.63
</TABLE>
<PAGE>
EXHIBIT 99.1
We, or our executive officers and directors on our behalf, may from time to
time make "forward looking statements" within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These statements may be
contained in reports and other documents that we file with the SEC or may be
oral statements made by our executive officers and directors to the press,
potential investors, securities analysts and others. These forward looking
statements could involve, among other things, statements regarding the Company's
intent, belief or expectation with respect to:
. our results of operations and financial condition,
. the consummation of acquisitions and financial transactions and their
effect on our business, and
. our plans and objectives for future operations and expansion.
Any forward looking statements would be subject to risks and uncertainties
that could cause our actual results of operations, financial condition,
acquisitions, financing transactions, operations, expansion and other events to
differ materially from those expressed or implied in such forward looking
statements. Any forward looking statements would be subject to a number of
assumptions regarding, among other things, future economic, competitive and
market conditions generally. These assumptions would be based on facts and
conditions as they exist at the time the forward looking statements are made as
well as predictions as to future facts and conditions. These future facts and
conditions may be difficult for us to predict accurately and may involve the
assessment of events beyond our control. Further, our business is subject to a
number of risks that would affect any such forward looking statements. These
risks include, among other things, the following:
. We Have Substantial Leverage
We have a substantial amount of debt outstanding, which could adversely
affect our financial health. Despite current indebtedness levels, we and our
subsidiaries may incur substantial additional debt in the future. If new debt is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify.
Our substantial amount of debt could have important consequences for you.
For example, it could:
. limit our ability to obtain additional financing on satisfactory
terms, if we need it, for working capital, capital expenditures,
acquisitions, debt service requirements or other purposes;
. increase our vulnerability to adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing funds available
for operations, future business opportunities or other purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
. place us at a competitive disadvantage compared to our competitors
that have less debt and that may be better positioned to withstand
economic downturns.
To service our indebtedness, we will require a significant amount of cash.
Our ability to make payments on our debt and to fund planned capital
expenditures and acquisitions will depend on our future
<PAGE>
operating performance and on our ability to successfully implement our business
strategy. Prevailing general economic conditions and financial, business,
regulatory and other factors, many of which are beyond our control, will affect
our ability to make these payments. If future cash flow is not sufficient to
make scheduled payments on our debt, we will need to refinance all or a portion
of our debt before maturity, obtain additional financing, delay planned
acquisitions and capital expenditures, or sell assets. Any such event could have
a material adverse effect on our business, financial condition and results of
operations.
. The Cyclicality of the Textile Industry May Adversely Affect our
Business
Domestic demand for textile products tends to vary with the business cycle
of the U.S. economy as well as changes in the global economy. In addition, the
popularity, supply and demand for particular textile products may change
significantly from year to year based upon prevailing fashion trends and other
factors. These factors historically have contributed to fluctuations in the
sales and profitability of certain textile products and in our results of
operations. A decline in the demand for textile products, an increase in the
supply of textile products due to expansion of capacity within the textile
industry, changes in fashion trends or deteriorating economic conditions could
have a material adverse effect on our results of operations and financial
condition.
. Our Industry is Highly Competitive and our Success Depends on our
Ability to Complete Effectively
The textile industry is highly competitive. We sell our products primarily
to domestic customers and compete with large, vertically integrated textile
manufacturers and numerous smaller companies specializing in limited segments of
the market. Our competitors include both domestic and foreign companies, a
number of which are larger in size and have significantly greater financial
resources and, in the case of foreign competitors, lower labor costs than we do.
Increases in domestic capacity and imports of foreign-made textile and apparel
products are a significant source of competition for us. Competition in the
form of imported textile and apparel products, pricing strategies of domestic
competitors and the proliferation of newly styled fabrics competing for fashion
acceptance affect our business environment. The primary competitive factors in
the textile industry include price, product styling and differentiation,
quality, flexibility of production and finishing, delivery time and customer
service. The needs of particular customers and the characteristics of
particular products determine the importance of these factors. To the extent
that one or more of our competitors gains an advantage with respect to any key
competitive factor, our business could be materially adversely affected. In
addition, import protections afforded to foreign textile manufacturers could
make our products less competitive and have a material adverse effect on our
results of operations and financial condition.
