-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HI4b9tV5sn2pXRcDh9LkBSKARxr0gO6Dfoh7gz5nbEnzjvjr4NWcQa8oDxkjbZ47 lZekNbEt1qa689tWvrCBnQ== 0000902561-03-000513.txt : 20031106 0000902561-03-000513.hdr.sgml : 20031106 20031106155207 ACCESSION NUMBER: 0000902561-03-000513 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030927 FILED AS OF DATE: 20031106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GFSI INC CENTRAL INDEX KEY: 0001036327 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 742810748 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-24189 FILM NUMBER: 03982367 BUSINESS ADDRESS: STREET 1: 9700 COMMERCE PARKWAY CITY: LENEXA STATE: KS ZIP: 66219 BUSINESS PHONE: 9138880445 10-Q 1 form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 2003. ------------------ 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 333-24189 GFSI, INC. ---------- (Exact name of registrant specified in its charter) Delaware 74-2810748 - ------------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9700 Commerce Parkway Lenexa, Kansas 66219 ------------------------------------------ (Address of principal executive offices) (913) 888-0445 ------------------------------------------------------ (Registrant's telephone number, including area code) 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. (1)Yes (X) No ( ) (2)Yes (X) No ( ) Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, $0.01 par value per share - 1 share issued and outstanding as of November 1, 2003. 1 GFSI, INC. AND SUBSIDIARIES Quarterly Report on Form 10-Q For the Quarter Ended September 27, 2003 INDEX Page ---- PART I - FINANCIAL INFORMATION ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 ITEM 4 - CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION 17 SIGNATURE PAGE 19 2 GFSI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data)
September 27, June 28, 2003 2003 ------------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 1,383 $ 1,387 Accounts receivable, net 35,385 34,357 Inventories, net 37,739 42,663 Prepaid expenses and other current assets 1,400 1,323 Deferred income taxes 1,204 1,303 ------------- ------------ Total current assets 77,111 81,033 Property, plant and equipment, net 18,697 19,883 Other assets: Deferred financing costs, net 2,707 2,959 Investment in parent company bonds -- 9,900 Other 85 9 ------------- ------------ Total assets $ 98,600 $ 113,784 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 17,908 $ 7,843 Accrued interest expense 1,012 4,365 Accrued expenses 7,883 6,151 Income taxes payable 10,928 8,850 Current portion of long-term debt 377 324 ------------- ------------ Total current liabilities 38,108 27,533 Deferred income taxes 1,160 1,194 Other long-term obligations 491 491 Long-term debt, less current portion 151,934 158,639 Stockholders' equity (deficiency): Common stock, $.01 par value, 10,000 shares authorized, one share issued and outstanding at September 27, 2003 and June 28, 2003 -- -- Additional paid-in capital 71,442 59,127 Parent company bonds acquired (34,445) -- Accumulated deficiency (130,090) (133,200) ------------- ------------ Total stockholders' deficiency (93,093) (74,073) ------------- ------------ Total liabilities and stockholders' equity (deficiency) $ 98,600 $ 113,784 ============= ============ See notes to consolidated financial statements.
3 GFSI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands) Quarter Ended September 27, September 28, 2003 2002 ------------ ------------- Net sales $ 53,818 $ 61,211 Cost of sales 32,752 39,149 ----------- ----------- Gross profit 21,066 22,062 Operating expenses: Selling 6,773 7,496 General and administrative 5,982 6,635 ----------- ----------- 12,755 14,131 ----------- ----------- Operating income 8,311 7,931 Other income (expense): Interest expense (3,731) (3,624) Gain on sale of property, plant and equipment 939 -- ----------- ---------- (2,792) (3,624) ----------- ---------- Income before income taxes 5,519 4,307 Income tax expense 2,152 1,680 ----------- ----------- Net income $ 3,367 $ 2,627 =========== =========== See notes to consolidated financial statements. 4 GFSI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousand)
Quarter Ended September 27, September 28, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: ------------- ------------- Net income $ 3,367 $ 2,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 657 780 Amortization of deferred financing costs 253 243 Amortization of other intangibles -- 250 (Gain) loss on sale or disposal of property, plant and equipment (939) -- Deferred income taxes 66 (15) Changes in operating assets and liabilities: Accounts receivable, net (1,028) (8,034) Inventories, net 4,924 (3,102) Prepaid expenses, other current assets and other assets (153) (55) Income taxes payable 2,078 (1,166) Accounts payable, accrued expenses and other long-term obligations 8,105 1,638 ---------- -------- Net cash provided by (used in) operating activities 17,330 (6,834) ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment 2,797 -- Purchases of property, plant and equipment (990) (861) ---------- -------- Net cash provided by (used in) investing activities 1,807 (861) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in short term borrowings and revolving credit agreement (6,663) 8,321 Purchase of parent company bonds (12,230) -- Distributions to GFSI Holdings, Inc. (240) (128) Issuance of long-term debt 82 450 Payments on long-term debt (72) (46) Other (1) (13) ---------- -------- Net cash provided by (used in) financing activities (19,124) 8,584 ---------- -------- Effect of foreign exchange rate changes on cash (17) (6) ---------- -------- Net increase (decrease) in cash and cash equivalents (4) 883 Cash and cash equivalents at beginning of period 1,387 313 ---------- -------- Cash and cash equivalents at end of period 1,383 $ 1,196 ========== ======== Supplemental cash flow information: Interest paid $ 6,832 $ 6,499 ========== ======== Income taxes paid $ 9 $ 57 ========== ======== Non-cash financing activities: Parent company bonds contributed $ 12,315 $ -- ========== ======== See notes to consolidated financial statements.
5 GFSI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 27, 2003 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements of GFSI, Inc. (the "Company") include the accounts of the Company and the accounts of its wholly-owned subsidiaries, Event 1, Inc. ("Event 1"), CC Products, Inc. ("CCP") and GFSI Canada Company. All intercompany balances and transactions have been eliminated. The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statement reporting purposes. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, operations and cash flows of the Company have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year. The consolidated balance sheet information as of June 28, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended June 28, 2003 included in the Company's Annual Report on Form 10-K. The Company is a wholly owned subsidiary of GFSI Holdings, Inc. ("Holdings"). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Commitments and Contingencies ----------------------------- The Company, in the normal course of business, may be threatened with or named as a defendant in various lawsuits. It is not possible to determine the ultimate disposition of these matters, however, management is of the opinion that there are no known claims or known contingent claims that are likely to have a material adverse effect on the results of operations, financial condition, or cash flows of the Company. 6 3. Inventories: ----------- The following is a summary of inventories at September 27, 2003 and June 28, 2003: (in thousands) September 27, June 28, 2003 2003 -------------- ----------- (unaudited) Undecorated apparel ("blanks") and supplies $ 35,893 $ 37,924 Work in process 466 609 Finished goods 2,145 4,887 ------------ ---------- 38,504 43,420 Allowance for markdowns (765) (757) ------------ ---------- Total $ 37,739 $ 42,663 ============ ========== 7
4. Condensed Consolidating Financial Information --------------------------------------------- The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 "Financial statements of guarantors and issuers of guaranteed securities registered or being registered." This information is not necessarily intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with accounting principles generally accepted in the United States of America. Each of the subsidiary guarantors are 100% owned by GFSI, Inc. The subsidiary guarantees of GFSI, Inc.'s debts are full and unconditional and joint and several. As of September 27, 2003 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Assets: Current assets: Cash and cash equivalents $ 1,303 $ 80 $ -- $ 1,383 Accounts receivable, net 20,118 20,543 (5,276) 35,385 Inventories, net 35,576 2,163 -- 37,739 Prepaid expenses and other current assets 1,270 130 -- 1,400 Deferred income taxes 1,204 -- -- 1,204 ------------- ------------ ------------ ------------ Total current assets 59,471 22,916 (5,276) 77,111 Investment in equity of subsidiaries 20,069 -- (20,069) -- Property, plant and equipment, net 18,462 235 -- 18,697 Other assets 3,406 (612) (2) 2,792 ------------- ------------ ------------ ------------ Total assets $ 101,408 $ 22,539 $ (25,347) $ 98,600 ============= ============ ============ ============ Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 22,921 $ 263 $ (5,276) $ 17,908 Accrued interest expense 1,012 -- -- 1,012 Accrued expenses 5,578 2,305 -- 7,883 Income taxes payable 11,026 (98) -- 10,928 Current portion of long-term debt 377 -- -- 377 ------------- ------------ ------------ ------------ Total current liabilities 40,914 2,470 (5,276) 38,108 Deferred income taxes 1,160 -- -- 1,160 Other long-term obligations 491 -- -- 491 Long-term debt, less current portion 151,934 -- -- 151,934 Stockholders' equity (deficiency) (93,091) 20,069 (20,071) (93,093) ------------- ------------ ------------ ------------ Total liabilities and stockholders' equity $ 101,408 $ 22,539 $ (25,347) $ 98,600 (deficiency) ============= ============ ============ ============ 8 Quarter ended September 27, 2003 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Net sales $ 32,118 $ 21,850 $ (150) $ 53,818 Cost of sales 19,751 13,151 (150) 32,752 Selling expenses 3,473 3,300 -- 6,773 General and administrative expense 5,111 871 -- 5,982 -------- --------- -------- --------- Total costs and expenses 28,335 17,322 (150) 45,507 -------- --------- -------- --------- Operating income 3,783 4,528 -- 8,311 Equity in net earnings of subsidiaries 2,755 -- (2,755) -- Interest expense (3,729) (12) 10 (3,731) Gain on sale of property, plant and equipment 949 -- (10) 939 -------- --------- -------- --------- Income before income taxes 3,758 4,516 (2,755) 5,519 Income tax expense 391 1,761 -- 2,152 -------- --------- -------- --------- Net income $ 3,367 $ 2,755 $ (2,755) $ 3,367 ======== ========= ======== ========= Quarter ended September 27, 2003 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Net cash flows provided by operating activities $ 16,922 $ 408 $ -- $ 17,330 Net cash flows provided by investing activities 1,807 -- -- 1,807 Cash flows from financing activities: Net borrowings under revolving credit agreements (6,663) -- -- (6,663) Purchase of parent company bonds (12,230) -- -- (12,230) Payments on long-term debt (72) -- -- (72) Repayment of intercompany debt 375 (375) -- -- Issuance of long-term debt 82 -- -- 82 Distributions to GFSI Holdings, Inc. (240) -- -- (240) Other (1) -- -- (1) ----------- --------- --------- --------- Net cash used in financing activities (18,749) (375) -- (19,124) ----------- --------- --------- --------- Effect of foreign exchange rate changes on cash -- (17) -- (17) ----------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (20) 16 -- (4) Cash and cash equivalents at beginning of period 1,323 64 -- 1,387 ------------ --------- --------- --------- Cash and cash equivalents end of period $ 1,303 $ 80 $ -- $ 1,383 =========== ========= ========= ========= 9 As of June 28, 2003 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Assets: Current assets: Cash and cash equivalents $ 1,323 $ 64 $ -- $ 1,387 Accounts receivable, net 25,027 15,300 (5,970) 34,357 Inventories, net 38,367 4,296 -- 42,663 Prepaid expenses and other current assets 1,198 125 -- 1,323 Deferred income taxes 1,303 -- -- 1,303 ----------- ---------- ----------- ----------- Total current assets 67,218 19,785 (5,970) 81,033 Investment in equity of subsidiaries 17,331 -- (17,331) -- Property, plant and equipment, net 19,624 259 -- 19,883 Investment in parent company bonds 9,900 -- -- 9,900 Other assets 3,957 (987) (2) 2,968 ----------- ---------- ----------- ----------- Total assets $ 118,030 $ 19,057 $ (23,303) $ 113,784 =========== ========== =========== =========== Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 13,263 $ 550 $ (5,970) $ 7,843 Accrued interest expense 4,365 -- -- 4,365 Accrued expenses 4,877 1,274 -- 6,151 Income taxes payable 8,948 (98) -- 8,850 Current portion of long-term debt 324 -- -- 324 ----------- ---------- ----------- ----------- Total current liabilities 31,777 1,726 (5,970) 27,533 Deferred income taxes 1,194 -- -- 1,194 Other long-term obligations 491 -- -- 491 Long-term debt, less current portion 158,639 -- -- 158,639 Stockholders' equity (deficiency) (74,071) 17,331 (17,333) (74,073) ----------- ---------- ----------- ----------- Total liabilities and stockholders' $ 118,030 $ 19,057 $ (23,303) $ 113,784 equity (defiency) =========== ========== =========== =========== Quarter ended September 28, 2002 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Net sales $ 39,969 $ 21,420 $ (178) $ 61,211 Cost of sales 25,461 13,866 178) 39,149 Selling expenses 4,929 2,567 -- 7,496 General and administrative expense 5,659 976 -- 6,635 ----------- ---------- ----------- ----------- Total costs and expenses 36,049 17,409 (178) 53,280 ----------- ---------- ----------- ----------- Operating income 3,920 4,011 -- 7,931 Equity in net earnings of subsidiaries 2,446 -- (2,446) -- Interest expense (3,622) (2) -- (3,624) ----------- ---------- ----------- ----------- Income before income taxes 2,744 4,009 (2,446) 4,307 Income tax expense 117 1,563 -- 1,680 ----------- ---------- ----------- ----------- Net income $ 2,627 $ 2,446 $ (2,446) $ 2,627 =========== ========== =========== =========== 10 Quarter ended September 28, 2002 (in thousands) (unaudited): Parent Subsidiary Consolidating Consolidated Obligor Guarantors Adjustments GFSI, Inc. Net cash flows provided by (used in) operating activities $ (6,945) $ 111 $ -- $ (6,834) Net cash flows used in investing activities (833) (28) -- (861) Cash flows from financing activities: Net borrowings under revolving credit agreement 8,321 -- -- 8,321 Payments on long-term debt (46) -- -- (46) Other (13) -- -- (13) Issuance of long-term debt 450 -- -- 450 Distributions to GFSI Holdings, Inc. (128) -- -- (128) ----------- ---------- ---------- ----------- Net cash flows provided by financing activities 8,584 -- -- 8,584 ----------- ---------- ---------- ----------- Effect of foreign exchange rate changes on cash -- (6) -- (6) ----------- ---------- ---------- ----------- Net increase in cash and cash equivalents 806 77 -- 883 Cash and cash equivalents at beginning of period 334 (21) -- 313 ----------- ---------- ---------- ----------- Cash and cash equivalents end of period $ 1,140 $ 56 $ -- $ 1,196 =========== ========== ========== ===========
5. Financing and Recapitalization On September 8, 2003, the Company amended its existing revolving bank credit agreement ("RBCA"). Under the terms of amendment, the RBCA lenders consented to the series of transactions described below (the "Recapitalization") and extended the term of the RBCA by one year to January 15, 2006. In September 2003, Company management formed a Delaware limited liability company called Gearcap LLC ("Gearcap") to affect the Recapitalization of Holdings. Gearcap purchased 11.375% Senior Discount Notes of Holdings ("Notes") with an aggregate principal amount at maturity of approximately $30.5 million and an accreted book value of $27.4 million at September 27, 2003 (the "Contributed Holdings Discount Notes") for approximately $12.3 million in cash. Gearcap and Holdings subsequently entered into an Exchange Agreement under which they exchanged 8,250 shares of newly authorized Holdings Class C common stock and 11,490 shares of newly authorized Series E 10% Cumulative Preferred Stock for the Contributed Holdings Discount Notes. The Company and Holdings entered into a Contribution Agreement under which Holdings contributed the Contributed Holdings Discount Notes it received from Gearcap to the Company as a capital contribution. The Company intends to pledge the Notes as collateral under the RBCA. On September 26, 2003, the Company purchased Notes with an aggregate principal amount at maturity of approximately $29.5 million and an accreted book value of $26.5 at September 27, 2003 for approximately $12.2 million of which $11.6 million was included in accounts payable. The Company intends to pledge the Notes as collateral under the RBCA. When combined with Notes previously acquired in December 2002, the Company now owns Notes with an aggregate maturity value of $84 million at September 27, 2003. The Company owns 78% of the issued Notes and has elected to record its investment in Notes (including Notes previously acquired) as a reduction of stockholders' equity at the acquisition cost of the Notes. At a future date the Company intends to distribute to Holdings its acquired Notes to permit the parent company to 11 formally retire these Notes. The Company is currently restricted under its various long-term debt agreements from making this distribution for the next several years. At September 27, 2003 Stockholders' equity (deficiency) included a reduction of $34.4 million representing the acquisition cost of the Notes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussions set forth in this Form 10-Q should be read in conjunction with the financial information included herein and the Company's Annual Report on Form 10-K for the year ended June 28, 2003. Management's discussion and analysis of financial condition and results of operations and other sections of this report contain forward-looking statements relating to future results of the Company. Such forward-looking statements are identified by use of forward-looking words such as "anticipates", "believes", "plans", "estimates", "expects", and "intends" or words or phrases of similar expression. These forward-looking statements are subject to various assumptions, risks and uncertainties, including but not limited to, changes in political and economic conditions, demand for the Company's products, acceptance of new products, developments affecting the Company's products and to those discussed in the Company's filings with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those contemplated by the forward-looking statements. CRITICAL ACCOUNTING POLICIES The following discussion and analysis of financial condition, results of operations, liquidity and capital resources is based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Generally accepted accounting principles require estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, long-lived assets, deferred income taxes, accrued expenses, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. The Company's management believes that some of its significant accounting policies involve a higher degree of judgment or complexity than other accounting policies. Identified below are the policies deemed critical to its business and the understanding of its results of operations. Revenue recognition. The Company recognizes revenues when goods are shipped, title has passed, the sales price is fixed and collectibility is reasonably assured. Returns, discounts and sales allowance estimates are based on projected sales trends, historical data and other known factors. If actual returns, discounts and sales allowances are not consistent with the historical data used to calculate these estimates, net sales could either be understated or overstated. Accounts receivable. Accounts receivable consist of amounts due from customers and business partners. The Company maintains an allowance for doubtful accounts to reflect expected credit losses and provides for bad debts based on collection history and specific risks identified on a customer-by-customer basis. A considerable amount of judgment is required to assess the ultimate realization of accounts receivable and the credit-worthiness of each customer. Furthermore, these judgments must be continually evaluated and updated. If the historic data used to evaluate credit risk does not reflect future collections, or, if the financial condition of the Company's customers were to deteriorate 12 causing an impairment of their ability to make payments, additional provisions for bad debts may be required in future periods. Accounts receivable at September 27, 2003 and June 28, 2003 were net of allowance for doubtful accounts of $918,000 and $906,000, respectively. Inventories. Inventories are carried at the lower of cost or market determined under the First-In, First-Out (FIFO) method. The Company writes down obsolete and unmarketable inventories to their estimated market value based upon, among other things, assumptions about future demand and market conditions. If actual market conditions are less favorable than projected, additional inventory write-downs may be required. The Company also records changes in valuation allowances due to changes in operating strategy, such as the discontinuances of certain product lines and other merchandising decisions related to changes in demand. It is possible that further changes in required inventory allowances may be necessary in the future as a result of market conditions and competitive pressures. COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED SEPTEMBER 27, 2003 AND SEPEMBER 28, 2002 Net Sales. Net sales for the quarter ended September 27, 2003 decreased 12% to $53.8 million compared to $61.2 million last year. The decrease in net sales was primarily due to reduced sales of our higher priced Gear for Sports(R) branded products while sales of our moderately priced Champion(R) licensed products experienced modest growth. The sales decrease in Gear for Sports(R) branded products was experienced in the college bookstore, resort and corporate customer groups. Management believes that the Company's customers have shifted their purchases to lower priced apparel with less expensive decoration which has enhanced the sales of Champion's more moderately priced goods. Reductions in corporate spending on marketing and employee incentive programs have had a detrimental effect on net sales of the Corporate and Resort Divisions. Gross Profit. Gross profit for the quarter ended September 27, 2003 decreased 5% to $21.1 million compared to $22.1 million last year. The decrease in gross profit resulted from lower sales. Gross profit as a percentage of net sales increased to 39% for the quarter compared to 36% last year. The benefits of lower cost of product sourcing and improved efficiencies in garment decoration created the increase in gross profit as a percentage of net sales. Operating Expenses. Operating expenses for the quarter ended September 27, 2003 decreased 10% to $12.8 million from $14.1 million last year. Operating expenses as a percentage of net sales were 24% in the first quarter of fiscal 2004 compared to 23% last year. Operating expenses decreased due to lower direct sales related expenses. During the first quarter of fiscal 2004 the Company began to incur a 3% royalty obligation on the net sales of Champion branded apparel under its license agreement with the Sara Lee Corporation. The additional royalty expense related to the Champion license created the increase in operating expenses as a percentage of net sales in comparison to last year. Operating Income. Operating income increased 5% to $8.3 million in the first quarter of fiscal 2004 compared to $7.9 million last year. Operating income as a percentage of net sales increased to 15% in the first quarter of fiscal 2004 from 13% in the first quarter of fiscal 2003. Improved gross profit margin percentage along with decreased operating expenses produced the increase in operating income. Interest Expense. Interest expense in the first quarter of fiscal 2004 was $3.7 million compared to $3.6 million last year. Higher borrowings created the increase in interest expense. Gain on sale of property, plant and equipment. During the first quarter of fiscal 2003, the Company sold its 100,000 square foot distribution facility 13 located in Lenexa, Kansas, for approximately $2.8 million and recorded a pre-tax gain of approximately $900,000 in other income during the three month period ended September 27, 2003. The facility was sold as part of a warehouse consolidation and automation initiative which will combine future distribution operations into a larger, renovated facility eliminating several smaller warehouses. Net Income. Net income for the first quarter of fiscal 2004 was $3.4 million compared to $2.6 million for the first quarter of fiscal 2003, an increase of 28%. The increase in operating income combined with the gain on the sale of the distribution facility produced the increase in net income. FINANCING AND RECAPITALIZTION On September 8, 2003, the Company amended its existing revolving bank credit agreement ("RBCA"). Under the terms of amendment, the RBCA lenders consented to the series of transactions described below (the "Recapitalization") and extended the term of the RBCA by one year. In September 2003, Company management formed a Delaware limited liability company called Gearcap LLC ("Gearcap") to affect the Recapitalization of Holdings. Gearcap purchased 11.375% Senior Discount Notes of Holdings ("Notes") with an aggregate principal amount at maturity of approximately $30.5 million and an accreted book value of $27.4 million at September 27, 2003 (the "Contributed Holdings Discount Notes") for approximately $12.3 million in cash. Gearcap and Holdings subsequently entered into an Exchange Agreement under which they exchanged 8,250 shares of newly authorized Holdings Class C common stock and 11,490 shares of newly authorized Series E 10% Cumulative Preferred Stock for the Contributed Holdings Discount Notes. The Company and Holdings entered into a Contribution Agreement under which Holdings contributed the Contributed Holdings Discount Notes it received from Gearcap to the Company as a capital contribution. The Company intends to pledge the Notes as collateral under the RBCA. On September 26, 2003, the Company purchased Notes with an aggregate principal amount at maturity of approximately $29.5 million and an accreted book value of $26.5 at September 27, 2003 for approximately $12.2 million of which $11.6 million was included in accounts payable. The Company intends to pledge the Notes as collateral under the RBCA. When combined with Notes previously acquired in December 2002, the Company now owns Notes with an aggregate maturity value of $84 million at September 27, 2003. The Company owns 78% of the issued Notes and has elected to record its investment in Notes (including Notes previously acquired) as a reduction of stockholders' equity at the acquisition cost of the Notes. At a future date the Company intends to distribute to Holdings its acquired Notes to permit the parent company to formally retire these Notes. The Company is currently restricted under its various long-term debt agreements from making this distribution for the next several years. At September 27, 2003 Stockholders' equity (deficiency) included a reduction of $34.4 million representing the acquisition cost of the Notes. 