. Fluctuations in the Price of Raw Materials or Shortages of Supply
Could Affect our Business
Our primary raw material is cotton. By law, U.S. textile companies are
generally prohibited from importing cotton, subject to certain exceptions that
take effect primarily when U.S. cotton prices exceed world cotton prices for a
period of time. From time to time, domestic cotton prices have exceeded world
prices, which creates a competitive disadvantage for us and other domestic
textile manufacturers. The U.S. government has taken legislative action to
improve the price imbalance, but there can be no assurance that this will
continue to be the case. U.S. cotton prices are also affected by general
economic conditions as well as the demand for U.S. cotton in world markets and
may increase or decrease depending on other market variables at the time.
Prevailing cotton prices significantly impact our production costs, and price
increases could have a material adverse effect on our results of operations and
financial condition.
<PAGE>
In connection with our purchase of cotton, we generally seek to purchase
sufficient amounts of cotton to cover existing order requirements, which average
approximately three months of production. We may shorten or lengthen that
period in accordance with our perception of the direction of cotton prices. We
may purchase cotton in advance of orders on terms that we deem advantageous and,
while we do not speculate on the price of cotton, we may hedge prices from time
to time through forward contracts and in the futures and options markets. We
cannot assure you that these transactions will not result in higher costs to us
or will protect us from fluctuations in cotton prices.
Further, since cotton is an agricultural product, its supply and quality
are subject to forces of nature. Any material shortage or interruption in the
supply, variations in the quality of cotton by reason of weather, infestations
or any other factor that would result in an increase in the cost of cotton could
have a material adverse effect on our results of operations and financial
condition.
We also use significant quantities of polyester in the manufacture of our
products. The price of polyester is influenced by demand, manufacturing
capacity and costs, petroleum prices, cotton prices and the cost of polymers
used in producing polyester. Any significant prolonged petrochemical shortages
could significantly decrease the availability of polyester and could cause a
significant increase in the demand for cotton. Such conditions could decrease
the availability of cotton and result in increased prices for cotton and
polyester. Any of these events could have a material adverse effect on our
results of operations and financial condition.
. We Hold Important Licenses, the Loss of Which Could Adversely Affect
our Business
We hold licenses to use well-known trademarks and trade names to
market our products. These licenses generally require the payment of royalties
based on net sales, including the payment of minimum annual royalties, and
generally have three-year terms. We cannot assure you that we will be able to
renew these licenses on acceptable terms upon their expiration or will be able
to acquire new licenses to use other popular trademarks. The loss of one or more
of our third-party licenses could reduce our net sales and have an adverse
effect on our results of operations and financial condition.
. If We are Unable to Fund our Substantial Capital Expenditure
Requirements We May Fail to Remain Competitive
The textile manufacturing industry is capital intensive. Accordingly, to
maintain our competitive position, we must continually modernize our
manufacturing processes, plants and equipment, which can involve substantial
capital investments. Over the last five fiscal years ending January 1, 2000, we
have made substantial capital improvements designed to:
. reduce manufacturing costs,
. enhance manufacturing flexibility, and
. improve product quality and responsiveness to customers.
We generally finance our capital improvements with cash from operations, vendor
financing and borrowings under our credit facility. To the extent these sources
of funds are insufficient to meet our ongoing capital improvements requirements,
we would need to seek alternative sources of financing or curtail or delay
capital spending plans. We cannot guarantee that we can obtain financing when
needed or on terms acceptable to us. If we fail to make capital improvements
necessary to continue modernizing our manufacturing operations and reduce costs,
our competitive position will suffer.
<PAGE>
. U.S. Governmental Policies Regarding Imports Could Make it Difficult
for our Products to Compete Effectively with Imported Textile Products
The domestic textile market is subject to various U.S. governmental
policies affecting raw material costs and product supply. In addition, the
policies of foreign governments may, directly or indirectly, affect the domestic
market. Because U.S. textile companies are generally prohibited from importing
cotton, we must purchase substantially all of our cotton in the domestic market.
From time to time, price imbalances between world and domestic cotton prices
have existed. Because U.S. agricultural policies affect the availability and
cost of cotton, we may experience increased cotton costs that we cannot entirely
pass on to our customers.
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. In view of the labor cost advantages and the
number of foreign producers of textile products that compete with certain of our
products, substantial elimination of import protection for domestic textile
manufacturers could have a material adverse effect on our business. In 1995,
the World Trade Organization, or the WTO, established mechanisms to
progressively liberalize world trade in textiles and clothing by phasing out
quotas and reducing duties over a 10-year period beginning in January 1995. 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: tops and yarns, fabrics,
made-up textile products and apparel. The elimination of quotas and the
reduction of tariffs under the WTO may result in increased imports of certain
textile products and apparel into North America. These factors could make our
products less competitive against low cost imports from developing countries.
NAFTA, which was entered into by Canada, Mexico and the United States, has
created the world's largest free-trade zone. The agreement contains safeguards
that were 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. NAFTA will phase out all trade restrictions and tariffs on
textiles and apparel among the three countries. There can be no assurance that
the removal of these barriers to trade will not in the future have a material
adverse effect on our results of operations and financial condition.
. We May Not Successfully Identify or Complete Acquisitions, Which Could
Adversely Affect our Business
We have historically expanded our business through acquisitions and may
continue to do so. We cannot assure you that we will succeed in:
. identifying suitable acquisition candidates,
. completing acquisitions,
. integrating acquired operations into our existing operations or
. expanding into new markets.
We also cannot assure you that future acquisitions will not have an adverse
effect upon our operating results, particularly in the fiscal quarters
immediately following their completion while we integrate the operations of the
acquired business into our operations. Once integrated, acquired operations may
not achieve levels of revenues, profitability or productivity comparable with
those achieved by our existing operations, or otherwise perform as expected. In
addition, we compete for acquisition and expansion
<PAGE>
opportunities with companies that have substantially greater resources. Further,
we cannot assure you that we will successfully complete acquisitions and
integrate these companies into our business.
. We Must Comply with Numerous Environmental, Health and Safety Laws and
Regulations, Which Could Involve Substantial Costs. If We Fail to
Comply, We May Have to Pay Large Penalties
We must comply with various federal, state and local environmental laws and
regulations limiting, among other things, the discharge of pollutants and the
storage, handling and disposal of a variety of substances, including some
substances that contain constituents considered hazardous under environmental
laws. Our dyeing and finishing operations result in the discharge of
substantial quantities of wastewater and emissions to the atmosphere. Our
operations also must comply with laws and regulations relating to workplace
safety and worker health which, among other things, establish cotton dust,
formaldehyde, asbestos and noise standards, and regulate the use of hazardous
chemicals in the workplace. At several of our sites, soil or groundwater
contamination from past operations is subject to investigation and cleanup.
Treatment costs of air emissions and wastewater discharges, as well as other
environmental and health and safety costs have increased moderately over the
past several years. We cannot assure you that our environmental or health and
safety liabilities and costs will not increase materially in the future and have
a material adverse effect on our cash flow. In addition, we cannot predict what
environmental or health and safety legislation or regulations will be enacted in
the future or how existing or future laws or regulations will be enforced,
administered or interpreted. Nor can we predict the amount of future
expenditures that may be required in order to comply with these environmental or
health and safety laws or regulations. We have several environmental matters
pending, and we cannot assure you that the resolution of these matters, or the
discovery of any additional sites alleged to have been contaminated by our
operations or those of our predecessors, will not have an adverse effect on our
results of operations and financial condition.