14 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities in the first quarter of fiscal 2004 was $17.3 million compared to cash used by operating activities of $6.8 million last year. Higher net income, lower inventory levels and increased income tax and accounts payable produced improved fiscal 2004 operating cash flows. Accounts payable at September 27, 2003 included $11.6 million in unpaid funds to settle the Recapitalization transaction. These funds were subsequently expended using borrowings under the RBCA. Fiscal 2003 operating cash flows were used to fund the increase in accounts receivable and inventory related to the addition of the Champion(R) college bookstore business. Cash provided by investing activities in the first quarter of fiscal 2004 was $1.8 million compared to cash used in investing activities of $861,000 last year. The $2.8 million in proceeds from the sale of the Lenexa distribution facility in fiscal 2004 created the cash provided by investing activities compared to last year. The Company anticipates fiscal 2004 capital expenditures to approximate $5.9 million, which includes the acquisition of equipment related to its warehouse consolidation and automation initiative. Cash used in financing activities in the first quarter of fiscal 2004 was $19.1 million compared to cash provided by financing activities of $8.6 million in the comparable period of fiscal 2003. The purchase of Holdings Notes and the repayment of bank debt was the primary use of cash in fiscal 2004. In the first quarter of fiscal 2003 borrowings under the Company's bank credit facility to finance higher levels of inventory and accounts receivable was the principal source of cash provided by financing activities. Under the Company's Revolving Bank Credit Agreement ("RBCA") up to $65 million of revolving credit availability is provided, of which $16.3 million was borrowed and outstanding and approximately $3.9 million was utilized for outstanding commercial and stand-by letters of credit as of September 27, 2003. At September 27, 2003, $36.4 million was available for future borrowings under the RBCA. The Company believes that cash flows from operating activities and borrowings under the RBCA will be adequate to meet the Company's short-term and future liquidity requirements prior to the maturity of the RBCA in fiscal 2006, although no assurance can be given in this regard. The Company anticipates paying dividends to its parent to enable Holdings to pay corporate income taxes, interest on the remaining 11.375% Senior Discount Notes ("Holdings Discount Notes'), fees payable under consulting agreements, preferred stock dividends and certain other ordinary course expenses incurred on behalf of the Company. Holdings is dependent upon the cash flows of the Company to provide funds to service its debt and meet its contractual obligations. At September 27, 2003, Holdings' debt to third parties, excluding the debt of its subsidiaries, totaled approximately $22 million. Holdings Discount Notes do not have an annual cash flow requirement until fiscal 2005 as they accrue interest at 11.375% per annum, compounded semi-annually to an aggregate principal amount of $24.5 million at September 15, 2004. Thereafter, the Holdings Discount Notes will accrue interest at the rate of 11.375% per annum, payable semi-annually, in cash on March 15 and September 15 of each year, commencing on March 15, 2005. Additionally, Holdings' cumulative non-cash preferred stock ("Holdings Preferred Stock") dividends total approximately $1.5 million annually. During first quarter, the Company entered into a ten-year operating lease for approximately 240,000 square feet of space in an existing industrial building near its Lenexa headquarters to support the distribution automation initiative. Rent under the lease will commence in the third quarter of fiscal 2004. Annual rent is $730,000. The agreement provides for one ten year extension and allows the Company an option to expand into an additional 65,000 square feet of existing space. 15 SEASONALITY AND INFLATION The Company experiences seasonal fluctuations in its sales and profitability, with generally higher sales and gross profit in the first and second quarters of its fiscal year. The seasonality of sales and profitability is primarily due to higher college bookstore sales during the first two fiscal quarters. Sales at the Company's Resort and Corporate divisions typically show little seasonal variations. The impact of inflation on the Company's operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Company's operating results. OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DERIVATIVE AND MARKET RISK DISCLOSURE The Company's market risk exposure is primarily due to possible fluctuations in interest rates. The fixed rate portion of the Company's long-term debt does not bear significant interest rate risk. An immediate 10% change in interest rates would not have a material effect on the Company's results of operations over the next fiscal year, although there can be no assurances that interest rates will not significantly change. ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period ended September 27, 2003. Based on that evaluation, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any pending legal proceeding the resolution of which, the management of the Company believes, would have a material adverse effect on the Company's results of operations or financial condition, nor to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ------ ----------- 10.28 Third Consent and Amendment, dated as of September 8, 2003, to the Credit Agreement dated as of March 28, 2002. 10.29 Contribution Agreement, dated as of September 26, 2003, between GFSI Holdings, Inc. and GFSI, Inc. 10.30 Amendment to Management Consulting Agreement, dated as of September 26, 2003, between GFSI Holdings, Inc. and TJC Management Corporation. 10.31 Management Agreement, dated as of October 1, 2003, between Gearcap LLC and GFSI Holdings, Inc. 17 10.32 First Amendment to Third Consent and Amendment, dated as of September 30, 2003. 31.1 Certification of Principal Executive Officer. 31.2 Certification of Principal Financial Officer. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, announcing the acquisition of $30 million (maturity value) of GFSI Holdings, Inc.'s 11.375% Senior Discount Notes, on October 2, 2003. 18 SIGNATURES Pursuant to the requirements 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. GFSI, INC. November 5, 2003 /s/ J. Craig Peterson ---------------------------------------------------- J. Craig Peterson, Sr. Vice President of Finance and Principal Accounting Officer 19 EX-10.28 3 ex10-28.txt THIRD CONSENT AND AMENDMENT Exhibit 10.28 THIRD CONSENT AND AMENDMENT This Third Consent and Amendment (the "Consent and Amendment") is dated as of September 8, 2003, among GFSI, Inc., a Delaware corporation (the "Borrower"), GFSI Holdings, Inc., a Delaware corporation ("Holdings"), each of the financial institutions a party to thereto (such financial institutions, together with their successors and assigns, are referred to in this Consent and Amendment each individually as a "Lender" and collectively as the "Lenders"), and Bank of America, N.A., as agent for the Lenders (in its capacity as agent, the "Agent") and pertains to the Loan Documents, including, without limitation: (i) the Credit Agreement dated as of March 28, 2002, among Borrower, Holdings, Lenders and the Agent (as it has been or may hereafter be amended, restated, supplemented, extended or otherwise modified, the "Credit Agreement"), (ii) the Security Agreement dated as of March 28, 2002, among Borrower, Event 1, Inc., CC Products, Inc. and Agent (as it has been or may hereafter be amended, restated, supplemented, extended or otherwise modified, the "Security Agreement"), and (iii) the Pledge Agreement dated as of March 28, 2002, between Holdings and the Agent (as it has been or may hereafter be amended, restated, supplemented, extended or otherwise modified, the "Holdings Pledge Agreement"), and (iv) the Pledge Agreement dated as of March 28, 2002, between Borrower and Agent (as it has been or may hereafter be amended, restated, supplemented, extended or otherwise modified, the "Borrower Pledge Agreement"). Recitals 1. Jefferies & Company ("Jefferies") is purchasing 11.375% Senior Discount Notes of Holdings (the "Notes") with an aggregate principal amount at maturity exceeding $40 million. In connection with these purchases, the Indenture dated September 17, 1997, between Holdings and U.S. Bank, N.A. (as successor to State Street Bank and Trust Company), as Trustee (as amended, the "Indenture"), as amended by the First Supplemental Indenture dated as of October 11, 1999, will be further amended by a Second Supplemental Indenture (the "Second Supplemental Indenture"). Jefferies will then sell to Borrower and Gearcap (as defined below), and Borrower and Gearcap will each purchase from Jefferies, the Notes (as described in paragraphs 2 and 3 below). 2. Larry D. Graveel (a director and officer of Borrower and Holdings and a beneficial stockholder of Holdings), Michael H. Gary (a director and officer of Borrower and Holdings and a beneficial stockholder of Holdings) and Barry Golden (a beneficial stockholder of Holdings) formed a Delaware limited liability company called Gearcap LLC ("Gearcap"). Gearcap is being initially capitalized with approximately $12.3 million in initial capital contributions -1- by Messrs. Graveel, Gary and Golden and borrowings from Messrs. Golden and Robert M. Wolff (a director and officer of Borrower and Holdings and a beneficial stockholder of Holdings). Gearcap's repayment of these member loans is being secured by Gearcap's pledge of the Holdings stock it acquires from Holdings (as described in paragraph 4 below) to Messrs. Golden and Wolff. Gearcap is using these funds to purchase Notes from Jefferies (as described in paragraph 1 above) and to pay the 2003 Transaction Expenses (as described in paragraph 9 below). 3. Borrower is borrowing up to $10 million from the Lenders under the Credit Agreement. Borrower is using the proceeds of this loan to purchase Notes from Jefferies (as described in paragraph 1 above) and pay the 2003 Transaction Expenses (as described in paragraph 9 below). Borrower will hold these Notes as an investment and pledge them as additional Collateral under the Credit Agreement. 4. Holdings and Gearcap will enter into an Exchange Agreement (the "Exchange Agreement") under which they will agree to exchange newly authorized stock of Holdings for Notes. Gearcap will exchange the Notes it purchases from Jefferies for, and Holdings will issue to Gearcap in exchange for the Notes being tendered: (a) 8,250 shares of duly authorized and fully paid shares of Series C common stock of Holdings (approximately 80% of the fully diluted issued and outstanding common stock of Holdings and with substantially the same attributes as Holdings' existing Series A and B common stock), and (b) 11,490 shares of duly authorized and fully paid shares of Series E 10% Cumulative Preferred Stock of Holdings (approximately 78% of the fully diluted issued and outstanding preferred stock of Holdings and with substantially the same attributes as Holdings' existing Series A, B and C preferred stock). After the exchange, the ownership (of record or beneficial) of Holdings common stock will be approximately as follows: ========================================= ======================= Stockholder Percentage Directly Held ----------------------------------------- ----------------------- Gearcap 80% ----------------------------------------- ----------------------- Management Stockholders 10% ----------------------------------------- ----------------------- Jordan Stockholders 10% ========================================= ======================= 5. Borrower and Holdings will enter into a contribution agreement (the "Contribution Agreement") under which Holdings will contribute the Notes it receives from Gearcap to Borrower as a capital contribution. Borrower will hold these Notes as an investment and pledge them as additional Collateral under the Credit Agreement. -2- 6. Holdings and its shareholders (including Gearcap) will enter into an agreement (the "Second Amended and Restated Stockholders Agreement") that amends the existing Amended and Restated Subscription and Stockholders Agreement dated as of December 19, 2000, among Holdings and its shareholders. 