. We Have Several Customers That Account for a Large Portion of our Net
Sales. The Loss of any of our Large Customers Could Adversely Affect
our Business
We market our home fashions products, apparel fabrics and engineered
products to over 2,100 customers. In fiscal 1999, our top five home fashions
products customers accounted for 44% of our net sales attributable to home
fashions products, and our top five apparel fabrics customers accounted for 29%
of our net sales attributable to apparel fabrics. During fiscal 1999, our
largest home fashions products customer accounted for 12% of our net sales, and
our largest apparel fabrics customer accounted for 2% of our net sales. The loss
of any of the top five home fashions products customers or apparel fabrics
customers could have a material adverse effect on our net sales attributable to
such product lines.
. There are Risks Associated with DanZa's Operations in Mexico
As a result of DanZa, we will shift a significant portion of our apparel
fabrics manufacturing base into Mexico. The Mexican government has exercised
and continues to exercise significant influence over many aspects of the Mexican
economy. Further, as recently as 1995, the Mexican economy experienced a crisis
characterized by exchange rate instability and devaluation of the peso, high
inflation, high interest rates and negative economic growth. We cannot assure
you that these conditions will not reoccur in the future. Actions by the
Mexican government, future developments in the Mexican economy and Mexico's
general political, social or economic situation may impact textile operations in
Mexico generally and disrupt or impede the operations of DanZa. In addition,
DanZa's operations will be subject to a number of risks not necessarily faced by
our domestic operations such as work stoppages, transportation delays and
interruptions, political instability, economic disruptions, expropriation, the
imposition of tarriffs and changes in governmental policies. The occurrence of
any of these events could have a material adverse
<PAGE>
effect on DanZa's results of operations and financial condition which could, in
turn, adversely affect our financial position and results of operations. DanZa's
net sales, however, will be payable in U.S. dollars, and thus we expect DanZa's
exposure to currency fluctuations to be limited.
. We Have Experienced Production Planning Problems Associated with the
Installation of our Enterprise Resource Planning System Software,
Which Have Resulted in Lost Sales. We May Continue to Experience
Difficulties as our Facilities are Converted to the New Software
Sales of home fashions products were negatively impacted by the conversion
of our enterprise resource planning to Year 2000-ready software during the
second half of 1999. Although we had a strong order position during that time
period, we were unable to convert orders into billings due to production
planning problems associated with the systems conversion. Although we continue
to enhance and refine the new software at each installation point, we cannot
guarantee that production planning problems will not arise in the future. If we
were to experience such problems, our sales could be materially adversely
affected.
. Foreign Imports Create Significant Competition, Which May Adversely
Affect our Business
Imports of foreign-made textile and apparel products are a significant
source of competition for us as well as other domestic textile manufacturers.
Many foreign textile manufacturers have lower cost structures than domestic
textile manufacturers, due primarily to significantly lower labor costs.
Although our domestic manufacturing presence has enabled us to shorten
production and lead times for our domestic customers which generally enables us
to respond more quickly than foreign producers to changing fashion trends and
our domestic customers' tight production schedules, we cannot assure you that we
will be able to compete effectively with imported foreign-made textile products.
. Our Business is Seasonal and our Sales Levels Fluctuate
Demand for our products and the level of our sales fluctuate moderately
during the year based upon historical buying trends. Generally, there is
increased retail demand for home fashions products during the fall (back to
school) and Christmas holiday seasons and for apparel fabrics during the same
seasons as well as for Father's Day. As a result,
. we sell more of our home fashions products during our third and fourth
fiscal quarters when demand for home fashions products is generally
higher, and
. we sell more apparel fabrics during the first and second quarters when
demand for apparel fabrics is greatest as our customers order during
this period to satisfy increased retail demand in the third and fourth
quarters.
. Reliance on Key Management
Our success is dependent upon the talents and efforts of a small number of
key management personnel including Joseph L. Lanier, Jr., our Chairman and Chief
Executive Officer, Richard L. Williams, our President and Chief Operating
Officer, and Barry F. Shea, our Chief Financial Officer. The loss of such
management personnel could have an adverse effect on our business.