7. Holdings and Gearcap will enter into a management agreement (the "2003 Management Agreement") with Gearcap under which Gearcap will provide certain services to Holdings and its affiliates in return for the payment of certain fees and expenses. The 2003 Management Agreement will have a 10 year term and will be in addition to the TJC Amendment (as defined below). 8. Holdings and TJC Management Corporation will enter into an agreement (the "TJC Amendment") that amends the existing Management Consulting Agreement between them dated February 27, 1997, to reduce the amount payable by Holdings to TJC Management Corporation from up to $1,000,000 annually to $100,000 annually plus reasonable out of pocket expenses. 9. Gearcap, Holdings and Borrower will bear the transaction costs relating to the 2003 Recapitalization Transactions (as defined below), including, without limitation, commissions, trading fees and other fees of Jefferies, the Amendment Fee (as defined below) and legal, accounting and tax opinion fees and related expenses (collectively, the "2003 Transaction Expenses"). 10. The three directors of Holdings and Borrower representing the Jordan shareholders will resign. The vacancies created by these resignations will either be filled with new directors or eliminated by reducing the size of the Boards of Directors, or both. 11. The Stated Termination Date under the Credit Agreement will be extended to January 15, 2006 (or the date to which the Credit Agreement is extended under Section 10.1 of the Credit Agreement), if Borrower and Gearcap (or either of them) purchase, in the aggregate, Notes with an aggregate principal amount at maturity exceeding $50,000,000 on or before December 31, 2003. 12. Messrs. Graveel, Gary and Peterson will cease being employed by Holdings and become employed by Gearcap. 13. The Articles of Incorporation of Holdings will be amended (the "Articles Amendment"). 14. The transactions and related matters described above in these Recitals and as more fully described in Indenture (as amended by the Second Supplemental Indenture), the Exchange Agreement, the Contribution Agreement, the Second Amended and Restated Stockholders Agreement, the 2003 Management Agreement, the TJC Agreement Amendment, the Articles Amendment and the documents and instruments referred to or delivered by Borrower, Holdings or Gearcap under them (collectively, the "Recapitalization Documents") are collectively referred to in this Consent and Amendment as the "2003 Recapitalization Transactions." In connection with these transactions, Borrower has requested that the Lenders and Agent execute and deliver this Consent and Amendment. -3- Agreement Therefore, in consideration of the mutual execution of this Consent and Amendment and other good and valuable consideration, the parties to this Consent and Amendment agree as follows: 1. Definitions. Capitalized terms that are used in this Consent and Amendment but are not otherwise defined in this Consent and Amendment have the meanings ascribed to them in the Credit Agreement. 2. Amendment Fee. Borrower will pay to Agent, for the ratable benefit of Lenders, an amendment fee in an amount equal to $150,000 (the "Amendment Fee"), which fee will be fully earned on the date of this Consent and Amendment and payable on the date on which Borrower purchases its portion of the Notes. The Agent and the Lenders agree that Borrower's obligation to pay this Amendment Fee will be waived if Borrower fails to purchase any Notes on or before December 31, 2003. Notwithstanding the foregoing, if the Stated Termination Date is extended to January 15, 2006, and Borrower has not otherwise paid the Amendment Fee because Borrower has not purchased any Notes, Borrower acknowledges and agrees: (a) that it will immediately pay an extension fee in an amount that is mutually acceptable to Borrower, Agent and Lenders, and (b) that the extension will not become effective until Borrower pays this fee. 3. Loan Document Consents. Upon satisfaction of the conditions set forth in Section 5 of this Consent and Amendment, Agent and Lenders agree as set forth below in this Paragraph 3. These agreements are not effective as to any Note purchases or 2003 Transaction Expenses occurring after December 31, 2003. (a) Lenders and Agent agree that this Consent and Amendment satisfies any duty of Borrower or its Subsidiaries to give notice to Lenders or Agent under the Loan Documents, including under Section 5.3(j) of the Credit Agreement and Section 4 of the Security Agreement, of the location of the Collateral or the relocation of the Collateral, but only with respect to Notes and only to the extent that the Notes constitute Collateral. (b) Notwithstanding the provisions of Sections 6.22 and 7.25 of the Credit Agreement that limit Borrower's use of the proceeds of the Loans to certain specified uses, Lenders and Agent consent and agree to Borrower's use of proceeds of the Loans in an aggregate amount not to exceed $10,000,000 for Borrower's purchase of Notes and for the payment of the 2003 Transaction Expenses; provided, that: -4- (i) Borrower's use of the proceeds of the Loans to purchase the Notes occurs no later than December 31, 2003, and (ii) Borrower is responsible for no more than 50% of the total funds that Borrower and Gearcap, in the aggregate, use to purchase Notes and pay 2003 Transaction Expenses in connection with the 2003 Recapitalization Transactions. (c) Notwithstanding the provisions of Section 7.10 of the Credit Agreement that prohibit certain Restricted Investments, Lenders and Agent consent and agree to Borrower's purchase of Notes from Jefferies, and Holdings' acquisition of Notes from Gearcap and subsequent contribution of Notes to Borrower. Lenders and Agent acknowledge that Borrower may purchase additional Notes, notwithstanding the limitations set forth in this paragraph (c), with Gearcap funding, with the written consent and agreement of Lenders and Agent after the date of this Consent and Amendment. (d) Notwithstanding the provisions of Section 7.13 of the Credit Agreement and Section 6(d) of the Holdings Pledge Agreement, Lenders and Agent consent and agree that Holdings has no obligation to pledge, and will not pledge, the Notes that it receives from Gearcap under the Exchange Agreement and contributes to Borrower under the Contribution Agreement. (e) Notwithstanding the provisions of Section 7.15 of the Credit Agreement that prohibit Borrower from investing in an Affiliate, purchasing indebtedness of an Affiliate, paying the expenses of an Affiliate, or engaging in certain other transactions, Lenders and Agent consent and agree to: (i) Borrower's purchase of Notes, provided that: (A) such Note purchases occur no later than December 31, 2003, (B) Borrower uses no more than $10,000,000 in the aggregate of the proceeds of the Loans to acquire such Notes and pay 2003 Transaction Expenses, and (C) Borrower is responsible for no more than 50% of the total funds that Borrower and Gearcap, in the aggregate, use to purchase Notes and pay 2003 Transaction Expenses in connection with the 2003 Recapitalization Transactions, (ii) Borrower's payment of the 2003 Transaction Expenses, and (iii) Borrower's and Holdings' execution and delivery of the Contribution Agreement and the consummation of the transactions contemplated under it. -5- (f) Notwithstanding the provisions of Section 7.15 of the Credit Agreement that prohibit Borrower and its Subsidiaries from transferring, purchasing or repurchasing any stock or indebtedness of any Affiliate, and engaging in certain other transactions, Agent and Lenders consent and agree to Borrower's and Holdings' execution and delivery of the Contribution Agreement and the consummation of the transactions contemplated under it. (g) Notwithstanding the provisions of Section 7.17 of the Credit Agreement that prohibit Borrower from engaging in any business other than the business it was engaged in the date of the Credit Agreement, Lenders and Agent consent and agree to Borrower's: (i) purchase or receipt of Notes, and (ii) subsequent holding of the Notes as an investment. (h) Notwithstanding the provisions of Section 9.1(p) of the Credit Agreement under which a Change of Control is an Event of Default, the Lenders and Agent consent to the Change of Control otherwise caused by the 2003 Recapitalization Transactions and waive any resulting Event of Default. Lenders and Agent acknowledge and agree that Holdings and Borrower may replace the Jordan Directors and/or reduce the size of their respective Boards of Directors. (i) Agent and Lenders agree that they will, at any time and from time to time, at Borrower's reasonable request and at Borrower's expense, execute and deliver to Borrower all other instruments that are reasonably necessary to effectuate the 2003 Recapitalization Transactions. (j) Notwithstanding any other provision of any of the Loan Documents, and without limitation by the specific consents and amendments granted or made in this Consent and Amendment, the Lenders and Agent consent to the 2003 Recapitalization Transactions, as described in the Recitals and more fully described in the Recapitalization Documents. 4. Amendments. The Loan Documents are amended as follows: (a) Schedule 6.4 to the Credit Agreement ("Corporate Name; Prior Transactions") is amended in its entirety by substituting the revised Schedule 6.4 that is attached to this Consent and Amendment as Exhibit A. (b) Schedule 6.5 to the Credit Agreement ("Subsidiaries and Affiliates") is amended in its entirety by substituting the revised Schedule 6.5 that is attached to this Consent and Amendment as Exhibit B. (c) Section 6.7(b) of the Credit Agreement is amended in its entirety so that, as amended, it reads as follows: -6- "(b) Holdings' authorized common capital stock consists of: (i) 1,000 shares of Series A common stock, par value $.01 per share of which 1,000 shares are validly issued and outstanding or held as treasury stock, fully paid and non-assessable, (ii) 1,000 shares of Series B common stock, par value $.01 per share, of which 1,000 shares are validly issued and outstanding, fully paid and non-assessable and; in each case, are owned beneficially and of record by the parties listed on Schedule 6.7, and (iii) 12,000 shares of Series C common stock, par value $.01 per share, of which 8,250 shares are validly issued and outstanding, fully paid and non-assessable and are owned of record by Gearcap." (d) Schedule 6.7 to the Credit Agreement ("Capitalization") is amended in its entirety so that, as amended, it reads as set forth on the attached Exhibit C. (e) Schedule 6.26 to the Credit Agreement ("Material Agreements") is amended in its entirety by substituting the revised Schedule 6.26 that is attached to this Consent and Amendment as Exhibit D. (f) The proviso at the end of the definition of "Affiliate" in the Credit Agreement is amended so that as amended, it reads as follows: "provided, however, that the term "Affiliate" specifically excludes JZ Equity Partners PLC and Gearcap." (g) The definition of "Change of Control" in the Credit Agreement is amended to read as follows: "Change of Control" means any event, transaction or occurrence as a result of which: (a) the Management Stockholders collectively cease to own and control, whether directly of record or through ownership of units of Gearcap, all of the economic and voting rights associated with ownership of at least fifty-five percent (55%) of the outstanding common stock of Holdings, (b) Holdings ceases to own and control all of the economic and voting rights associated with all of the outstanding capital stock of Borrower, or (c) Borrower ceases to own and control all of the economic and voting rights associated with all of the outstanding capital stock of any of its Subsidiaries. -7- For purposes of this definition, ownership of any percentage of the equity units of Gearcap is deemed to be ownership of the same percentage of the shares of common stock of Holdings then held by Gearcap. (h) The definition of "ERISA Affiliate" in the Credit Agreement is amended by adding at the end of the definition the following proviso: "provided, however, that the term "ERISA Affiliate" specifically excludes Gearcap." (i) The definition of "Jordan Stockholders" in the Credit Agreement is deleted in its entirety. (j) The definition of "Management Stockholders" in the Credit Agreement is amended so that as amended, it reads as follows: "Management Stockholders" means Robert Wolff, Larry Graveel, Mike Gary, J. Craig Peterson, Jason Krakow, Carl Allard, Jim Malseed and their family members and trusts for the benefit of any of the foregoing." (k) The definition of "Permitted Holdings Payments" in the Credit Agreement is amended in its entirety by substituting the revised definition that is attached to this Consent and Amendment as Exhibit E. (l) The definition of "Stated Termination Date" in the Credit Agreement is amended so that, as amended, it reads as follows: "Stated Termination Date" means January 15, 2005, or the date to which this Agreement is extended pursuant to Section 10.1; provided that if Borrower and Gearcap (or either of them) purchase, in the aggregate, Holdings' 11.375% Senior Discount Notes with an aggregate principal amount at maturity exceeding $50,000,000 on or before December 31, 2003, then "Stated Termination Date" will mean January 15, 2006, or the date to which this Agreement is extended pursuant to Section 10.1. (m) Section 6(a) of the Security Agreement is amended so that, as amended, it reads as follows: "such Grantor has rights in and the power to transfer all of the Collateral free and clear of all Liens whatsoever, except for Permitted Liens and except for the limitations and restrictions imposed on the transfer of securities (including the Notes) by applicable federal and state law." (n) Schedule I to the Borrower Pledge Agreement is amended in its entirety by substituting the revised Schedule I that is attached to this Consent and Amendment as Exhibit F. -8- (o) The definition of "Fixed Charges" is amended in its entirety so that as amended, it reads as follows: "Fixed Charges" means, with respect to any fiscal period of Holdings on a consolidated basis, without duplication, interest expense paid in cash, scheduled principal payments of Debt, scheduled amortization of the Fixed Asset Amount, Federal, state, local and foreign income taxes (net of any tax benefits with respect to such taxes), excluding deferred taxes, but including all such taxes paid by or refunded to, Holdings and its Subsidiaries on a consolidated basis and without duplication of amounts deductible in the calculation of EBITDA, all Distributions paid in cash by Holdings and the borrower, plus the difference between: (i) any Distribution paid in cash permitted pursuant to clause (e) or (i) of the definition of Permitted Holdings Payments, minus (ii) an amount equal to the cash proceeds received by Holdings from stock issuances, stock reissuances or the exercise of stock options to the extent such proceeds are distributed or contributed to the Borrower, but "Fixed Charges" does not include: (A) Borrower's payment of funds to Holdings for use in paying interest or other payments under the Notes that Borrower holds, and Holdings' payment to Borrower of interest or other payments under the Notes that Borrower holds, but in each case only to the extent that Borrower receives the interest or other payments, (B) Borrower's deemed payment of funds to Holdings for use in paying interest or other payments under the Notes that Borrower holds, and Holdings' deemed payment to Borrower of interest or other payments under the Notes that Borrower holds, but in each case only to the extent that Borrower is credited with the deemed interest or other payments, and (C) Borrower's assignment to Holdings of its right to receive interest or other payments under the Notes that Borrower holds, subject to the rights of Agent and Lenders under the Loan Documents with respect to Collateral upon the occurrence of an Event of Default. (p) Annex A to the Credit Agreement is amended by adding the following new definitions: -9- "Consent and Amendment" means the Third Consent and Amendment to this Credit Agreement. "Gearcap" means Gearcap LLC, a Delaware limited liability company. "2003 Transaction Expenses" means the transaction costs relating to the recapitalization transactions described in the Consent and Amendment, including, without limitation, commissions, trading fees and other fees of Jefferies & Company, the amendment fee paid by Borrower in connection with the Consent and Amendment and legal, accounting and tax opinion fees and related expenses 5. Conditions to Effectiveness. (a) Except as set forth in subparagraph (b) below, this Consent and Amendment will become effective when each of the following conditions precedent has been met or waived in writing by Agent: (i) Consent and Amendment. Agent, Borrower, Holdings, Event 1, Inc. CC Products, Inc. and Lenders will have delivered to the others duly executed counterparts to this Consent and Amendment. (ii) Reaffirmation of Guaranty. Holdings will have executed and delivered to Agent the Reaffirmation of Guaranty attached to this Consent and Amendment. (b) Assuming that the conditions precedent set forth in clause (a) above have been satisfied: (i) Clauses (b), (d), (g) and (i) of Paragraph 4 ("Amendments") of this Consent and Amendment will become effective upon the consummation of the related transactions, as the case may be, contemplated by the Exchange Agreement or other Recapitalization Documents. (ii) To the extent that clause (c) of Paragraph 4 ("Amendments") of this Consent and Amendment pertains to the authorized capital stock of Holdings, it will become effective upon the filing of the Articles Amendment. The remainder of this clause (c) will become effective upon the consummation of the related transactions, contemplated by the Exchange Agreement or other Recapitalization Documents. (iii) To the extent clause (k) of Paragraph 4 ("Amendments") of this Consent and Amendment pertains to subparagraph (a) of the "Permitted Holdings Payments" definition found on Exhibit E, it will become effective upon the execution and delivery of the TJC Amendment. -10- (iv) Clause (n) of Paragraph 4 ("Amendments") of this Consent and Amendment will become effective upon the earlier of (A) the consummation of the related transactions contemplated by the Contribution Agreement, and (B) Borrower's purchase of Notes or other Recapitalization Documents. 6. Acknowledgment and Deliveries. Borrower affirms its obligation under the Loan Documents to pledge the Notes it acquires from Jefferies and the Notes it acquires from Holdings to Agent (for itself and for the benefit of the Lenders), and will do so promptly after acquiring the Notes. Borrower will deliver fully executed copies of the Recapitalization Documents to Agent, certified as complete and accurate by an officer of Borrower, promptly upon the execution and delivery of the Recapitalization Documents. 7. Costs and Expenses. As provided in Section 13.7 of the Credit Agreement, Borrower will reimburse Agent for all reasonable costs and expenses that Agent incurs (including reasonable attorneys' costs) in connection with the preparation, execution, delivery and administration of this Consent and Amendment (and the other documents to be delivered in connection with this Consent and Amendment). 8. Miscellaneous. Except to the extent compliance with this Consent and Amendment is expressly waived or consents are granted under this Consent and Amendment, the Credit Agreement will remain unchanged and in full force and effect. This Consent and Amendment may be executed in any number of counterparts, all of which taken together will constitute one and the same amendatory instrument. Any of the parties to this Consent and Amendment may execute this Consent and Amendment by signing any such counterpart and sending it by telecopier, mail messenger or courier to the Agent or the Agent's counsel. The parties intend that this Consent and Amendment be interpreted, and the rights and liabilities of the parties to this Consent and Amendment be determined, under the internal laws (as opposed to the conflict of laws provisions) of Illinois; but the Agent and the Lenders retain all rights arising under federal law. The attached Exhibits A through F are incorporated into this Consent and Amendment by this reference. [The remainder of this page intentionally left blank] -11- IN WITNESS WHEREOF, the parties to this Consent and Amendment have caused it to be duly executed as of the day and year first above written. "BORROWER" GFSI, Inc. By: /s/ Larry Graveel ----------------------------------- Larry Graveel, President "HOLDINGS" GFSI Holdings, Inc. By: /s/ Larry Graveel ----------------------------------- Larry Graveel, President [This is one of the signature pages to the Third Consent and Amendment dated as of September 8, 2003.] -12- EVENT 1, INC. By:/s/ Larry Graveel -------------------------------- Name: Larry Graveel ------------------------------ Title: President and CEO ----------------------------- CC PRODUCTS, INC. By:/s/ Larry Graveel -------------------------------- Name: Larry Graveel ------------------------------ Title: President and CEO ----------------------------- [This is one of the signature pages to the Third Consent and Amendment dated as of September 8, 2003.] -13- "AGENT" BANK OF AMERICA, N.A., as the Agent By: /s/Dan Jelaca -------------------------------- Dan Jelaca, Vice President "LENDERS" BANK OF AMERICA, N.A., as a Lender By: /s/ Dan Jelaca -------------------------------- Dan Jelaca, Vice President [This is one of the signature pages to the Third Consent and Amendment dated as of September 8, 2003.] -14- THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender By: /s/ James K. Harris ------------------------------- James K. Harris, Vice President [This is one of the signature pages to the Third Consent and Amendment dated as of September 8, 2003.] -15- U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ Thomas Visconti ------------------------------- Thomas Visconti, Vice President [This is one of the signature pages to the Third Consent and Amendment dated as of September 8, 2003.] -16- Reaffirmation of Guaranty The undersigned Guarantor acknowledges receipt of a copy of this Third Consent and Amendment, and reaffirms the Guaranty dated March 28, 2002, between GFSI Holdings, Inc. and Agent. GFSI Holdings, Inc. By:/s/ Larry Graveel -------------------------------- Name: Larry Graveel ------------------------------ Title: President and CEO ----------------------------- -17- EXHIBIT A --------- Schedule 6.4 to the Credit Agreement (Corporate Name; Prior Transactions) Borrower and its Subsidiaries have been known by or used the following corporate or fictitious names within the past five (5) years: o GFSI, Inc. o Event 1, Inc. o CC Products, Inc o Gear Canada ULC . o Champion Custom Products o CC Products-Champion o GEAR For Sports o Any of the trademarks listed on Schedule 6.12. Borrower and/or its Subsidiaries, however, do not receive payments under all of the trade names. In the past five (5) years Borrower and/or its Subsidiaries have been a party to the following transactions: o GFSI Holdings, Inc. ("Holdings") on February 27, 1997, acquired all of the issued and outstanding capital stock of Winning Ways, Inc. and immediately thereafter merged Winning Ways, Inc. with and into GFSI, Inc. ("GFSI") with GFSI as the surviving entity. All of the capital stock of Winning Ways, Inc. acquired by Holdings in connection with the acquisition was contributed to GFSI along with the balance of equity contributions. o On January 29, 1998, GFSI, Inc. established a wholly owned subsidiary, Event 1, Inc. ("Event 1"). o On June 25, 2001, GFSI, Inc. through a series of corporate transactions and mergers effectively acquired 100% of the stock of Champion Products, Inc. ("Champion"). Through these corporate transactions and mergers, CC Products, Inc. became the successor to Champion Products, Inc. o On June 29, 2001, GFSI, Inc. sold its Tandem Marketing business. o During 2002, GFSI, Inc. constructed a screen print decoration facility in Chillicothe, Missouri. o As of December 31, 2002, GFSI, Inc. ("GFSI") entered into an Exchange Agreement with Jefferies Company, Inc., under which GFSI engaged in an exchange of $24,000,000 in aggregate maturity of Notes with a note holder, involving GFSI's issuance of approximately $9,900,000 (aggregate principal amount) of Senior Subordinated Notes pursuant to its Indenture dated as of December 31, 2002 for Series A & B 9 5/8% -18- Senior Subordinated Notes due 2007 with State Street Bank and Trust Company (now succeeded by U.S. Bank, N.A.), as trustee. This transaction is referred to in the Consent and Amendment Agreement. o On August 22, 2003, GFSI, Inc. ("GFSI") entered into a purchase contract, lease agreement, commercial lease and related documents with Lackman-Lenexa 110, L.L.C. and Crow-Spaulding #4, L.L.C., as the case may be, regarding the various sale and relocation transactions by which GFSI sold its facility at 16002 W. 110th Street, Lenexa, Kansas, and leased property at 9700 Lackman, Lenexa, Kansas. This transaction is referred to in the Second Consent and Amendment Agreement. -19- EXHIBIT B Schedule 6.5 to the Credit Agreement (Subsidiaries and Affiliates) - ------------------------ ---------------------------- ------------------------- Name Relationship to Borrower Place of Formation - ------------------------ ---------------------------- ------------------------- Parent corporation GFSI Holdings, Inc. of Borrower Delaware - ------------------------ ---------------------------- ------------------------- Event 1, Inc. Subsidiary to Borrower Kansas - ------------------------ ---------------------------- ------------------------- CC Products, Inc. Subsidiary to Borrower Delaware - ------------------------ ---------------------------- ------------------------- Gear Canada ULC Subsidiary to Borrower Nova Scotia, Canada - ------------------------ ---------------------------- ------------------------- Shareholders of record or beneficial shareholders of GFSI Holdings, Inc. (other than Gearcap) listed on Schedule 6.7 that may be Affiliates. -20- EXHIBIT C --------- Schedule 6.7 to the Credit Agreement (Capitalization) Series A Common Stock Shareholders of GFSI Holdings, Inc.: Robert M Wolff, Trustee 60.0 under that certain Trust Agreement dated 5/7/79 Martin Becker, Trustee of 30.0 the Barry S. Golden Trust UTA dated 10/7/96 Larry Douglas Graveel, Trustee of 225.0 the Larry D. Graveel Revocable Trust dated 8/30/91, as amended from time to time thereafter, and to his successors in trust Michael H. Gary, Trustee of the 205.0 Michael H. Gary Revocable Trust dated 3/10/93 UMB Bank, NA, Trustee for J. Craig 25.0 Peterson IRA 52-3786-02-8 UMB Bank, NA, Custodian for J. 25.0 Craig Peterson IC 51-1329-01-3 Randall D. Stabenow 20.0 Greg M. Johnson 10.0 John Joerger 5.0 Paul Craig Whitener 10.0 James R. Malseed 40.0 Christopher Lee Young 10.0 David Churchman 15.0 Jason A. Krakow 45.0 -21- Carl Allard 15.0 John White 5.0 Darlene D. Gary, Trustee of the 10.0 Michael R. Gary Irrevocable Trust UTA dated 12/23/96 Darlene D. Gary, Trustee of the 10.0 Matthew R. Gary Irrevocable Trust UTA dated 12/31/96 Series B Common Stock Shareholders of GFSI Holdings, Inc.: Leucadia Investors, Inc. 125.0 David W. Zalaznick 78.3125 Jonathan F. Boucher 67.125 A. Richard Caputo, Jr. 50.0 Adam E. Max 50.0 John R. Lowden 22.5 James E. Jordan, Jr. Profit 1.25 Sharing Plan & Trust Douglas Zych 7.5 Paul R. Rodzevik 5.0 The Lowden Family Trust 15.0 John W. Jordan, II Revocable Trust 68.3125 Thomas H. Quinn 10.0 JZ Equity Partners PLC 500.0 Series C Common Stock Shareholders of GFSI Holdings, Inc.: Gearcap 8,250.0 -22- EXHIBIT D --------- Schedule 6.26 to the Credit Agreement (Material Agreements) After giving effect to the making of the Revolving Loans under the Credit Agreement with Bank of America, N.A., as Agent, to be made on the Closing Date, set forth below is a list of "material" agreements and contracts (as each may be amended from time to time) to which the Borrower or any of its Subsidiaries is a party or is bound: o Indenture, dated February 27, 1997, between GFSI, Inc. and Fleet National Bank, as Trustee as amended by the First Supplemental Indenture dated as of June 22, 2001, by the Second Supplemental Indenture dated as of February 28, 2002, and by the Third Supplemental Indenture dated as of June 11, 2002. o Indemnification Agreements between GFSI Holdings, Inc. and its director and executive officers dated February 27, 1997. o Tax Sharing Agreement, dated February 27, 1997, between GFSI, Inc. and GFSI Holdings, Inc. o Management Consulting Agreement, dated February 27, 1997, between GFSI Holdings, Inc. and TJC Management Corporation, as amended by the TJC Amendment. o Employment Agreement, dated February 27, 1997, between GFSI, Inc. and Robert M. Wolff. o Noncompetition Agreement, dated February 27, 1997, between GFSI Holdings, Inc. and Robert M. Wolff. o Indenture, dated September 17, 1997, between GFSI Holdings, Inc. and State Street Bank and Trust Company (now succeeded by U.S. Bank, N.A.), as Trustee, as amended by the First Supplemental Indenture dated as of October 11, 1999. o Embroidery Strategic Partnership Agreement among GEAR For Sports, Impact Design and Kansas Custom dated July 1, 2000. o Screen Print Sourcing Agreement between GEAR For Sports and Impact Design dated April 30, 2001, as amended. o CEBA Loan Agreement, dated April 28, 1998, by and among the Iowa Department of Economic Development, the City of Bedford and GFSI, Inc. o License Agreement, dated October 27, 1998, by and between GFSI, Inc. and Bonmax Co., Ltd. -23- o Employment Agreement, dated as of April 1, 2001, by and between GFSI, Inc. and Robert G. Shaw. o Non-competition Agreement, dated as of April 1, 2001, by and between GFSI, Inc. and Robert G. Shaw. o Gear For Sports Distributor Agreement for Corporate Market between GFSI, Inc. and Zouire, L.L.C. dated June 29, 2001. o Supply Agreement between GFSI, Inc. and Zouire, L.L.C. dated June 29, 2001. o Department of Economic Development CDBG Industrial Infrastructure Program Company Participation Agreement dated November 27, 2001 with the City of Chillicothe, Missouri as Applicant. o Management Agreement between Gear Canada ULC and Fletcher Leisure Group, Inc. o Stock Option Agreements between GFSI Holdings, Inc. and certain of the employees of GFSI, Inc. or Gearcap, with various execution dates. o License Agreement by and between Sara Lee Corporation, CC Products, Inc., CCP Acquisition, Inc. and GFSI, Inc. dated June 25, 2001. o Stock Purchase Agreement by and among Sara Lee Corporation, Champion Products, Inc. and GFSI, Inc. dated as of April 20, 2001, as amended by the First Amendment to Stock Purchase Agreement by and among Sara Lee Corporation, Champion Products, Inc. and GFSI, Inc. dated June 25, 2001. o Champion Art Management System License Agreement by and among Sara Lee Corporation, CC Products, Inc., CCP Acquisition, Inc. and GFSI, Inc. dated July 25, 2001. o Champion Art Management Software Agreement by and among Sara Lee Corporation, CC Products, Inc., CCP Acquisition, Inc. and GFSI, Inc. dated July 25, 2001. o On-Site Supplemental Agreement between GFSI, Inc. and PGA TOUR Licensed Properties, Inc. dated January 7, 2002. o Supplemental Employment Agreement, dated March 31, 2002 between GFSI, Inc. and Robert M. Wolff. o Indenture, dated as of December 31, 2002 between GFSI, Inc. and State Street Bank and Trust Company (now succeeded by U.S. Bank, N.A.), as Trustee. -24- o Consent and Amendment, dated as of December 31, 2002, to the Credit Agreement, dated March 28, 2002. o Lease Agreement dated August 22, 2003 between Crow-Spaulding #4, L.L.C., as landlord, and GFSI, Inc., as tenant. o Commercial Lease dated August 22, 2003 between Lackman-Lenexa 110, L.L.C., as landlord, and GFSI, Inc., as tenant. o Purchase Contract dated August 21, 2003 between GFSI, Inc., as seller, and Lackman-Lenexa 110, L.L.C., as Buyer. o Second Consent and Amendment, dated as of August 12, 2003, to the Credit Agreement dated March 28, 2002. o Management Agreement between GFSI Holdings, Inc. and Gearcap, when executed and delivered. o Second Amended and Restated Shareholders Agreement by and among GFSI Holdings, Inc. and its investors, when executed and delivered. o Amendment to Management Consulting Agreement between GFSI Holdings, Inc., and TJC Management Corporation, when executed and delivered. o Contribution Agreement between GFSI, Inc., and GFSI Holdings, Inc., when executed and delivered. o See contracts and agreements described in Schedules 6.9, 6.11 and 6.12. Several agreements, including concessionaire agreements, which have been entered into by Borrower and/or its Subsidiaries in the ordinary course of business have not been included in the foregoing list. -25- EXHIBIT E --------- "Permitted Holdings Payments" means any Distribution by the Borrower or its Subsidiaries to Holdings at any time other than after and during the occurrence of an Event of Default (except for purposes of any Distribution described in clause (b) of this definition) for the purpose of: (a) enabling Holdings to pay the fees due under the Management Consulting Agreement dated February 27, 1997, as amended, in an amount not to exceed $100,000 per annum in quarterly installments, plus reasonable out of pocket expenses. (b) meeting obligations with respect to tax obligations under the Tax Sharing Agreement dated as of February 27, 1997, between Holdings and the Borrower, (c) enabling Holdings to pay the fees due under the Management Agreement to be executed and delivered between Holdings and Gearcap, provided, that any such fees shall include only interest on the $6,500,000 loan to Gearcap by Robert M. Wolff and Barry Golden to enable Gearcap to purchase the Notes and pay the 2003 Transaction Expenses, reasonable business expenses of Gearcap and its employees (including, without limitation, life and other insurance, payroll, payroll taxes, employment benefits, accounting fees and related expenses, tax related fees and related expenses, and general administrative expenses), salaries, bonuses and other related compensation amounts for employee members of Gearcap to the extent that such employee members were employees of Holdings or Borrower immediately before the effectiveness of this Consent and Amendment, (d) enabling Holdings to contribute the 11.375% Senior Discount Notes of Holdings to Borrower under the Contribution Agreement to be executed and delivered between Holdings and Borrower, (e) making payments and stock repurchases under the Second Amended and Restated Stockholders Agreement, as amended from time to time, or any related agreements (including payments on any debt relating thereto) in an aggregate amount not to exceed $1,000,000 per annum, (f) enabling Holdings to pay the costs of accounting, legal, administrative, directors, franchise tax, governmental and other ordinary course fees (including payments on any debt relating thereto), expenses and indemnities, in an aggregate amount not to exceed $500,000 per annum, (g) enabling Holdings to pay the 2003 Transaction Expenses, (h) enabling Holdings to pay scheduled payments or other amounts due on and after March 15, 2005, under the Notes, or otherwise due under the Indenture dated September 17, 1997, between Holdings and U.S. Bank, N.A. (as successor to State Street Bank and Trust Company), as Trustee, as amended and supplemented and as in effect on the date of this Consent and Amendment, -26- (i) enabling Holdings to purchase Holdings capital stock from current or former executives, management and employees of the Borrower or its Subsidiaries of up to a maximum of $500,000 in the aggregate per year, (j) enabling Holdings to make any payments required in connection with that certain Noncompetition Agreement dated as of February 27, 1997 by and between Holdings and Robert M. Wolff in an amount not to exceed $250,000 per annum, and any assignment by Borrower to Holdings of Borrower's rights to receive interest and other payments from Holdings under the Notes, or otherwise due under Indenture dated September 17, 1997, between Holdings and U.S. Bank, N.A. (as successor to State Street Bank and Trust Company), as Trustee, as amended and supplemented and as in effect on the date of this Consent and Amendment. Notwithstanding anything in this Agreement to the contrary, if Holdings sells any capital stock repurchased under clause (e) or (i) above, an amount equal to the proceeds of such sales shall be deemed to reduce the amounts previously applied against the respective maximum amounts set forth in such clause(s); provided that the proceeds of such sales are distributed to the Borrower. -27-
EXHIBIT F Schedule I to Borrower Pledge Agreement PART A ------ PLEDGED SHARES - ---------------------- ----------------------- --------------------- ---------------------- ---------------------- Stock Certificate Percentage of Pledged Entity Class of Capital Stock Number(s) Number of Shares Outstanding Shares - ---------------------- ----------------------- --------------------- ---------------------- ---------------------- Events 1, Inc. Common 1 1,000 100% - ---------------------- ----------------------- --------------------- ---------------------- ---------------------- CC Products, Inc. Common 1 100 100% - ---------------------- ----------------------- --------------------- ---------------------- ---------------------- PART B ------ PLEDGED INDEBTEDNESS - ------------------ ---------------- ------------------ ------------------- ------------------ ------------------- Pledged Entity Face Amount Outstanding Issue Date Maturity Date Interest Rate Balance as of Closing Date - ------------------ ---------------- ------------------ ------------------- ------------------ ------------------- CC Products, Inc. $10,000,000 $3,509,469.24 3/28/2002 Demand n/a - ------------------ ---------------- ------------------ ------------------- ------------------ ------------------- Senior Discount [___________] $[__________] ____, 2003 ________ 11.375% Notes of GFSI Holdings, Inc. - ------------------ ---------------- ------------------ ------------------- ------------------ -------------------
-28- EX-10.29 4 ex-1029.txt CONTRIBUTION AGREEMENT CONTRIBUTION AGREEMENT This CONTRIBUTION AGREEMENT dated as of September 26, 2003 (this "Agreement") is by and between GFSI Holdings, Inc., a Delaware corporation (the "Parent"), and GFSI, Inc., a Delaware corporation (the "Subsidiary"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Subsidiary is a wholly-owned subsidiary of Parent; WHEREAS, Parent has agreed to contribute to Subsidiary and Subsidiary has agreed to accept from Parent all of its right, title and interest in at least $20 million in aggregate principal amount at maturity of Parent's 11.375% Senior Discount Notes (the "Contributed Notes"); NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Contribution and Acceptance. 1.1 Contribution and Acceptance. Parent agrees to contribute to the capital of Subsidiary, and to transfer and assign to Subsidiary all of its right, title and interest in, to and under the Contributed Notes, which contribution, transfer and assignment Subsidiary hereby accepts. This transaction is intended to qualify as a transfer governed by Section 351 of the Internal Revenue Code of 1986, as amended. 1.2 Effective Date. The contribution of the Contributed Notes shall be effective immediately after Parent acquires the Contributed Notes from Gearcap LLC. 2. Representations, Warranties and Covenants of Parent. Parent represents, warrants and covenants to Subsidiary as follows: 2.1 Organization. Parent is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its business and assets and to perform the actions contemplated hereby. 2.2 Authority; Binding Obligation. The execution, delivery and performance of this Agreement by Parent has been duly authorized and this Agreement is a valid and legally binding obligation of Parent, enforceable against Parent in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium and other similar laws of general application (including general equitable principles) relating to or affecting the enforcement of creditors' rights generally. There is no action, suit or proceeding pending against Parent, and no law or any order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority binding upon Parent that questions the validity of, or might in any way impair, the execution, delivery or performance by Parent of this Agreement. No consent to or approval of this Agreement or the transactions contemplated hereby from governmental authorities or third parties is required. 2.3 Inconsistent Agreements. The execution, delivery and performance by Parent of this Agreement and the transactions contemplated hereby do not contravene, violate or conflict with any provisions of any law or any order, writ, injunction, decree, rule or regulation of any court, administrative agency or any other governmental authority applicable to Parent and do not conflict with and are not inconsistent with, and will not result (with or without the giving of notice or the passage of time or both) in a breach of, or constitute a default or require any consent not heretofore obtained or required or permitted hereby to be obtained under the terms of any credit agreement, lease, guarantee, document, agreement, or instrument to which Parent is a party, by which Parent is or may be bound, or to which Parent may be subject, and will not be in violation of, or beyond the authority conferred by, the certificate of incorporation or bylaws of Parent, except, in each case, where such event would not have a material adverse effect on the consummation of the transactions contemplated hereby. 2.4 Assignability. Except as otherwise disclosed herein, Parent has the right to and hereby does transfer and assign the Contributed Notes to Subsidiary. 3. Representations, Warranties and Covenants of Subsidiary. Subsidiary hereby represents, warrants and covenants to Parent as follows: 3.1 Organization. Subsidiary is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own and operate its business and assets and to perform the actions contemplated hereby. 3.2 Authority; Binding Obligation. The execution, delivery and performance of this Agreement by Subsidiary has been duly authorized and this Agreement is a valid and legally binding obligation of Subsidiary, enforceable against Subsidiary in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium and other similar laws of general application (including general equitable principles) relating to or affecting the enforcement of creditors' rights generally. 3.3 Inconsistent Agreements. The execution, delivery and performance by Subsidiary of this Agreement and the transactions contemplated hereby do not contravene, violate or conflict with any provisions of any law or any order, writ, injunction, decree, rule or regulation of any court, administrative agency or any other governmental authority applicable to Subsidiary and do not conflict with and are not inconsistent with, and will not result (with or without the giving of notice or the passage of time or both) in a breach of, or constitute a default or require any consent not heretofore obtained or required or permitted hereby to be obtained under, the terms of any credit agreement, lease, guarantee, document, agreement, or instrument to which Subsidiary is a party, by which Subsidiary is or may be bound, or to which Subsidiary may be subject, and will not be in violation of, or beyond the authority conferred by, the certificate of incorporation or bylaws of Subsidiary, except, in each case, where such event would not have a material adverse effect on the consummation of the transactions contemplated hereby. 4. Indemnification. Each of Parent and Subsidiary hereby covenants and agrees to indemnify the other party hereto, and hold the other party hereto harmless from and against any and all damage, loss, liability, deficiency, cost and expense (including, without limitation, attorneys' fees) resulting from (i) any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Parent or Subsidiary, as applicable, under this Agreement or under any document or certificate delivered by Parent or Subsidiary, as applicable, pursuant hereto; and (ii) any and all actions, suits, proceedings, demands, assessments, judgments of any nature relating to the foregoing clause (i). 5. Miscellaneous. 5.1 Governing Law; Assignment; Binding Effect. This Agreement shall be governed by the laws of the State of Delaware, without giving effect to the conflict of law provisions thereof. This Agreement may not be assigned by any party without the prior written consent of the other party hereto. This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted successors and assigns. 5.2 Expenses. The parties hereto will pay their own costs and expenses relating to the transactions contemplated by this Agreement, including fees and disbursements of their respective counsel, accountants and financial advisors, whether or not the transactions contemplated hereunder are consummated. 5.3 Entire Agreement; Headings. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof, and may not be modified or waived except in writing. The headings are for convenience only and shall not bear upon the construction of this Agreement. 5.4 No Waivers. (a) No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. (b) Any provision of this Agreement may be waived if, but only if, such waiver is in writing and is signed by the party against whom the enforcement of such waiver is sought. 5.5 Counterparts. This Agreement may be signed in counterparts, each of which shall constitute an original and which together shall constitute one and the same agreement. 5.6 Further Assurances. The parties hereto agree to use reasonable best efforts as required for the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof. 2 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. GFSI HOLDINGS, INC. By: /s/ Larry D. Graveel ----------------------------------- Name: Larry D. Graveel Title: President GFSI, INC. By: /s/ Larry D. Graveel ----------------------------------- Name: Larry D. Graveel Title: President 3 EX-10.30 5 exh-1030.txt AMENDMENT TO MANAGEMENT CONSULTING AGREEMENT AMENDMENT TO MANAGEMENT CONSULTING AGREEMENT THIS AMENDMENT TO MANAGEMENT CONSULTING AGREEMENT (this "Amendment"), is entered into as of the 26th day of September, 2003, by and between GFSI Holdings, Inc., a Delaware corporation (the "Company"), and TJC Management Corporation, a Delaware corporation (the "Consultant"), and amends to the extent set forth herein the Management Consulting Agreement, dated as of February 27, 1997, by and between the Company and the Consultant (the "Agreement"). WHEREAS, the Company and the Consultant desire to amend the Agreement in the manner set forth herein; WHEREAS, capitalized terms used herein and not defined herein have the meanings set forth in the Agreement; NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, the parties hereto mutually agree as follows: 1. Section 1 of the Agreement is hereby amended by deleting the words "extended, or" in the ninth line thereof. 2. Section 2 of the Agreement is hereby amended and restated in its entirety to read as follows: "2. Beginning October 1, 2003, and during the term of this Agreement, the Company shall pay the Consultant an annual fee of $100,000, with such fee being payable in quarterly installments on or before March 31, June 30, September 30 and December 31 of each year." 3. Section 4 of the Agreement is hereby amended by deleting the word "or" in line 10 thereof and by adding the following to the end of the first sentence of Section 4: ", or (d) if the Company has not paid amounts due or owing under the Management Agreement between the Company and Gearcap LLC." 4. Section 5 of the Agreement is hereby amended by deleting the first sentence thereof and by deleting the words "Notwithstanding the foregoing, this" at the beginning of the second sentence thereof and substituting therefor "This". 5. Except as herein amended, the Agreement shall remain in full force and effect and is ratified in all respects. On and after the effectiveness of this Amendment, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference to the Agreement in any other agreements, documents or instruments executed and delivered pursuant to the Agreement, shall mean and be a reference to the Agreement, as amended by this Amendment. 6. This Amendment may be executed in two or more counerparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date first above written. GFSI HOLDINGS, INC. By: /s/ Larry D. Graveel ----------------------------------- Name: Larry D. Graveel Title: President TJC MANAGEMENT CORPORATION By: /s/ ----------------------------------- Name: Title: 2 EX-10.31 6 exh1031.txt MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT ("Agreement"), is executed as of the 1st day of October, 2003, by and between GEARCAP LLC, a Delaware limited liability company ("Gearcap"), and GFSI HOLDINGS, INC., a Delaware corporation, on behalf of itself and its subsidiaries (the "Company"). W I T N E S S E T H: WHEREAS, Gearcap has and/or has access to personnel who are highly skilled in operating business concerns such as the Company; and WHEREAS, the Company desires to retain Gearcap to provide business, management and financial advice to the Company; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. The Company hereby retains Gearcap, through Gearcap's own personnel or through personnel available to Gearcap, to render day-to-day Management Services (as defined below) to the Company and its subsidiaries (whether now existing or hereafter acquired), including GFSI, Inc. The term of this Agreement shall commence on the date hereof and continue until the tenth anniversary of the date hereof unless extended, or sooner terminated, as provided in Section 6 below. Gearcap's personnel shall be reasonably available to the Company's auditors and other personnel for consultation and advice. In consideration for rendering Management Services, the Company shall make payments to Gearcap in amounts determined in accordance with this Agreement. "Management Services" shall consist of accounting, professional and administrative services relating to the business, operations and finances of the Company and its subsidiaries, including GFSI, Inc. The Company and Gearcap acknowledge and agree that the Management Services to be provided by Gearcap to GFSI, Inc. and its subsidiaries are substantially similar to those currently provided internally by the employees of GFSI, Inc. 2. During the term of this Agreement, the Company shall pay to Gearcap an annual fee of $2,300,000. The fee shall be payable monthly. Subject to the provisions of Section 2.4(b) of the Company's Stockholders Agreement, the amount of this fee shall be adjusted on September 1 of each calendar year during the term of this Agreement based on the agreement of the Company and Gearcap which determination shall be based upon the planned services that Gearcap shall provide to the Company for the upcoming twelve (12) month period. If, after a reasonable period of negotiation, the parties are unable to agree on an adjustment to the annual fee, then the parties shall refer such dispute to an independent third party evaluator (i.e. either an accounting firm, investment bank, arbitrator or any other third party experienced in evaluating the services performed by Gearcap under this Agreement) mutually agreeable to the parties to resolve such dispute. During the interim period Gearcap shall be entitled to receive the annual fee on the terms in effect for the prior year. The effect of a resolution of such dispute shall be retroactive to September 1 and any increase or decrease in the annual fee 1 shall be reflected in the remaining installment payments of the annual fee payable through the remainder of the current year in which such dispute was resolved. The fees and expenses of the third party evaluator shall be split equally by the parties. The amount of this annual fee shall be pro rated for any partial year during the term of this Agreement. 3. Reasonable out-of-pocket expenses incurred by Gearcap and its personnel in performing services hereunder to the Company and its subsidiaries shall be promptly reimbursed to it by the Company upon presentation of such supporting data as the Company shall reasonably require. 4. During the term of this Agreement each executive officer of Gearcap will be entitled to participate in any and all benefit plans maintained by the Company on the same basis as executive officers of the Company. 5. During the term of this Agreement Holdings shall supply to Gearcap, free of charge, all office space and office services requested by Gearcap. 6. Gearcap may terminate this Agreement at any time by notifying the Company in writing of such termination. Upon the termination, cancellation or expiration of this Agreement, the Company shall pay to Gearcap all accrued and unpaid amounts owing to Gearcap hereunder. 7. Gearcap shall have no liability to the Company on account of (i) any advice which it renders to the Company, provided Gearcap believed in good faith that such advice was useful or beneficial to the Company at the time it was rendered, (ii) Gearcap's inability to obtain financing or achieve other results desired by the Company, or (iii) the failure of any acquisition to meet the financial, operating or other expectations of the Company. 8. The Company will, to the fullest extent permitted by applicable law, indemnify and hold harmless Gearcap, its affiliates and associates, and each of the respective owners, employees, members, managers and affiliates of each of the foregoing, from and against any loss, liability, damage, claim or expenses (including the fees and expenses of counsel) (collectively "Damages") arising as a result of or in connection with this Agreement, Gearcap's services hereunder or other activities on behalf of the Company and its subsidiaries, unless such Damages resulted from Gearcap's lack of good faith at the time it rendered any services or advice to the Company. 2 9. Miscellaneous ------------- 9.1 This Agreement sets forth the entire understanding of the parties with respect to Gearcap's rendering of services to the Company. This Agreement may not be modified, waived, terminated or amended except expressly by an instrument in writing signed by Gearcap and the Company. 9.2. This Agreement may not be assigned by either party without the consent of the other party, but shall be binding upon and inure to the benefit of the parties and their respective successors and assigns upon such permitted assignment. 9.3. In the event that any provision of this Agreement shall be held to be void or unenforceable in whole or in part, the remaining provisions of this Agreement and the remaining portion of any provision held void or unenforceable in part shall continue in full force and effect. 9.4. Except as otherwise specifically provided herein, notice given hereunder shall be deemed sufficient if delivered personally or sent by registered or certified mail to the address of the party for whom intended at the principal executive offices of such party, or at such other address as such party may hereinafter specify by written notice to the other party. 9.5. No waiver by either party of any breach of any provision of this Agreement shall be deemed a continuing waiver or a waiver of any preceding or succeeding breach of such provision or of any other provision herein contained. 9.6. Gearcap and its personnel shall, for purposes of this Agreement, be independent contractors with respect to the Company. 9.7. This Agreement shall be governed by the internal laws (and not the law of conflicts) of the state of Kansas. (Signatures on next page) 3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CONSULTANT: GEARCAP LLC, a Delaware limited liability company By: /s/ Larry D. Graveel ----------------------------------- Name: Larry D. Graveel ----------------------------------- Title: President ----------------------------------- COMPANY: GFSI HOLDINGS, INC., a Delaware corporation By: /s/ Larry D. Graveel ----------------------------------- Name: Larry D. Graveel ----------------------------------- Title: President ----------------------------------- 4 EX-10.32 7 exh1032.txt FIRST AMENDMENT TO THIRD CONSENT & AMENDMENT FIRST AMENDMENT TO THIRD CONSENT AND AMENDMENT This First Amendment to Third Consent and Amendment (the "First Amendment") is dated as of September 30, 2003, among GFSI, Inc., a Delaware corporation ("Borrower"), GFSI Holdings, Inc., a Delaware corporation ("Holdings"), each of the financial institutions a party to hereto (such financial institutions, together with their successors and assigns, are referred to in this First Amendment each individually as a "Lender" and collectively as the "Lenders"), and Bank of America, N.A., as agent for the Lenders (in its capacity as agent, the "Agent"). Capitalized terms that are used in this Consent and Amendment but are not otherwise defined in this Consent and Amendment have the meanings ascribed to them in the Credit Agreement and the Third Consent and Amendment (as each are defined below). Recitals 1. Borrower, Holdings, the Lenders and the Agent entered into the Credit Agreement dated as of March 28, 2002 (as it has been or may hereafter be amended, restated, supplemented, extended or otherwise modified, the "Credit Agreement") 2. Borrower, Holdings, the Lenders and the Agent entered into the Third Consent and Amendment dated as of September 8, 2003 (the "Third Consent and Amendment") in connection with the 2003 Recapitalization Transactions. 3. In connection with the 2003 Recapitalization Transactions, Borrower and Holdings have further requested that the Lenders and Agent execute and deliver this First Amendment. Agreement Therefore, in consideration of the mutual execution of this First Amendment and other good and valuable consideration, the parties to this First Amendment agree as follows: 1. Paragraph 3 of the Recitals to the Third Consent and Amendment is hereby deleted in its entirety and replaced with the following: 3. Borrower is borrowing up to $12.5 million from the Lenders under the Credit Agreement. Borrower is using the proceeds of this loan to purchase Notes from Jefferies (as described in paragraph 1 above) and pay the 2003 Transaction Expenses (as described in paragraph 9 below). Borrower will hold these Notes as an investment and pledge them as additional Collateral under the Credit Agreement. 2. Section 2 of the Third Consent and Amendment is hereby deleted in its entirety and replaced with the following: 2. Amendment Fee. Borrower will pay to Agent, for the ratable benefit of Lenders, an amendment fee in an amount equal to $180,000 (the "Amendment Fee"), which fee will be fully earned on the -1- date of this Consent and Amendment and payable on the date on which Borrower purchases any portion of the Notes. The Agent and the Lenders agree that Borrower's obligation to pay this Amendment Fee will be waived if Borrower fails to purchase any Notes on or before December 31, 2003. Notwithstanding the foregoing, if the Stated Termination Date is extended to January 15, 2006, and Borrower has not otherwise paid the Amendment Fee because Borrower has not purchased any Notes, Borrower acknowledges and agrees: (a) that it will immediately pay an extension fee in an amount that is mutually acceptable to Borrower, Agent and Lenders, and (b) that the extension will not become effective until Borrower pays this fee. 3. Section 3(b) of the Third Consent and Amendment is hereby deleted in its entirety and replaced with the following: (b) Notwithstanding the provisions of Sections 6.22 and 7.25 of the Credit Agreement that limit Borrower's use of the proceeds of the Loans to certain specified uses, Lenders and Agent consent and agree to Borrower's use of proceeds of the Loans in an aggregate amount not to exceed $12,500,000 for Borrower's purchase of Notes and for the payment of the 2003 Transaction Expenses; provided, that: (i) Borrower's use of the proceeds of the Loans to purchase the Notes occurs no later than December 31, 2003, and (ii) Borrower is responsible for no more than 50% of the total funds that Borrower and Gearcap, in the aggregate, use to purchase Notes and pay 2003 Transaction Expenses in connection with the 2003 Recapitalization Transactions. 4. Section 3(e)(i)(B) of the Third Consent and Amendment is hereby deleted in its entirety and replaced with the following: (B) Borrower uses no more than $12,500,000 in the aggregate of the proceeds of the Loans to acquire such Notes and pay 2003 Transaction Expenses, and 5. Miscellaneous. All references in the Third Consent and Amendment to the "Consent and Amendment" will be deemed to include this First Amendment and the terms contained in this First Amendment. Except as amended by this First Amendment or otherwise inconsistent with the terms of this First Amendment, all terms and conditions of the Third Consent and Amendment remain in full force and effect in accordance with its terms. This First Amendment may be executed in any number of counterparts, all of which taken together will constitute one and the same amendatory instrument. Any of the parties to -2- this First Amendment may execute this First Amendment by signing any such counterpart and sending it by telecopier, mail messenger or courier to the Agent or the Agent's counsel. The parties intend that this First Amendment be interpreted, and the rights and liabilities of the parties to this First Amendment be determined, under the internal laws (as opposed to the conflict of laws provisions) of Illinois; but the Agent and the Lenders retain all rights arising under federal law. [The remainder of this page intentionally left blank] -3- IN WITNESS WHEREOF, the parties to this First Amendment have caused it to be duly executed as of the day and year first above written. "BORROWER" GFSI, Inc. By: /s/ Larry Graveel ----------------------------- Larry Graveel, President "HOLDINGS" GFSI Holdings, Inc. By: /s/ Larry Graveel ----------------------------- Larry Graveel, President [This is one of the signature pages to the First Amendment to Third Consent and Amendment dated as of September 30, 2003.] -4- EVENT 1, INC. By: /s/ Larry Graveel ------------------------------- Larry Graveel, President CC PRODUCTS, INC. By: /s/ Larry Graveel ------------------------------- Larry Graveel, President [This is one of the signature pages to the First Amendment to Third Consent and Amendment dated as of September 30, 2003.] -5- "AGENT" BANK OF AMERICA, N.A., as the Agent By: /s/ Dan Jelaca ------------------------------ Dan Jelaca, Vice President "LENDERS" BANK OF AMERICA, N.A., as a Lender By: /s/ Dan Jelaca ------------------------------ Dan Jelaca, Vice President [This is one of the signature pages to the First Amendment to Third Consent and Amendment dated as of September 30, 2003.] -6- THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender By: /s/ James K. Harris ------------------------------ James K. Harris, Vice President [This is one of the signature pages to the First Amendment to Third Consent and Amendment dated as of September ___, 2003.] -7- U.S. BANK NATIONAL ASSOCIATION, as a Lender By: /s/ Thomas Visconti ------------------------------- Thomas Visconti, Vice President [This is one of the signature pages to the First Amendment to Third Consent and Amendment dated as of September 30, 2003.] -8- Reaffirmation of Guaranty ------------------------- The undersigned Guarantor acknowledges receipt of a copy of this First Amendment to Third Consent and Amendment, and reaffirms the Guaranty dated March 28, 2002, between GFSI Holdings, Inc. and Agent. GFSI Holdings, Inc. By: /s/ Larry Graveel -------------------------- Larry Graveel, President -9- EX-31 8 exh31-1.txt CERTIFICATION UNDER SECTION 302 Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REGARDING GFSI, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 27,2003 I, Robert M. Wolff, Chairman and Chief Executive Officer (Principal Executive Officer) of GFSI, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of GFSI, Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and (c) Disclosed in this Quarterly Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2003 /S/ ROBERT M. WOLFF - -------------------- Robert M. Wolff Chairman and Chief Executive Officer EX-31 9 exh31-2.txt CERTIFICATION UNDER SECTION 302 Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REGARDING GFSI, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 27, 2003 I, J. Craig Peterson, Senior Vice President and Chief Financial Officer (Principal Financial Officer) of GFSI, Inc., certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of GFSI, Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluations; and (c) Disclosed in this Quarterly Report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2003 /S/ J. CRAIG PETERSON - ------------------------ J. Craig Peterson Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----